High Court ruling shows risk of NPO ‘fishing expeditions’

Andrew Herring of Pinsent Masons said the decision “illustrates aptly that applicants must have a good arguable case of wrongdoing based on the causes of action available to them to obtain an NPO. The jurisdiction for NPOs remains narrow and exceptional. Hence, it is imperative for potential applicants to ensure they seek specialist legal advice when considering the use of these High Court disclosure applications.”

It comes after a number of investment firms applied, unsuccessfully, for information about the London Metal Exchange’s (LME) decision in March 2022 to suspend nickel trading and cancel recent nickel trades because of volatility in the market driven by global supply concerns in the wake of Russia’s invasion of Ukraine. The investors applied for an NPO as well as third-party disclosure under rule 31.16 of the Civil Procedure Rules (CPRs).

The investment firms argued that LME’s actions caused them combined losses of $95 million, since their sales of nickel at the elevated prices experienced in March 2022 were cancelled without warning. They also claimed that LME had acted to suspend nickel trading to “bail out” one very large investor, Tsingshan Holding Group (THG), which had taken short positions in the market – and therefore stood to make significant losses as the price of nickel rose. The applicants sought disclosure orders for the provision of internal and external documents from LME "in respect of" its decision to suspend nickel trading, and details of "all oral discussions" with a broad list of categories of potential third parties.

Applying the criteria required for an NPO, Mr Adrian Beltrami KC, sitting as a judge of the High Court, accepted that LME were “mixed up” in the dispute but that the claimants had not demonstrated a case of bad faith on LME’s part that satisfied the ‘arguable wrong condition’. In addition, he found that the claimants failed to satisfy the ‘possession/necessity condition’, since other investment firms negatively affected by the LME’s decision to suspend nickel trading had pursued judicial review and damages claims without the need for NPO relief.

“It is not clear why the claimants did not pursue a similar course but, at any rate, there was no suggestion that they were in a materially different position to those parties who did bring the claims,” Beltrami said. Finding that the claimants had also failed to meet the ‘overall justice condition’, he added: “I am equally unsatisfied that the application is an appropriate and proportionate response in all the circumstances of the case…the ambit of the draft order is very wide. Its width is of especial significance in circumstances in which the relief is sought against intended defendants and where there is therefore a real risk of procedural unfairness.”

Raam Hargun of Pinsent Masons said: “This case involves the relatively rare situation where an NPO application was being sought against potential defendants to a future damages claim, and it was unsurprisingly contested vigorously by the respondent parties. While the judge did accept the respondents were mixed up in the matters in dispute, the applicants could not establish a good arguable case of wrongdoing against the respondents based on the causes of action potentially available to them.”

He added: “The applicants had not taken into account either the consequences of not commencing judicial review proceedings against the respondents with other parties in a similar position or the respondents’ statutory immunity defences afforded to certain public bodies under 2000 Financial Services and Markets Act. The applicants also failed to meet the requirements of the possession condition and overall justice condition for a successful NPO application.”