Factual and Procedural Background
On 8th March 2022, a dramatic and unprecedented spike occurred in the price of 3-month nickel traded on the London Metal Exchange ("the Exchange"), with prices rising from under US $30,000 per tonne to over US $100,000 per tonne within hours. The Exchange suspended nickel trading at 08:15 due to disorderly market conditions. Two key decisions followed: the clearing house of the Exchange ("the Clearing House") had to determine the price basis for intra-day margin calls, and the Exchange had to decide what to do with trades concluded before the suspension. The Clearing House’s CEO indicated margin calls would depend on whether those trades stood, with a risk of multiple defaults if so.
The Exchange’s CEO decided to cancel all trades concluded since midnight on 8th March, announcing this at 12:05. The claimants/appellants ("the Claimants") challenged the cancellation, asserting losses of approximately US $456 million and alleging the defendants (the Exchange and the Clearing House) acted unlawfully under domestic public law and breached their human rights under Article 1 of the First Protocol ("A1P1") of the Human Rights Act 1998.
The Financial Services and Markets Act 2000 limits the defendants' liability unless bad faith or unlawful conduct under the Human Rights Act is proven. A Divisional Court dismissed the Claimants’ judicial review and human rights claims. The Claimants appealed to this court.
The Claimants contend that the Divisional Court erred by: overemphasising the contractual context of the power to cancel; wrongly holding the Exchange had the power to cancel; failing to find procedural unfairness; wrongly upholding the rationality of the cancellation; failing to require investigation into the cause of the price spike; incorrectly concluding the Claimants’ contractual rights were not possessions under A1P1; and wrongly holding any interference was lawful and justified.
Legal Issues Presented
- Whether the Exchange had lawful power to cancel the trades concluded on 8th March 2022 under the applicable rules and regulatory framework.
- Whether the decision to cancel the trades was procedurally fair, including whether the Claimants should have been given an opportunity to make representations prior to cancellation.
- Whether the decision to cancel was rational and made for a proper purpose, or was irrational and/or ultra vires.
- Whether the Exchange and Clearing House breached their duty to investigate relevant facts before concluding the market was disorderly.
- Whether the Claimants’ contractual rights (Contingent Agreements to Trade) constituted possessions protected by Article 1 of the First Protocol.
- If the Claimants had possessions, whether the cancellation constituted an unlawful interference with those possessions under A1P1.
Arguments of the Parties
Appellants' Arguments
- The Divisional Court diluted public law protections by overemphasising the contractual context of the power to cancel trades.
- The Exchange lacked power to cancel the trades concluded on 8th March as the power was circumscribed by EU delegated legislation and required a published cancellation policy.
- The decision to cancel was procedurally unfair as the Claimants were not given an opportunity to make representations before the decision.
- The rejection of the option to allow trades to stand with margin calls based on the previous day's closing price was irrational and unlawful.
- The Exchange failed to properly investigate the cause of the price spike, the suspension of price bands by the Trading Operations Team, and the precise timing of disorderly market conditions.
- The Claimants’ Contingent Agreements to Trade were binding contracts with economic value amounting to possessions under A1P1.
- The cancellation interfered with the Claimants’ possessions unlawfully and was disproportionate, failing to strike a fair balance between individual and public interests.
Respondents' Arguments
- The contractual context is highly significant as the Claimants agreed to trade under rules including the power to cancel, and this contextualises the public law review.
- The power to cancel under TR 22 arises in exceptional circumstances of disorderly trading and is not limited by the specific provisions of RTS 7, which applies only to algorithmic trading on LMEselect, not to the trades in question.
- The urgency and exceptional market conditions justified the absence of prior consultation or representations, and procedural fairness was not breached.
- The Clearing House’s estimate that margin calls based on the 8th March trades were necessary to avoid regulatory breach was rational and lawful, justifying rejection of the alternative margining option.
- The Exchange’s CEO had sufficient information to conclude the market was disorderly without further investigation; the failure to investigate specific causes or timing did not render the decision unlawful.
- The Claimants’ Contingent Agreements to Trade did not amount to possessions under A1P1 as they were preparatory contracts without enforceable rights to payment, and any legitimate expectation was subject to the power to cancel.
