QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| THE QUEEN (on the application of
UNITED COMPANY RUSAL PLC)
|- and -
|THE LONDON METAL EXCHANGE
Michael J Beloff QC and Simon Pritchard (instructed by Latham & Watkins LLP) for the Defendant
Hearing dates: 26th and 27th February 2014
Crown Copyright ©
Mr Justice Phillips:
(1) that the consultation process was procedurally unfair, principally because the LME consultation notice did not identify (let alone explain the reason for discounting) the main alternative option for reducing warehouse queues, namely, banning warehouses from charging rent for the period metal is held in a queue (or otherwise capping the amount of rent so charged), an alternative which Rusal asserts would cause significantly less damage to metal producers.
(2) that the LME's decision to implement the Rule was made without adequate consideration of or inquiry into relevant matters, including the effect the Rule would have on the all-in price of metal and the consequent effect on metal producers, the LME having made a deliberate decision not to consider that factor.
(3) that the decision was a breach of Rusal's human rights, being a disproportionate interference with Rusal's right to peaceful enjoyment of its possessions (namely, its goodwill or economic interests) or was otherwise discriminatory as between metal producers and warehouse operators.
The factual background
The emergence of problems with warehouse queues
The Europe Economics report
The LME's implementation of the EE Report Recommendations and its effect
Mr Chamberlain's review in early 2013
"The review should take an "ab inito" view of the various suggestions which have been made by users to both HKEx and the LME. Although many of these have been considered and rejected in the context of both the LME's internal work and the Europe Economics Report, it would be important to present a clear view of why these potential solutions are not desirable or feasible."
(a) an email from Mr Chamberlain to LME's Management dated 28 March 2013 in which he stated "I am working here on the basis that we are presenting only two options, namely (i) status quo and (ii) the Charles solution. I haven't heard that there's any other approach in which we feel sufficiently strongly that we wish to table it – but pls say if you disagree on this."
(b) a further email dated 7 April 2013, circulating drafts of the materials for the Board, Mr Chamberlain stated as follows: "Just to remind everyone, the idea is to provide (i) an overview of the current situation, (ii) an analysis of Charles' proposed solution, (iii) a comparison between that solution and the status quo."
The April 2013 Board meeting
The Board meeting of June 2013
The Consultation Notice of 1 July 2013
"In reviewing warehouse arrangements, the LME has previously considered a complete list of alternative policy options for delivery out rates, but it was not deemed appropriate to implement any option [other than increasing load-out rates] following feedback from the market. However, in light of the persistence of the situation due to continuing macro economic factors, and the negative impact on market participants, the LME has decided to revisit the most workable of these options, and open a consultation process with the industry as a whole."
"In the interests of stimulating an informed debate and encouraging responses from all interested parties, the LME sets out in this Notice its preferred proposal (the "Linked Load-In/Load-Out proposal") for changes to the LME policy in relation to load-out rates, and seeks to lay out the potential positive and negative impacts of such a change. For the avoidance of doubt, the Board of the LME, while noting stated user opinions, has not yet formed a conclusive view on whether any action would be in the best interests of the market, and invites broad feedback on this topic. However, to the extent that action is taken, and following extensive review work, the LME believes that a proposal broadly consistent with that specified in this Notice would best balance the competing demands of LME members, the metals industry and warehouse operators."
Responses to the consultation
The LME's consideration of banning/capping rent for metal in queues
The Board meeting of October 2013
"Many respondents have suggested that charges need to be capped (or incentives limited) as a primary policy initiative. Additionally, to the extent that Rule causes warehouses to increase rents, caps may also be required as a secondary response.
However, legal obstacles to any such power still significant.
Key Questions for the Board
- is the Board happy for the Executive to continue investigating the LME's powers in this regard? "
- does the Board however agree that action needs to be taken in advance of the above being known?
The decision notice and the consultation report
"As explained above, the LME's position has been that an attempt to regulate rents or FOTs [Free on Truck – charges levied by warehouses for delivery] may be problematic under European Competition Law. However, in the light of the prevailing market conditions, regulatory developments and the potential impact of regulatory and political pressure, it seems appropriate to review the scope of the LME's ability to regulate rents and/or FOTs. The legal analysis of this topic is underway. However, the review is unlikely to be completed until 2014. Accordingly it is not advisable to delay the results of the Consultation pending completion of the review."
Ground 1: Procedural Unfairness
"To be proper, a consultation must be undertaken at a time when the 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."
