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

The Court of Appeal dismissed Elliott’s challenge to the LME and LME Clear’s decisions to suspend nickel trading and to cancel trades executed on 8 March 2022. Key legal principles applied were (i) the regulatory provenance and purpose of Trading Regulation (TR) 22 in the LME Rules, derived from MiFID II Article 48 and domestic implementing regulations, (ii) the obligations on a central counterparty under UK EMIR (Articles 40 and 41) to measure exposures and call margin promptly, and (iii) the ordinary public law standards of review (ultra vires, procedural fairness, Wednesbury/irrationality and the Tameside duty to inquire) together with Convention rights under Article 1 of Protocol No. 1 (A1P1).

The Court held that (a) TR 22 was not confined to the narrow circumstances covered by the algorithmic-trading technical standards (RTS 7) and could lawfully be exercised in exceptional disorderly-market conditions, (b) the defendants were entitled to act urgently without prior consultation in the exceptional factual matrix, (c) LME Clear’s assessment that allowing the 8 March trades to stand while margining on the prior closing price would leave it under-collateralised was a rational expert judgment, and (d) Elliott’s contractual rights or legitimate expectation (to the extent they amounted to possessions under A1P1) were always subject to the LME’s lawful TR 22 power so there was no unjustified interference.

Background and parties. Elliott, a non-member LME trader, entered contingent agreements to sell nickel in the early hours of 8 March 2022. After an unprecedented spike in the three‑month nickel price the LME suspended trading and, later that day, announced it would cancel all trades executed on or after 00:00 on 8 March. Elliott claimed judicial review and damages, alleging ultra vires exercise of TR 22, procedural unfairness, irrationality and breach of its Convention right under Article 1 of Protocol No. 1 (A1P1). The Divisional Court (Swift & Bright JJ) dismissed the challenge ([2023] EWHC 2969 (Admin)); Elliott appealed to the Court of Appeal.

Nature of the claim / relief sought. Elliott sought judicial review of the LME and LME Clear decisions cancelling trades and setting margin, and damages under A1P1 (subject to FSMA 2000 s.291 constraints) for loss of trading profits.

Issues framed by the court.

• Was the power in TR 22 to cancel trades exercisable in the circumstances and, if so, was its exercise ultra vires?
• Was the decision-making procedurally unfair by reason of lack of consultation or opportunity to make representations?
• Was the rejection of alternatives (notably allowing trades to stand while margining to the prior close — 'Option 1B') irrational or for an improper purpose?
• Did the decision-maker fail in any Tameside-type duty to make reasonable inquiries into causation, timing and TOT actions?
• Did Elliott hold 'possessions' under A1P1 and, if so, was there an unlawful or disproportionate interference?

Court’s reasoning and conclusions. The court accepted the factual urgency and exceptional nature of the price spike and treated LME/LME Clear as specialist regulatory and risk-management bodies to whom a degree of deference is due on technical risk assessments. RTS 7 (the algorithmic-trading/RTS) was interpreted as addressing a subset of situations (algorithmic trading/LMEselect) and did not exhaust the circumstances in which TR 22 could be used; TR 13 addressed erroneous trades separately. The court concluded that LME Clear’s assessment under UK EMIR that margin must reflect current traded prices was a rational expert judgment and that the alternative (Option 1B) risked under-collateralisation and regulatory breach. Given the urgency and market risk, the absence of prior consultation did not amount to procedural unfairness. On A1P1 the court accepted that contingent agreements had economic value and could in principle be possessions, but held that any right or legitimate expectation was subject to the LME’s lawful power under TR 22; accordingly either there was no interference or any interference was justified and proportionate in the public interest. The appeal was dismissed.

Appeal dismissed. The Court held that TR 22 was lawfully exercisable in the exceptional disorderly-market circumstances of 8 March 2022; RTS 7 did not limit TR 22 to algorithmic‑trading malfunctions; LME/LME Clear acted within the bounds of public law (no procedural unfairness, no irrationality or improper purpose and no Tameside breach); and Elliott’s A1P1 claim failed because any contractual rights or legitimate expectation were subject to the lawful TR 22 power and, in any event, any interference was justified and proportionate.

Appeal from the Divisional Court, Queen’s Bench Division, Administrative Court (Swift & Bright JJ) which dismissed judicial review and A1P1 liability issues: [2023] EWHC 2969 (Admin). This judgment is the Court of Appeal decision: [2024] EWCA Civ 1168.