Elliott Associates L.P v The London Metal Exchange
| Jurisdiction | England & Wales |
| Judge | Mr Justice Swift,Mr Justice Bright |
| Judgment Date | 29 November 2023 |
| Neutral Citation | [2023] EWHC 2969 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | CO/1995/2022; AC-2022-LON-000890 and CO/2007/2022; AC-2022-LON-000901 |
The King on the application of
and
[2023] EWHC 2969 (Admin)
Mr Justice Swift
Mr Justice Bright
CO/1995/2022; AC-2022-LON-000890 and CO/2007/2022; AC-2022-LON-000901
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
DIVISIONAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Monica Carss-Frisk KC, Iain Steele and Eesvan Krishnan (instructed by Akin Gump LLP) for the CO/1995/2022 Claimants
James Segan KC, George Molyneaux and Hollie Higgins (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the CO/2007/2022 Claimant
Jonathan Crow KC, James McClelland KC, Rebecca Loveridge, Emily Mackenzie and Alastair Richardson (instructed by Hogan Lovells International LLP) for the Defendants
Hearing dates: 20, 21, 22 June 2023
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and released to The National Archives.
The date and time for hand-down will be deemed to be at 10 am on 29/11/2023.
Mr Justice Swift and
A: INTRODUCTION
The First Defendant (“the LME”) is the world's main centre for the trading of industrial metals. The Second Defendant (“LME Clear”) is the clearing house for trading on the LME. Much of the trading activity conducted via the LME and LME Clear concerns futures contracts and other derivatives.
The metals traded via the LME include nickel – in particular, nickel due for delivery in three months' time (“3M nickel”). In early March 2022, nickel prices rose very dramatically. There was a particularly pronounced spike early in the morning of 8 March 2022. At 08:15 on that day, the LME suspended nickel trading (“the Suspension”). At 12:05, the LME published a notice cancelling all nickel trades entered into on that day before the Suspension (“the Cancellation”).
The aggregate value of the cancelled trades was around US$12 billion. The parties affected included the Claimants in both the actions before us (respectively, “the Elliott Claimants” and “Jane Street”). The Elliott Claimants say that the Cancellation caused them to lose net profits totalling about US$456 million, which would otherwise have been made on the nickel trades agreed by them between 00:00 on 8 March 2022 and the Suspension at 08:15. Jane Street says that it has been caused to lose net profits totalling about US$15 million.
The Elliott Claimants and Jane Street say that the decisions of the LME and/or LME Clear in relation to the Cancellation were unlawful. They seek declarations to this effect. They also seek damages to compensate them for their lost profits, on the basis that there has been a breach of their Convention rights under the Human Rights Act 1998 (“ HRA 1998”) – specifically, their rights under Article 1 of the First Protocol (“A1P1”).
It is common ground that the LME and LME Clear undertake regulatory functions, that their decisions are amenable to judicial review and that they are “public authorities” for the purposes of the HRA 1998. However, it is also common ground that the LME and LME Clear are commercial entities. So too are the Elliott Claimants and Jane Street, as reflected by their claims for substantial damages – which (we apprehend) are what really drives this litigation.
After a case management hearing on 28 February 2023, directions were given for a split trial. Judicial review issues, including the A1P1 points, were to be heard first. There was then to be a separate hearing of remedies issues, notably the assessment of damages, as required. This judgment follows the judicial review hearing and is not concerned with the claims for damages. Nevertheless, the financial context, which permeates the case as a whole, is highly relevant to many of the judicial review issues. The public law issues are entwined with private law rights.
Each party fielded an impressive array of legal talent, headed by Ms Monica Carss-Frisk KC for the Elliott Claimants, Mr James Segan KC for Jane Street and Mr Jonathan Crow KC for the Defendants. We are grateful to each of them, and to the other members of each team who contributed to the extremely thorough but succinct skeleton arguments, for all the assistance we have received.
B: BACKGROUND
(1) The Claimants
Each of the Elliott Claimants is an investment fund. They are experienced commodity traders, with substantial expertise in derivative contracts including nickel futures.
Jane Street is an international trader, trading predominantly in financial products. Some of its business activities concern financial products associated with commodities such as nickel.
