Australian Bank Bill Swap Reference Rate: Was Something Underhanded Happening Down Under

This post covers the alleged underlying facts and November 26, 2018, order by United States District Judge Lewis A. Kaplan dismissing all but one plaintiff in the case for lack of standing in Richard Dennis et al. v. JPMorgan Chase & Co., 16-CV-6496, a case in the Southern District of New York concerning alleged manipulation of the Australian Bank Bill Swap Reference Rate (BBSW). The operative Amended Complaint and memorandum opinion to the November 26, 2018, order are available here and here.

Although not covered in this post, it should be noted that on the same day as the order on the motion to dismiss for lack of standing was issued, Judge Kaplan also issued an order granting in part and denying in part defendants’ motion to dismiss for lack of subject-matter jurisdiction and failure to failure to state a claim, and mostly granting defendants’ motion to dismiss for lack of personal jurisdiction and improper venue. That order is available here.

How The BBSW Works

The BBSW is “intended to reflect the observed rate of interest paid on Prime Bank Bills actually traded in the Australian money market.” Prime Bank Bills are bank bills and negotiable certificates of deposit issued by Prime Banks. “Prime Banks” are elected by the Australian Financial Markets Association (“AFMA”) (a trade association) as being recognized for having high quality bank bills and certificates of deposit.

The BBSW is a benchmark rate in that it is used to determine the interest rates for various derivatives, including BBSW-Based Swaps, BBSW-Based Forward Rate Agreements, Chicago Mercantile Exchange Australian Dollar Futures, Australian Dollar FX Forwards & Swaps, and 90-Day BAB Futures, interest rate forward agreements, notes, futures, options, and other transactions. The process for formulating the relevant benchmark rates is similar to the one for forming the London Interbank Offered Rate for the U.S. dollar in the In re LIBOR litigation. Up until September 27, 2013, the BBSW was calculated using submissions from a panel made up of Prime Banks as well as certain others “selected periodically through a private election held at the discretion of the [then] current BBSW Panel.” Every business day, each of these banks would submit to the AFMA the midpoint between the discount on the rates at which banks offered to buy and sell Prime Bank Bills for six tenors traded between 9:55 am and 10:05 am (Sydney time) (the “Fixing Window”). These banks were supposed to take their submissions from the electronic trading systems of interdealer brokers ICAP and Tullett Prebon. AFMA would then calculate the BBSW for each tenor by disregarding the highest and lowest submissions, and then calculate the average of the remaining submissions. The BBSW rate for each tenor would then be sent to Thomson Reuters and Bloomberg for publication.

The Alleged Manipulation

Plaintiffs allege that the Defendants who made up the BBSW panel (“Bank Defendants”) rigged this process by manipulating the supply of Prime Bank Bills. Defendants did this by buying or selling Prime Bank Bills in large numbers and issuing new Prime Bank Bills during the Fixing Window, which had the effect of increasing the Prime Bank Bills supply. This increase in supply decreased the price of Prime Bank Bills, but increased the interest rate associated with them. Plaintiffs allege that, although these transactions in and of themselves were engaged in by the Bank Defendants at a loss, the increase in interest rate favored the Bank Defendants’ positions in the derivate transactions which used the BBSW as a benchmark, resulting in a net benefit for the Bank Defendants.

Plaintiffs further allege that Defendants conspired with one another by, among other things, giving each other advance notice as to whether they would be buying or selling, and agreeing to trade in the same direction. Plaintiffs also allege that the Bank Defendants conspired with interbroker dealers (who are also defendants) as a part of this scheme. Plaintiffs rely on communications, including e-mails, made public by an investigation by the Australian Securities and Investments Commission in support of these claims.

Dismissal of Sonterra and FrontPoint Plaintiffs for Lack of Standing in the November 26, 2018, Order

All Defendants except JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A. moved to dismiss Sonterra Capital Master Fund, Ltd. (“Sonterra”), FrontPoint Financial Services Fund, L.P. (“FrontPoint Financial Services”), FrontPoint Asian Event Driven Fund, L.P. (“FrontPoint Event Driven”), and FrontPoint Financial Horizons Fund, L.P. (“FrontPoint Horizons” and, together with FrontPoint Financial Services and FrontPoint Event Driven, the “FrontPoint Plaintiffs”) (collectively, the “Entity Plaintiffs”) as Plaintiffs for lack of standing. JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A.’s request that the motion be stayed as to them may have to do with their agreement to settle with the proposed class for $7 Million (See The only plaintiff not implicated in the November 26, 2018, Order is Richard Dennis.