(a) in failing to identify and provide information in relation to alternative options and the reasons why they had been discounted by the LME;
(b) in failing to disclose "key documents" referred to in the Consultation Notice: the EE Report and Mr Chamberlain's review;
(c) in failing to carry out a cost benefit analysis in respect of the Proposal;
(d) in consulting only the Warehousing Committee during the consultation period in relation to the option of banning/capping of rents;
(e) because the LME had a direct financial interest in rents (by reason of the 1.1% stock levy payable by the approved warehouses under their agreement with the LME which it did not disclose), giving rise to an appearance of bias:
(f) in failing to re-consult before implementing the Rule given the change of threshold from the 100 days referred to in the Proposal to one of 50 days.
(a) The LME's approach to alternative options
"… the Judge is in effect saying that the formative stage of these proposals was passed as soon as the Council selected a preferred option… this is in effect requiring a referendum; that is not what consultation means. Bearing in mind …the desirability of proposals of some specificity … I do not think it right to try to lay down any rules as to when proposals may be said to have passed the formative stage. I am, however, sure that consultation after the formulating and the deciding upon specific proposals to put out for consideration is plainly while the proposals which are to go to the Secretary of State are still at a formative stage. "
and Sir George Waller stated:
"In the present case it would not be helpful to put before parents all the original possibilities because the authority might then have to decide which of a variety of options, each with support, to accept. When does the formative stage end? In my opinion it ends when the details of the plan have been decided and no alterations can be made."
"If, as is clearly established (and is, in any event, only plainly common sense) an authority can go out to consultation upon its preferred option, per O'Connor LJ [in Nicol], or with regard to "a course it would seek to adopt if after consultation it had decided that that is the proper course to adopt" ….. then it seems to me plain that it can choose not to consult upon the less preferred options. It does not, in other words, have to consult on all possible options merely because at some point they were developed, crystallised, canvassed and considered. "
Auld LJ added:
"Here the authority, in its February 1998 consultation paper, indicated that, having considered no less than seven options, it had selected one of them as its preferred option as a proposal for consultation. Having reached the stage of retaining just one proposal under consideration, albeit in a formative state, the authority was entitled to proceed to consultation, as it did, within the terms of regulation 18(1). That provision 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 re-consider it and/or any of its discarded six options and/or to consider any new ones."
"The question really becomes this: knowing that the Claimants will probably and legitimately wish to advocate Gatwick as an alternative solution at a later stage in the decision-making process, is it procedurally unfair of the Secretary of State to operate the consultation process in such a way that the Claimants lose their only real opportunity to present their case on Gatwick without their being in place a Government policy which, realistically, will present them with an insurmountable hurdle? In my judgment, when one considers the decision-making process as a whole, the answer is that to operate the consultation process in that way is indeed procedurally unfair."
"Fairness in my judgment required that there should be a process of consultation in which those being consulted could express their views on all the various options. That never took place. It is no good … saying, even if it is the case, that proponents of the retention of the barriers expressed views supportive of that contention in the course .. of the exercise."
"The requirement to consult while the proposals are at formative stage cannot mean that there must be a first round of consultation on whether to reduce the options consulted upon to one, and then a second round of consultation on that one. "
"… 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 was so."
Elias LJ, giving the judgment of the court, expressed the view at  that Medway was an exceptional case, as was R (Madden) v. Bury MDC  EWHC (Admin) 1882. In Madden the local authority had consulted over the proposed closure of two care homes. Richards J. held that the consultation was unfair because "a proper understanding of the true reasons for the proposed closure would require at the least a comparison with the other home that the council proposed to retain …". The case was regarded as exceptional by the Divisional Court because some reference to alternative closures was necessary in order to provide a proper explanation of the reasons for the proposed closure.
(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.
(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.
(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.
(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.
(b) Non-disclosure of "key" documents
(c) Lack of risk or cost-benefit analysis
(d) Consulting only the Warehouse Committee on banning/capping rents
(e) Apparent Bias of the LME
(f) Failure to consult on the reduction in the threshold
"The concept of fairness should determine whether there is a need to re-consult if the decision-maker wishes to accept a fresh proposal but the courts should not be too liberal in the use of its power of judicial review to compel further consultation on any change. In determining whether there should be further re-consultation, a proper balance has to be struck between the strong obligation to consult on the part of the health authority and the need for decisions to be taken which affect the Health Service. This means that there should only be re-consultation if there is a fundamental difference between the proposals consulted on and those which the consulting party subsequently wishes to adopt."
Ground 2: Failure to conduct a sufficient enquiry/failure to consider relevant matters
(a) Failure to consider alternative options
(b) Failure to consider the effect of the Proposal on the all-in price
(c) Failure to consider profits made by warehouse owners
(d) Failure to analyse the effect of reducing the threshold
Ground 3: Human rights