UK: Judicial Review Suspends LME Implementation Of Warehouse Queue Rule

Introduction  Following a judicial review action brought by the Russian aluminium producer, United Company Rusal plc ("Rusal"), the English High Court has decided that the LME's consultation in relation to the introduction of a rule aiming to reduce the queues at LME warehouses was unfair and unlawful. As a result, the LME will not be permitted to introduce the rule and will have to rethink its strategy for dealing with the issue of long queues at LME warehouses.

Background On 7 November 2013, following a three month market consultation (the "Consultation"), amongst other measures, the LME announced its proposal (the "Proposal") to implement a linked Load-In Load-Out Rule (the "Rule"), the aim of which was to reduce the further build up of stocks that are disproportionate to the rate of load out from certain affected warehouses and therefore, combat the existence of queues. In summary, the Rule required that warehouses with queues longer than 50 days would be required to load more metal out than was loaded into the warehouse1.

On 5 February 2014, the LME provided an assessment of market responses to the Consultation and announced the enactment of the Rule2 . At that stage the LME believed that the Rule was already having an effect, due to the commencement of the Preliminary Calculation Period (the initial period during which the LME monitored metal loaded in and out) from 1 July 20133 . Between 2 July 2013 and 29 January 2014, three of the five warehouses affected by queuing of more than 50 days had loaded out more stock than loaded in, thus contributing to a reduction in stock at those warehouses, and queues had fallen at four of the five affected warehouses4 .

Decision Against this background, Rusal, which is the world's largest aluminium producer, brought judicial review proceedings in the English Court before Phillips J. Rusal claimed that implementation of the Rule would result in a short-term fall in the global market price of aluminium potentially causing hardship, including long-term damage through the closures of smelters. Rusal argued that the Consultation was procedurally unfair, that the decision to implement the Rule was made without adequate consideration or inquiry into relevant matters and that the decision breached Rusal's human rights.

The court agreed with Rusal, holding that the Consultation was procedurally unfair and that there was a failure to conduct sufficient inquiry and a failure to consider relevant matters by the LME. Following these conclusions it was not necessary for the court to make a determination regarding the breach of human rights issues raised by Rusal.

Rusal's Arguments The grounds upon which Rusal succeeded were, primarily, that the LME failed to identify and provide information in relation to certain key alternative options, in particular, the option of banning / capping the charging of rents by warehouses for metal in long queues. Furthermore, the LME had failed to give sufficient reasons why this option had been discounted. Philips J was also critical of the LME for, in relation to the option of banning / capping warehouse rents, only seeking consultation of the LME Warehouse Committee. In Philips J's view, this was "an aspect of the unfairness of excluding that option from consideration in the consultation".

In reaching this conclusion, Phillips J determined that fairness demanded that the Consultation should include what the LME subsequently recognised as "the most practical suggested alternative", having been suggested by at least 10 of the 33 written responses to the Consultation. Although 10 out of 33 may not seem substantial, it must be considered alongside the LME's consideration of the various differing and in some cases diametrically opposed views of the participants ranging from warehouse owners to producers to end-users. The option of rent capping / banning was an alternative which the Judge stated might have caused metal producers less damage and this option should therefore have been considered in the Consultation. The LME had argued during the hearing that this option was rejected by the LME on the basis of competition law concerns. The fact that the LME had commenced a fresh competition law review during the Consultation, was in the Judge's view, "tantamount to an admission that it had failed to make sufficient inquiry and had failed to consider relevant matters prior to commencing the consultation".

While the above arguments succeeded, other grounds put forward by Rusal were rejected. For example, the Judge did not agree that the LME's failure to disclose certain documents, carry out a detailed risk or costs-benefit analysis, or consult on the reduction in the queue length threshold from 100 to 50 days constituted procedural unfairness. Nor was there a conflict of interest and inherent bias in the structure of the LME which constituted procedural unfairness. Similarly, the failure to: (i) consider the effect of the new rule on the 'all-in' price (i.e. global market price, including premium); (ii) consider profits made by warehouse owners; or (iii) analyse the effect of reducing the threshold, did not "constitute a failure to make sufficient enquiry or consider relevant matters" as Rusal had argued. Indeed, the Judge stated that it was essential for the LME to approach the issue uninfluenced by the competing interests of buyers and sellers in the effect on price, unless this would result in damage to the market.

Impact of the decision? The LME has now issued a LME Notice confirming that it will not now be introducing the Rule on 1 April 2014 and that it is currently taking legal advice with regard to its available options, including appeal or re-consultation5.

The LME's Notice following the decision also emphasises that the Court made no adverse comments on the substantive merits of the proposed changes to LME's warehousing policy, and in particular the Rule itself. This would tend to suggest that the LME believes that once the procedural irregularities that led to the Judge finding the Consultation was procedurally unfair are overcome, the implementation of the Rule will nonetheless remain the LME's preferred solution. As such, the LME's Notice appears to indicate that it is more likely to be a matter of when, not if, the Rule will be implemented. That said, if the result of the competition law review is that the LME is allowed to cap / ban rent in queues, the LME will likely have to consider the benefits and unintended consequences that arise from such a decision. On the one hand, capping / banning rent in queues should reduce the gap between the LME price and all-in price thereby increasing its accuracy as a reference point for metal prices. However, potential unintended consequences could include reduced investment in warehouse capacity, increase of rents by warehouses etc. It will also be interesting to see whether the delay caused by the judgment gives the LME the time needed to fully investigate the development of premium hedging products, which may provide an additional tool to the market that helps address the pricing transparency challenges caused by the length of warehouse queues.

This further delay in finding a solution to the long queues at certain warehouses will likely not be well received by the consumer sector. One factor that led the LME to seek to implement the Rule, despite its ongoing consideration of the competition law concerns with the rent capping / banning option, was the concern of increased regulatory scrutiny and oversight. Arguably, now with more delays in finding a solution, other regulators and legislators, such as the CFTC, the US Department of Justice, the FCA or the US Senate, may feel obliged to take action to address the complaints of market participants. Ultimately it may be that Rusal's actions are merely delaying what is an inevitable reform to the warehousing infrastructure that supports the LME market.

Apart from the increased risk of regulatory intervention, the more immediate effect of a delay in implementing the Rule remains to be seen. Even before the Rule was implemented, the LME believed that the lengths of queues in some affected warehouses had (slowly) begun to reduce. It will be interesting to see if the delay in providing a solution to the warehouse queue issue leads to another increase in queues? 


 1. For further information see Reed Smith Client Alert at  
2. LME Notice 14/039: A037: W024 Announcement of Warehouse and Physical Network Reforms
3. By introducing the Preliminary Calculation Period from the date of publication of an earlier LME proposal , the LME hoped to prevent warehouses evading the proposed rule changes by increasing their intake of metal before the proposal was fully implemented
4. LME Notice 14/039: A037: W024 Announcement of Warehouse and Physical Network Reforms, based on data through to 31 December 2013.
5. LME Notice 14/106: A103: W046 Announcement on Outcome of Judicial Review 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.