LME's Cancellation Of Nickel Trades Was Not Unlawful

• Published date: 16 January 2024
• Subject Matter: International Law, International Trade & Investment
• Law Firm: Macfarlanes
• Author: Christopher Charlton, Madeleine Brown, Robert Daniell and Edward Karsten

The High Court has dismissed claims brought by Elliott and Jane Street arising out of the London Metal Exchange's decision to retrospectively cancel nickel trades made in the run up to the suspension of trading on 8 March 2022.

Elliott and Jane Street made a judicial review claim against the LME as a public authority, arguing that its decision was irrational (i.e. Wednesbury¹ unreasonable), and should be quashed. They also sought damages, on the basis that the LME's decision resulted in unlawful interference with their possessions (i.e. their interest in nickel trades that would have generated significant profits) contrary to Article 1, Protocol 1 of the European Convention on Human Rights (enforceable in England under the Human Rights Act 1998). Both claims were unsuccessful.

This was a relatively unusual context for judicial review Human Rights Act claims, and the decision illustrates the fundamental difficulties for claimants who may have lost out as a result of the decisions of public authorities - including market and exchange authorities.

Background

In early March 2022, nickel prices on the LME rose dramatically, culminating in an unprecedented price spike overnight on 7/8 March 2022. At 08.15, the LME suspended nickel trading.

The LME had the power to do this under its Rules and Regulations. It did so to further its objective of maintaining an orderly market, which it is obliged to do as a matter of public law as a Recognised Investment Exchange (RIE).²

At 12.05 on the same day, the LME published a notice cancelling all nickel trades entered into on or after 0.00 (UK time) on 8 March 2022 up until the time of the suspension. The aggregate value of the cancelled trades was approximately US$12bn. In making the cancellation, the LME used the power under Rule 22 of its Trading Rules, which states that "where the Exchange considers it appropriate, the Exchange may cancel, vary or correct any Agreed Trade or Contract".

The LME further determined to demand margin calls based on the closing price on 7 March, rather than the most recent price of nickel.

The LME argued that all of those actions were taken to fulfil its obligation to maintain an orderly market. Notably, the LME stated that it believed that if margin calls were made on Tuesday 8 March based on the most recent price of nickel then at least five Members were expected to default and four other Members would be at risk of default, and possibly more.

The claims

Elliott alleged that the cancellation...