ON APPEAL FROM QUEEN'S BENCH DIVISION
Mr Justice Phillips
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE McCOMBE
LADY JUSTICE GLOSTER
| The Queen (on the application of United Company Rusal PLC)
|- and -
|The London Metal Exchange
(Transcript of the Handed Down Judgment of
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Miss Monica Carss-Frisk QC, Mr James Segan and Miss Naina Patel (instructed by Macfarlanes LLP) for the Respondent
Hearing dates: 29-30 July 2014
Crown Copyright ©
Lady Justice Arden :
Background to the consultation in this case
Events following the inception of consultation and the responses to the consultation
Roadmap for this judgment
The judge's reasons for holding that the consultation was unfair
i) following R (Madden) v Bury Metropolitan Borough Council  EWHC 1882 (Admin), as the rent ban was the next best option consultees had to know the reasons why it had been rejected in order properly to understand LILO (judgment, para 74(a));
ii) consultees who proposed the rent ban option would do so in ignorance of the reasons why it was previously rejected (judgment, para 74(b));
iii) the LME's inquiries during the consultation period from warehouse operators about a possible rent ban showed that the LME was pursuing options not set out in the CN (judgment, para 74(c)); and
iv) by analogy with R (Medway) Council v Secretary of State for Transport  EWHC 2516 (Admin) metal producers, who stood to suffer losses as a result of LILO, should have had the chance to consider other options that might cause them less damage (judgment, para 74(d)).
i) The LME could not defend its position on judicial review by saying that there were competition law difficulties in the rent cap ban because it had not disclosed any advice and had started to consult on these issues during the consultation period;
ii) The fairness of the consultation had to be assessed by reference to the CN and so it was no answer that the EE report had referred to the competition law issues;
iii) There was limited significance in the FCA's statement. There might be other options even though the FCA had approved LILO;
iv) The LME's decision was not vitiated by bias on account of the conflict of interest because a "stock levy" or charge was applied to all warehouse rent charged by LME-approved warehouses and paid to the LME. Even if the LME had taken independent advice from a third party it would still have had to make the final decision itself. In any event, Rusal knew about the stock levy all along;
v) The judge rejected the argument that the LME had to be influenced by the fact that producers such as Rusal might suffer losses as a result of the LILO option;
vi) The judge rejected the contention that the LME should have taken into account the profits which warehouse operators made. The real question to be considered was whether the rule change would lead to damage to the LME system by the withdrawal of warehouse operators.
Common law duty of fairness
"It is common ground that, whether or not consultation of interested parties and the public is a legal requirement, if it is embarked upon it must be carried out properly. To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken: R v Brent London Borough Council, Ex p Gunning (1985) 84 LGR 168."
"It is an aspect of what is 'proper' — the word used in Coughlan (para 108). … it is axiomatic that consultation, whether it is a matter of obligation or undertaken voluntarily, requires fairness." (Judgment, para 28)
"Judgments are not to be construed as though they were enactments of general application, and the extent to which judicial dicta are a response to the particular factual matrix of the case under consideration must always be borne in mind."
"…there is no general principle that a Minister entering into consultation must consult on all the possible alternative ways in which a specific objective might arguably be capable of being achieved. It would make the process of consultation inordinately complex and time consuming if that were so. Maurice Kay J recognised this in [Medway], at para 26:
"Other things being equal, it was permissible for him (that is, the Secretary of State) to narrow the range of options within which he would consult and eventually decide.
Consultation is not negotiation. It is a process within which a decision maker at a formative stage in the decision making process invites representations on one or more possible courses of action. In the words of Lord Woolf MR in Ex parte Coughlan  QB 23 at para 112, the decision maker's obligation "is to let those who have potential interest in the subject matter know in clear terms what the proposal is and why exactly it is under positive consideration, telling them enough (which may be a good deal) to enable them to make an intelligent response. The obligation, although it may be quite onerous, goes no further than this."
This passage was approved by the Court of Appeal in R (Forest Heath DC) v Electoral Commission  PTSR 1227 at para 54."
"[Regulation 18(1) which required consultation on certain proposals] did not require it to give focus to proposals which it no longer had under consideration. In any event, the process of consultation did not, and designedly could not, preclude outright opposition to the one proposed, which opposition might prompt the authority to reconsider it and/or any of its discarded six options and/or to consider any new ones."
MY ANALYSIS: SUBMISSIONS ON THIS APPEAL AND JUDGE'S REASONS
Judge's first primary holding: consultees needed to have the rent ban information in order to consider the LILO option
"(a) The consultation arose because the implementation of the prime recommendation in the EE Report (contained in the published Recommendations section) had not resolved the problem of queues. Requiring rent rebates was the only other option identified in the Recommendations as capable, in principle, of addressing queues. Indeed, the EE Report had recommended that the option be "discussed". Given its status as (apparently) the next obvious option referred to in the very report referred to in the second paragraph of the Consultation Notice, some explanation of the option, the result of the recommended discussions and the reason why the option had been discounted was necessary for a proper understanding of the LME's thinking in relation to the Proposal, just as reference to the alternative closure option was necessary in Madden."