The basis for the defendants’ motion to dismiss for lack of standing is that each of the Entity Plaintiffs dissolved before the original complaint in the action was filed, even though it stated that each plaintiff was still in business at the time of filing. The Amended Complaint merely referred to the Entity Plaintiffs in the past tense. Sonterra and the Frontpoint Plaintiffs each assigned the claims at issue to Fund Liquidation Holdings, LLC (“FLH”) by way of two asset purchase agreements (one agreement relating to Sonterra, the other to the Frontpoint Plaintiffs); it is assumed that this assignment occurred before the respective dissolutions of each of the Entity Plaintiffs, although it is not clear that such is the case from the Court’s opinion. Defendants raised the issue of standing by way of supplemental briefing on a Rule 12 motion to dismiss ten months after the amended complaint had been filed.

Under Federal Rule of Civil Procedure 17(b), the capacity of a corporation to sue is determined by the laws under which it is organized, and for “all other parties” (effectively those other than natural persons purporting to use in their own capacity and corporations; partnerships would be one such example), the capacity to sue is determined by the law of the state where the Court is located. The Entity Plaintiffs do not dispute, as an “an exempted company” incorporated under the law of the Cayman Islands,” Sonterra is a corporation for Rule 17(b) purposes and does not have a capacity to sue after dissolution under that jurisdiction’s law. Similarly, there is no dispute that, since each of the Frontpoint Plaintiffs are partnerships, New York law (the law of the jurisdiction where the Southern District of New York sits) applies; New York law in turn requires that the question of whether dissolution eliminates the capacity to sue for “foreign limited partnerships” (which each of the Frontpoint Plaintiffs are) be determined under the laws of the jurisdiction in which they were organized. Two of the Frontpoint Plaintiffs were organized under the law of the Cayman Islands; another one was organized under Delaware law. Under both the law of the Cayman Islands and Delaware law, dissolution eliminates the capacity to sue.

Instead of contesting that they have the capacity to sue, the Entity Plaintiffs instead argue that a) the defendants waived the standing argument by not making it at the beginning of the litigation; b) that FLH has standing by virtue of the assignment of claims to it by way of the asset purchase agreements and has properly brought this suit in the Entity Plaintiffs’ names; and c) that, as an alternative to b, FLH should be substituted into this action.

The Court briefly considered the Entity Plaintiffs’ waiver argument, but concluded that defendants had not waived the standing argument, since defendants’ request to have supplemental briefing to the Rule 12 motion to dismiss to address the issue was made at the initial stages of the litigation and was not unfairly prejudicial to the Entity Plaintiffs, since they do not in fact have capacity to sue because of their dissolution.

To support their substantive argument on standing, the Entity Plaintiffs rely on provisions in Sonterra and the Frontpoint Plaintiffs’ respective asset purchase agreements with FLH which gave FLH a power of attorney to sue in Sonterra and the Frontpoint Plaintiffs names for the claims assigned. The general rule is that powers of attorney terminate when the grantor of that authority ceases to exist. One exception to this, however, is that the power of attorney will survive if it is coupled with an interest in “the thing itself.” The Entity Plaintiffs argue that FLH’s power of attorney to bring the claims survived their dissolution, since the applicable provisions in the asset purchase agreements also couple the power of attorney with an interest in the assigned claims which could not be revoked by the Entity Plaintiffs, thereby falling into the exception.

However, Federal Rule of Civil Procedure 17(a)(1) requires that an “action must be prosecuted in the name of the real party in interest.” The Court notes that the interest with which FLH’s power of attorney is coupled is the assignment of claims itself (otherwise the power of attorney would not survive). This makes FLH the “real party in interest,” meaning that the action must be prosecuted in FLH’s name.

The Court accordingly rejects the Entity Plaintiffs’ argument that it is FLH who has standing and that it has properly brought this action in the Entity Plaintiffs’ names. The Entity Plaintiffs cannot both claim that FLH has standing because it has power of authority coupled with an interest in the assigned claims, allowing it to survive the dissolution of the power of attorney’s grantor, and that the action should be brought in their names, instead of FLH, the party with the real interest in the case.

Finally, the Court addresses the Entity Plaintiffs’ argument in the alternative, which is that FLH should be substituted pursuant to Federal Rule of Civil Procedure Rule 17(a)(3), which prohibits the Court from dismissing an action for failure of the “real party in interest” to prosecute it until a “reasonable time” has been allowed for such party to be “substituted into the action.” According to Second Circuit precedent, Rule 17(a) substitution is only allowed “when the change is merely formal and in no way alters the original complaint’s factual allegations as to the events or participants.”

The Court ultimately concludes that Rule 17(a)(3) could not be used to allow for substituting FLH into the action, since substituting in FLH would require factual allegations of the complaint to include details of the assignment from the Entity Plaintiffs to FLH. Even a short description of the assignment would fail to meet the Second Circuit’s Standard.


The end result is that all of the Entity Plaintiffs claims against defendants (except for those against JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A.) are dismissed, and Richard Dennis is left as the only plaintiff.

This post was written by John F. Whelan.

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