- Even if possessions existed, the cancellation was lawful, proportionate, and justified in the public interest to preserve orderly market functioning and prevent systemic risk.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bradley v Jockey Club [2004] EWHC 2164 (QB); [2005] EWCA Civ 1056 |
Supervisory jurisdiction of courts over contractual decisions; public law principles apply to decisions made under contract. |
Cited to support that public law principles apply fully to the Exchange’s exercise of power to cancel despite contractual origin. |
| McGrath v Camden London Borough Council [2020] EWHC 369 (Admin) |
Requirement for procedural steps or published policies; consequences of non-compliance. |
Considered in relation to whether absence of published cancellation policy invalidated the Exchange’s exercise of power; court held it did not. |
| Padfield v Minister of Agriculture, Fisheries & Food [1968] AC 997 |
Power must be exercised for the purpose for which it was conferred. |
Rejected argument that cancellation was for improper purpose protecting one cohort at expense of others. |
| R (Kebbell Developments Ltd) v Leeds City Council [2018] EWCA Civ 450 |
Distinction between public consultation and procedural fairness in public law. |
Applied to analyse procedural fairness obligations of the Exchange. |
| R (Osborn) v Parole Board [2013] UKSC 61 |
Court’s role in determining procedural fairness; fairness is a question of law for the court. |
Used to reject the Divisional Court’s view that the Exchange had a wide discretion on consultation. |
| R (Timson) v Secretary of State for Work & Pensions [2022] EWHC 2392 (Admin) |
Whether representations could have made a difference is relevant to procedural fairness. |
Applied to reject Claimants’ argument that failure to consult caused unfairness. |
| Secretary of State for Education & Science v Tameside Metropolitan Borough Council [1977] AC 1014 |
Duty to take reasonable steps to acquaint decision-maker with relevant information. |
Applied to reject challenge based on failure to investigate causes of price spike. |
| Depalle v France (2012) 54 EHRR 17 |
Definition of possessions under A1P1 includes legitimate expectations with sufficient legal basis. |
Considered in analyzing whether Claimants’ Contingent Agreements to Trade were possessions. |
| Breyer Group Plc v Department of Energy & Climate Change [2014] EWHC 2257 (QB); [2015] EWCA Civ 408 |
Contracts must be sufficiently established and enforceable to be possessions under A1P1. |
Applied to conclude Claimants’ agreements did not amount to possessions. |
| Béla Németh v Hungary (App No. 73303/14) |
Legitimate expectation can be a possession if based on sufficient legal foundation. |
Used to analyze Claimants’ legitimate expectation of obtaining Client Contracts. |
| Ceni v Italy (App No. 25376/06) |
Preliminary contracts may amount to possessions if legitimate expectation is based on enforceable rights. |
Considered in relation to Claimants’ contractual position. |
| Sims v Dacorum Borough Council [2014] UKSC 63 |
Loss of property right pursuant to contractual terms may not amount to unlawful interference under A1P1. |
Analogized to Claimants’ loss of rights subject to the Exchange’s cancellation power. |
| Bank Mellat v HM Treasury (No. 2) [2013] UKSC 14 |
Principles of procedural fairness and scrutiny of impossibility or impracticality of consultation. |
Applied in assessing procedural fairness of cancellation decision. |
| R (Justice for Health Ltd) v Secretary of State for Health [2016] EWHC 2338 (Admin) |
Lawfulness of interference under A1P1 requires foreseeability and non-arbitrariness. |
Considered in relation to absence of published cancellation policy. |
| R (Balajigari) v Secretary of State for the Home Department [2019] EWCA Civ 673 |
Standards for duty to investigate relevant facts before decision-making. |
Applied to uphold adequacy of investigation by the Exchange’s CEO. |
| De Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69 |
Proportionality test for interference with fundamental rights. |
Framework applied to assess justification of cancellation under A1P1. |
| R (Daly) v Secretary of State for the Home Department [2001] 2 AC 532 |
Principles of proportionality and rational connection to legitimate aims. |
Referenced in proportionality analysis. |
| R v Shayler [2003] 1 AC 247 |
Standards for assessing proportionality in human rights context. |
Referenced in proportionality analysis. |
| Huang v Secretary of State for the Home Department [2007] 2 AC 167 |
Application of proportionality principle. |
Referenced in proportionality analysis. |
| R (Quila) v Secretary of State for the Home Department [2012] 1 AC 621 |
Application of proportionality and rationality tests. |
Referenced in proportionality analysis. |
Court's Reasoning and Analysis
The Court carefully examined the complex factual and regulatory background, including the unprecedented price spike, the Exchange’s and Clearing House’s roles and powers, and the contractual and regulatory framework governing trading on the Exchange.
It acknowledged the urgency and gravity of the market crisis on 8th March 2022 and the risk that allowing the trades to stand would trigger multiple defaults, potentially causing systemic market collapse ("death spiral").
The Court accepted that the power to cancel trades under TR 22 arises in exceptional circumstances to ensure orderly trading, deriving from MiFID II and domestic implementing legislation. It rejected the argument that the power was limited to malfunctions of trading systems or required a published cancellation policy beyond TR 22 itself.
On procedural fairness, the Court recognized the absence of consultation but held that given the urgency, the absence of consultation did not render the decision unfair, especially as the Claimants had consented to TR 22 terms and had an opportunity to make representations between the suspension and cancellation notices, though no material representations were identified.
The Court found that the Exchange’s CEO was entitled to conclude the market was disorderly based on the extreme price movements and lack of rational explanation, without needing to investigate the precise causes or timing in detail, nor the suspension of price bands by the Trading Operations Team.
It accepted the Clearing House’s expert judgment that margin calls based on the 8th March trades were necessary to cover exposures and that margining by reference to the previous day’s closing price while allowing trades to stand would be irrational and risk regulatory breach.
Regarding the Claimants’ contractual rights, the Court held that Contingent Agreements to Trade were legally binding contracts enforceable by arbitration but did not constitute "possessions" under A1P1 as they were preparatory and did not confer enforceable rights to payment. However, the Court also held that, if these agreements did amount to possessions, the cancellation was lawful and justified.
On the human rights claim, the Court reasoned that the Claimants’ rights were always subject to the lawful exercise of the Exchange’s power to cancel in exceptional circumstances, and the cancellation struck a fair balance between individual losses and the wider market interest.
Ultimately, the Court concluded that the cancellation was lawful, rational, procedurally fair, and justified under A1P1, and dismissed the appeal.
Holding and Implications
The Court DISMISSED THE APPEAL.
The direct effect of this decision is that the Exchange’s and Clearing House’s cancellation of the trades concluded on 8th March 2022 was lawful and did not breach domestic public law or the Claimants’ human rights under Article 1 of the First Protocol. The Claimants’ claims for damages and judicial review fail accordingly.
No new precedent was established beyond affirming the application of established public law principles to regulatory powers exercised under contractual terms in an urgent and exceptional market context. The ruling underscores the necessity for regulatory bodies to act decisively to maintain orderly markets even at the cost of significant individual losses, provided their actions comply with legal and procedural standards.