Elliot Associates LP & Ors, R (on the application of) v The London Metal Exchange & Anor

A specialist market operator may exercise a contractual power to cancel trades where the governing regulatory regime permits cancellation only in exceptional circumstances and the operator reasonably considers it appropriate to preserve an orderly market. In an urgent, technically complex market emergency, the operator may consider risks of member defaults and systemic disruption. Prior consultation is not invariably required. A concluded commercial contract may be a possession under A1P1, but a contingent agreement which has not produced the contemplated contract is not.

The claims arose from the LME’s suspension of nickel trading on 8 March 2022 and cancellation of trades entered into earlier that day. Elliott’s trades had not been fully cleared and had not produced Client Contracts. Jane Street’s trades had been fully cleared and had produced such contracts.

The claimants challenged the cancellation and, during the proceedings, LME Clear’s margin decision. They alleged ultra vires action, improper purpose, procedural unfairness, failure to make reasonable inquiries, irrationality and failures to consult relevant committees. They also claimed damages under Article 1 of the First Protocol.

1. Lawfulness. Both the Cancellation Decision and the 8 March Margin Decision were lawful. The judicial review claims failed.
2. Vires. Trading Rule 22.1 reflected paragraph 3B of Schedule 1 to the Recognition Requirements Regulations and permitted cancellation only in exceptional circumstances. It operated on its own terms and was not constrained by Trading Rule 13, Article 18 of RTS 7 or Clearing Procedure A6.10. The powers under Trading Rule 22.1 and Clearing Procedure A6.10 were independent.
3. Orderly market. Neither the legislation nor the LME Rules defined “orderly”. A reasonable specialist exchange could assess orderliness by asking whether the 3M nickel price had become disconnected from the value of physical nickel without an adequate macroeconomic, geopolitical or other explanation. The court allowed substantial latitude to specialist decision-makers acting urgently in a complex technical field.
4. Relevant considerations. The LME was entitled to consider the risk that allowing the trades to stand would cause member defaults, loss of confidence and wider systemic disturbance. It did not need to investigate the precise causes of the price rise where those causes were irrelevant to its chosen assessment of orderliness. Cancelling trades after the last known orderly point was rational.
5. Fairness and committees. The LME Rules imposed no duty to consult. In the urgent circumstances, consultation would have been impracticable and uninformative. There was no requirement for the Special Committee or Board Risk Committee to be involved in the relevant decisions.
6. A1P1. Jane Street’s concluded Client Contracts were possessions. Elliott’s Contingent Agreements to Trade were not, because the contemplated Client Contracts did not yet exist. The A1P1 claims therefore failed. Both challenges were dismissed.

First-instance Divisional Court judgment. No earlier appellate decision is stated in the judgment.