AQR Capital Management LLC & Ors v The London Metal Exchange & Anor

Factual and Procedural Background

By Claim Form issued on 8 September 2022, the Claimants, a group of separate investment firms, sought Norwich Pharmacal and/or pre-action disclosure from the Defendants concerning the decision by the First and Second Defendants to suspend and cancel nickel trades and defer delivery of physically settled nickel contracts in early March 2022. The First Defendant is an unlimited company incorporated in England and Wales, operating as a Recognised Investment Exchange regulated by the Financial Conduct Authority, and the Second Defendant is the clearing house for the First Defendant. Both are public bodies under the Human Rights Act 1998 and enjoy statutory immunity under the Financial Services and Markets Act 2000 (FSMA) except in cases of bad faith.

The events leading to the claim involve extreme price volatility in the nickel market on the London Metal Exchange (LME) in March 2022, triggered by geopolitical tensions. The LME suspended trading on 8 March 2022 and subsequently cancelled all trades executed on or after 00:00 UK time on that date, referred to as the Suspension and Cancellation (collectively, the Decisions). The LME justified these decisions on grounds of market disorder and systemic risk to market stability.

The Claimants allege that the Decisions caused them substantial financial losses, estimating losses at approximately USD 95 million. They contend that the cancellation disproportionately benefited a large investor with significant short positions, identified in press reports, though the Defendants dispute the adequacy of the Claimants' information.

Following the Decisions, the Claimants sought explanations and documents from the Defendants, which led to correspondence and limited disclosure. Other investment funds commenced judicial review proceedings challenging the Decisions, but the Claimants in this case did not join those proceedings and are now out of time to do so. The current application seeks Norwich Pharmacal relief and disclosure under CPR 31.16 to obtain further information and documents related to the Decisions, in anticipation of private law claims including negligence and economic torts.

Legal Issues Presented

1. Whether the Claimants have established a good arguable case of wrongdoing by the Defendants sufficient to justify Norwich Pharmacal relief.
2. Whether the Defendants are "mixed up" in the alleged wrongdoing and possess information or documents necessary for the Claimants to pursue their claims.
3. Whether requiring disclosure from the Defendants is necessary and proportionate in all the circumstances (the Overall Justice Condition).
4. Whether an order for disclosure under CPR 31.16 is appropriate in this case.

Arguments of the Parties

Claimants' Arguments

• The Decisions were unprecedented and involved interference with the Claimants' property, warranting justification beyond general assertions of market protection.
• The explanations provided by the Defendants have been unclear, inconsistent, and insufficient, breaching the Defendants' duty of candour.
• The Cancellation disproportionately benefited a particular large investor, identified in press reports, suggesting possible improper influence.
• Disclosure is necessary to obtain the "missing piece of the jigsaw" to join the dots between the alleged preferential treatment and the Decisions.
• The Claimants intend to bring private law claims including negligence, economic tort, and conspiracy, which require disclosure to be properly advanced.