(2) The LME
The LME is a “recognised investment exchange” or “RIE” for the purposes of Part XVIII of the Financial Services and Markets Act 2000 (“ FSMA 2000”). As an RIE, the LME has the regulatory functions set out in the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges, Clearing Houses and Central Securities Depositories) Regulations 2001 (SI 2001/995) (“the Recognition Requirements Regulations”).
Trading on the LME is governed by the LME Rules and Regulations (“LME Rules”). The LME Rules include the Trading Regulations (“TRs”) set out in Part 3 of the LME Rules. As discussed later, one of the key objectives identified in the Recognition Requirements Regulations, and acknowledged in the LME Rules, is to maintain a fair and orderly market.
(3) LME Clear
LME Clear is a “recognised central counterparty” for the purposes of Part XVIII of FSMA 2000 and an authorised “central counterparty” or “CCP” under the UK European Market Infrastructure Regulation (“UK EMIR”, the Retained EU Law version of Regulation (EU) 648/2012). LME Clear's operations are governed by the LME Clear Limited Rules and Procedures (“LME Clear Rules”).
As a recognised clearing house and CCP, LME Clear is at the centre of every transaction concluded on the LME. It is the seller to every buyer and the buyer to every seller. It therefore is the effective guarantor of every contract concluded on the LME. In the event of a default, LME Clear will step in and manage the defaulting party's outstanding risk positions.
(4) Governance and key individuals
Each of the Defendants is ultimately owned by Hong Kong Exchanges and Clearing Limited, via subsidiaries. They are ‘for profit’ entities. As well as having public law obligations as regulators, they (or, strictly, their respective boards) owe private law obligations to their shareholders.
The CEO of the LME in March 2022 was Mr Matthew Chamberlain. The Chair of the LME was Ms Gay Huey Evans. The CEO of LME Clear was Mr Adrian Farnham. The COO of both the LME and LME Clear was Mr James Cressy (who was at the time of the hearing the acting CEO of LME Clear). The Chief Risk Officer of both the LME and LME Clear was Mr Christopher Jones. LME Clear's Head of Market Risk was Mr Paul Kirkwood. LME's Chief Regulatory and Compliance Officer was Ms Kirstina Combe. All of these individuals had a role in the events of 8 March 2022 and they all feature in this judgment.
The LME and LME Clear have separate Boards of Directors, although a number of individuals (including, at the time of the hearing, Mr Chamberlain) are on both boards. Each Board has delegated its responsibility for overseeing all day-to-day business to the respective CEO.
The LME and LME Clear each has an Executive Committee (“ExCom”). The role of each ExCom is to assist the CEO in decision-making.
The LME and LME Clear each has a Default Management Committee (“DMC”). The responsibilities of each DMC include managing and resolving any default by a Clearing Member, including considering situations where a default may be likely to occur, for its respective entity. The Chair of the LME Default Management Committee was Mr Cressy. The Chair of the LME Clear Default Management Committee was Mr Farnham.
The LME has a Special Committee, a sub-committee of the LME Board to which the Board has delegated specific powers which are set out in TR 17. As set out below, this applies in the event of the Special Committee having cause to suspect or anticipate a corner or undesirable situation or undesirable or improper trading practice likely to affect the market. In such event, the Special Committee is given the power to contain or rectify the situation by giving directions to Members, including directions to trade out positions or reduce their net positions or by the suspension or curtailment of trading.
LME Clear has a Board Risk Committee. Its role is to consider matters relating to LME Clear's risk-management arrangements and in relation to developments impacting its risk management in emergency situations.
(5) Members and Clearing Members
Only LME Members can trade directly on the LME. Members have to satisfy the requirements for membership and submit to being bound by the LME Rules. This means (among other things) that Members submit to their trades being regulated by the LME, in accordance with the LME Rules.
There are several categories of Members. Of particular significance for this case are Clearing Members, who are members of both the LME and of LME Clear and are entitled to contract as principals and deal with LME Clear. Clearing Members submit to be bound not only by the LME Rules but also by the LME Clear Rules, and thus submit to having their clearing activities regulated by LME Clear.
Traders that are not Members can only trade on the LME indirectly, by dealing with LME Members as their “Clients” (this being the term used in the LME Rules and LME Clear Rules).
Neither of the Elliott Claimants nor...
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