Court of Appeal decision highlights relevance of public law principles in the financial sector

The Court of Appeal has dismissed a judicial review appeal in relation to the cancellation of nickel trades brought by traders against the London Metal Exchange (LME) and its clearing house counter-party, LME Clear: Elliott Associates LP & Anor, R. (On the Application Of) v The London Metal Exchange & Anor [2024] EWCA Civ 1168.

The appeal concerned the LME's decision to cancel all trades in nickel that had been concluded since midnight at the beginning of 8 March 2022, following a dramatic spike in the price of 3M nickel traded on the LME. The traders argued that this cancellation caused them to lose net profits totalling about US $456 million, which would have been made on the nickel trades agreed by them between midnight on 8 March and the suspension of trading at 08:15. They claimed that the decisions of the LME and LME Clear were unlawful as a matter of domestic public law and constituted a breach of their Convention rights under the Human Rights Act 1998, specifically their rights under Article 1 of the First Protocol (A1P1).

The Court of Appeal found that the LME's decision to cancel the trades was not ultra vires, procedurally unfair, irrational or contrary to A1P1. 

One of the most interesting points considered in the judgment from a financial services perspective, is the Court of Appeal's clarification as to the relevance of "contractual context" when applying public law principles. Here, the Divisional Court had placed some emphasis on the "contractual context" that surrounded the trades and the decisions made by LME and LME Clear, highlighting that the traders subjected themselves to the decision making of the clearing house through their informed consent in contracting on the LME's rules. The Court of Appeal clarified that the "contractual context" did not justify a dilution of the applicable public law principles when reviewing the lawfulness of the LME's decision. However, it found that "contractual context" had not in fact played a very significant role in the Divisional Court's reasoning.

The Court of Appeal's decision is a reminder to financial institutions of the applicability of public law principles in the financial sector, even when parties have entered into specific contractual arrangements. However, the factual background clearly influenced the outcome in this case, at both first instance and on appeal. The Court of Appeal's judgment recognised the urgency and severity of the circumstances that the decision-makers were dealing with on the day in question, described as "unprecedented, urgent and potentially catastrophic". This, combined with the technical nature of the issues and the expertise of the respondents, meant that the court approached the issues with a degree of practical realism, as well as respect for the discretion of the decision-makers.

For more information, please see our Public Law Notes blog post.