Defendants' Arguments

• The Defendants have provided detailed and consistent explanations for the Decisions, including extensive correspondence and detailed grounds of defence in judicial review proceedings.
• The Defendants enjoy statutory immunity under FSMA except in cases of bad faith, which the Claimants have failed to demonstrate on the available evidence.
• The application for Norwich Pharmacal relief is overly broad, intrusive, and amounts to an impermissible fishing expedition.
• Alternative claims have been brought by other investment funds without the need for Norwich Pharmacal relief, and the Claimants are out of time to bring judicial review proceedings themselves.
• The relief sought under CPR 31.16 is exceptional and rarely granted, and the Claimants have not shown that the disclosure sought would dispose fairly of anticipated proceedings or save costs.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Norwich Pharmacal Co v Customs and Excise Comrs [1974] AC 133	Establishment of Norwich Pharmacal jurisdiction for disclosure against third parties involved in wrongdoing.	Guided the court's approach to the exceptional nature of the jurisdiction and the conditions for relief.
Collier v Bennett [2020] EWHC 1884 (QB), [2020] 4 WLR 116	Framework for assessing Norwich Pharmacal applications including four key conditions: Arguable Wrong, Mixed Up In, Possession, and Overall Justice.	Adopted as the governing framework for assessing the application.
Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36; [2015] AC 1675	Limits on Norwich Pharmacal jurisdiction to prevent fishing expeditions and ensure focused disclosure.	Reinforced the court's caution against broad and intrusive disclosure requests.
The Rugby Football Union v Consolidated Information Services Ltd [2017] UKSC 4	Factors relevant to the exercise of discretion under the Overall Justice Condition.	Informed the court's evaluation of proportionality and appropriateness of relief.
Ramilos Trading Ltd v Buyanovsky [2016] EWHC 3175 (Comm)	Test for "good arguable case" on Norwich Pharmacal applications.	Applied to determine the threshold for arguable wrongdoing.
Hickox v Dickinson [2020] EWHC 2520 (Ch)	Requirement to show a good arguable case for an essential element of the cause of action.	Supported the court's approach that a good arguable case must cover essential elements, including bad faith.
P v T [1997] 1 WLR 1309	Use of Norwich Pharmacal jurisdiction at the outer limits when cause of action is unclear.	Noted as an exceptional case, not a broad principle.
Coca Cola v British Telecommunications plc [1999] FSR 518	Limits on Norwich Pharmacal jurisdiction to prevent fishing expeditions.	Reinforced caution against wide-ranging disclosure.
Mitsui & Co Ltd v Nexen Petroleum UK Ltd [2005] EWHC 625 (Ch)	Necessity test for disclosure orders to enable action against ultimate wrongdoer.	Applied in assessing the necessity of disclosure for the Claimants' intended claims.
R (Omar) v Secretary of State for Foreign and Commonwealth Affairs [2013] EWCA Civ 118; [2014] QB 112	Threshold necessity test for Norwich Pharmacal disclosure.	Considered in relation to the flexibility and threshold for necessity.
Carillion plc v KPMG LLP [2020] EWHC 1416 (Comm)	Rarity and exceptional nature of CPR 31.16 disclosure orders in Commercial Court.	Informed the court's approach to the CPR 31.16 application.
Sarayiah v Williams [2017] EWHC 2915 (Ch)	Permissibility of Norwich Pharmacal claims against intended defendants.	Accepted that claims against intended defendants are possible but raise fairness issues.

Court's Reasoning and Analysis

The court applied the established four-part test for Norwich Pharmacal relief as set out in Collier v Bennett: (i) a good arguable case of wrongdoing (Arguable Wrong Condition), (ii) the respondent must be mixed up in the wrongdoing (Mixed Up In Condition), (iii) the respondent must be able to provide the necessary information or documents (Possession Condition), and (iv) the relief must be appropriate and proportionate (Overall Justice Condition).

Regarding the Arguable Wrong Condition, the court emphasized that the Claimants must demonstrate a good arguable case of wrongdoing consistent with their intended private law claims, all of which require establishing bad faith due to statutory immunity under FSMA. The court found that the Claimants failed to meet this threshold. The explanations provided by the Defendants were detailed and consistent, and the Claimants' reliance on press speculation and tenuous connections was insufficient to establish bad faith.

The court accepted that the Defendants are mixed up in the wrongdoing as they are the decision-makers.

On the Possession Condition, the court found that the Claimants failed to show that the broad and intrusive disclosure sought was necessary to enable their claims. The existence of alternative claims by other parties who did not require Norwich Pharmacal relief weakened the necessity argument. The Claimants appeared to seek a general review of evidence rather than discrete, necessary information.

Finally, the court held that the relief sought was not appropriate or proportionate given the breadth of the disclosure, the risk of procedural unfairness in seeking extensive evidence from intended defendants before proceedings, and the absence of exceptional circumstances.

Similarly, the court dismissed the application under CPR 31.16 as the Claimants failed to show that the disclosure would fairly dispose of proceedings, assist in resolving the dispute without proceedings, or save costs.

Holding and Implications

The court's final decision was to DISMISS the Claimants' claim and application for Norwich Pharmacal relief and disclosure under CPR 31.16.

The direct effect of this decision is that the Claimants will not obtain the broad disclosure and affidavit evidence sought prior to commencing proceedings. The court's ruling underscores the exceptional and narrow nature of the Norwich Pharmacal jurisdiction and the strict requirements for demonstrating bad faith to overcome statutory immunity. No new precedent was established, and the decision maintains the established principles limiting pre-action disclosure against intended defendants, especially in the context of public bodies regulated under FSMA.