Commercial Court refuses Norwich Pharmacal relief and rejects case of bad faith against the London Metal Exchange

23/12/22

On 23 December 2022, Adrian Beltrami KC (sitting as a Deputy Judge of the Commercial Court) handed down judgment on the application by AQR Capital Management and other investment funds which sought a Norwich Pharmacal order and/or pre-action disclosure against the London Metal Exchange (“LME”).

The application arose out of decisions taken by the LME on the 8 March 2022. In response to extreme and unprecedented disorder experienced on the market for nickel futures that morning, the LME first suspended nickel trading and secondly ensured that no trading arrangements made on the LME’s nickel market that morning prior to the suspension should result in binding contracts under the LME Rulebook.

The applicants claim to have lost >$95,000,000 profits as a result of those decisions and assert that they are contemplating bringing proceedings against the LME for various economic torts. Because the LME has a statutory immunity under s.291 Financial Services and Markets Act 2000, such private law actions would require the applicants to establish “bad faith”.

The applicants applied for a Norwich Pharmacal order and/or pre-action disclosure, contending that they had established a good arguable case of “bad faith” and seeking what the Judge characterised as “extremely broad and indeed intrusive” relief comprising “very wide-ranging disclosure” and affidavit evidence.

Rejecting the application in its entirety, the Judge found that the applicants had not demonstrated a good arguable case of bad faith. In particular, the Judge found that to rely on press articles, some of which the Judge noted it appeared that AQR itself may have contributed to, would be “to shore up speculation by speculation”. The Judge considered that the LME had “provided a detailed explanation of its case about its decision making” both in correspondence with the applicants and in response to judicial review proceedings pursued by other investment firms, and that he saw no inconsistency in the explanations given “which begins to support a case of bad faith”.

As for the requirement that the documents or information sought be “necessary” to enable the wrongdoer to be pursued, the Judge found that the asserted purpose of the wide-ranging disclosure and evidence was in fact redolent of a “general review of the evidence” to enable the applicants to decide whether they had a claim at all, rather than a narrow request to identify a “missing piece of the jigsaw”. Furthermore, the Judge considered that the fact that the applicants could have filed judicial review proceedings themselves did “colour and weaken the case of necessity”.

It is also of note that the relief was sought against the intended defendant, rather than against a third party mixed up in the wrongdoing, as in a conventional Norwich Pharmacal application. The Judge agreed with the LME that “in the context of an already exceptional jurisdiction it would be unusually exceptional to order an intended defendant to provide full disclosure and indeed full witness evidence about the subject matter of a complaint before the action has been begun.”

The judgment is available here.