In the April edition of this Bulletin (http://www.hfw.com/Commodities-Bulletin-April-2014) PartnerSarah Taylor reflected on the decision of the Administrative Court in R (on the application of United Company Rusal Plc) v The London Metal Exchange (27 March 2014). Rusal had challenged the LME’s proposed introduction of a rule aiming to deal with the so-called “queues” issue. The Court held that the LME’s consultation was procedurally unfair and accordingly the rule, which was due to be implemented on 1 April 2014, was put on hold.

The LME subsequently appealed and on 8 October 2014, the Court of Appeal allowed the LME’s appeal, concluding that the court below had been wrong to decide that the consultation was unlawful.

The case concerns the new rule proposed by the LME in a consultation notice to all members, warehouse companies and London agents on 1 July 2013. The LME had started the consultation process to try to mitigate a problem, which had begun during 2008, of long queues for physical delivery of metals stored in LME warehouses.

The proposed new rule (known as a linked load-in, load-out or “LILO” rule) effectively required that any LME warehouse with queues longer than 50 days (which was reduced by the LME in November 2013 from the 100 days originally stipulated in its consultation notice, to which the Court of Appeal referred in its judgment) must load-out more metal than was loaded in.

On 7 November 2013, the LME announced that it would adopt the LILO rule as of 1 April 2014. Rusal sought judicial review of the consultation process, claiming that the rule would result in a short-term fall in the global market price of aluminium which would potentially cause hardship to producers.

The court at first instance found in Rusal’s favour, deciding that the LME’s consultation was procedurally unfair and unlawful for two main reasons:

  • Firstly, the LME had not explained or expanded on a second principal option and potential solution to the queuing issue, namely a ban or cap on rents at warehouses with long queues. Consultees had not only been deprived of the opportunity to consider less damaging options than the LILO rule, but were unable to properly consider the LILO rule itself.
  • Secondly, the LME had not investigated the rent ban option adequately before starting the consultation process. Consultees who subsequently proposed this option as an alternative or additional option to the LILO rule could not know the reasons why the rent ban option had not been put forward.

The LME had received 33 written responses to its consultation notice proposing the LILO rule. Of those 33, 10 participants proposed a rent ban either in addition to or instead of the rule. Rusal was not one of them, although it did file a written response objecting to the LILO rule.

In her analysis of English public law, the appeal judge examined the established principles of lawful and fair consultation, as set down in the case of R. v North & East Devon Health Authority Ex p. Coughlan1. She concluded that in order for a court to find unfairness in a consultation notice, something material must have been left out or misstated. The first instance judge had “extended the principles beyond the limit to which they can properly be stretched”.

The appeal judge could find nothing in the consultation notice that would have prevented Rusal from responding on the rent ban issue for want of information. She commented that it would “considerably increase the burden” if public bodies had to consult on all options, including those that they had decided not to pursue.

Rusal has been denied leave to appeal the Court of Appeal’s ruling, but has already indicated that it intends to seek the permission of the Supreme Court to appeal the decision there.

Meanwhile, the LME has announced that it intends to implement the LILO rule with a start date of 1 February 2015. Its two-week consultation with listed warehouse companies in respect of some minor amendments to the rule began as soon as the Court of Appeal decision was made public. The LME has also promised to discuss with the market and publish further information on the reforms, including on rent caps and bans.