Judge's second primary holding: consultees who proposed the rent ban option would do so in ignorance of the reasons why previously rejected
"(b) Given previous references to the option, it was inevitable that responses to the consultation would propose or otherwise address banning/capping rents, but would be doing so in ignorance of (and possibly misled by the Consultation Notice as to) the very specific and technical reason why that option had been rejected. The fact that 10 responses proposed or supported the idea, but did not address possible contractual or competition law concerns, highlights the inherent unfairness of the process. It is certainly the case that the 10 responses were made without the information necessary to permit intelligent consideration and response. The procedure adopted by the LME also entailed that others who might have supported rent rebates, or contributed to the debate on legality, may have been unaware of the option and the issues which it engaged."
Judge's third primary holding: the LME's inquiries during the consultation period from warehouse operators about a possible rent ban showed that the LME was pursuing options not set out in the CN
"(c) The unfairness of the above is further illustrated and increased by the fact that the LME recognised during the consultation period that further discussion and legal review of the option of banning/capping rents was necessary (and, indeed, was commenced during the consultation period). It is unclear, and no explanation was provided by the LME, as to why such discussions and review had not commenced earlier or the consultation postponed pending their completion. In my view it was patently unfair to continue with the consultation without informing the market that it was simultaneously discussing and reviewing other options which had not even been referred to in the Consultation Notice."
"It has to be remembered that consultation is not litigation: the consulting authority is not required to publicise every submission it receives or (absent some statutory obligation) to disclose all its advice. Its obligation is to let those who have a potential interest in the subject matter know in clear terms what the proposal is and exactly why it is under positive consideration, telling them enough (which may be a good deal) to enable them to make an intelligent response. The obligation, although it may be quite onerous, goes no further than this."
Judge's fourth primary holding: by analogy with Medway, metal producers, who stood to suffer losses as a result of LILO, should have had the chance to consider other options that might cause them less damage
"(d) Given that the LME recognised that the Proposal would likely result in losses being suffered by metal producers, but decided to discount that as a factor, fairness demanded that they should have the opportunity to consider and comment on an alternative that might cause them less damage. Whilst the LME may regard banning/capping rent as a possible further step to reduce queues in the future, metal producers will by then have suffered the full losses caused by the introduction of the Rule: by failing to include banning/capping rents in the consultation, the LME has deprived the metal producers of any opportunity to reduce those losses. The situation is therefore analogous to that in Medway."
"96 In my judgment, however, the LME's approach to dealing with queues cannot be criticised in this respect. In dealing with a recognised problem in the market, it was reasonable and indeed essential to approach the issue uninfluenced by the competing interests of buyers and sellers in the effect on price, unless such effect would be such as to damage the market. Given Rusal's own evidence as to the massive fluctuations which have been seen in the price of aluminium in recent years, the relatively minor and short term effect the Proposal is likely to have on prices does not appear to be of great significance. It would be improper for the LME to take into account which category of its users would win and which would lose in any such price effect."
No duty to disclose legally privileged material
"…it is said that LME was justified in not referring to the option of banning/capping rents because, given the significant risk of regulatory action in respect of which no comfort could be obtained, it was simply not and never could be a viable option. However, given that the LME has not disclosed any advice it has received in the past and is now engaged on what must be (given the time taken) an extensive review of the competition law issues with a view to considering the option in future, it is in my judgment simply not open to the LME to take that stance." (judgment, para 76)
Judge correctly held that the LME's decision to hold the consultation was not vitiated by financial interest
"85 Rusal acknowledged that the conflict of interest upon which it relies is inherent in the structure of the LME and its warehousing arrangements. Rusal further recognised the doctrine of "necessity", as explained in section 6 of chapter 10 of De Smith (above), extends to situations where "the administrative structure makes it inevitable that there is an appearance of bias", so that the decision-maker is not disqualified.
86 Rusal contends, however, that the LME could and should have taken steps to address the appearance of bias, for instance, by setting up an independent advisory committee or other independent structure.
87 However, the ultimate decision to accept or reject any independent recommendation would have to be taken by the LME itself (through its Board) and could not properly be delegated, entailing that any appearance of bias could not be displaced, precisely because it is inherent in the administrative structure of the LME. In my judgment the doctrine of necessity applied in this case and, given the necessity for the LME to act where it appeared to have a conflict, there was no obligation to adopt some half-way measure to mitigate the appearance of bias.
88 But in any event the LME's stock levy, although only referred to in a footnote in the consultation report, is an integral part of the LME's structure, well known throughout the marketplace and is certainly known to Rusal. In those circumstances Rusal cannot sit back and then raise the issue of bias after the event, but must be taken to have waived its objection: see De Smith (above) paragraph 10-061."
SUMMARY OF CONCLUSIONS
i) Consultees did not need the rent ban information to respond to the CN, and in any event Rusal does not support the rent ban option.
ii) Contrary to the judge's view, it was not unfair for the LME to begin its new investigation into the rent ban option during the consultation period since this investigation was to give it an additional tool for dealing with the queuing problem, not a substitute for LILO.
iii) The LME's financial interest in warehouse rents is well known to the market and Rusal waived any objection to contend that it vitiated the LME's decision on the grounds of bias.
Lord Justice McCombe
Lady Justice Gloster