Carvill America Incorporated & Anor v Camperdown UK Ltd & Ors

A claimant seeking permission to serve a foreign defendant as a necessary or proper party must establish both a real issue on the merits and a good arguable case that the defendant is a proper party. A real prospect of success exists where the claim is not fanciful. The good arguable case standard requires a strong argument, although not proof on the balance of probabilities.

A foreign defendant is ordinarily a proper party where its alternative liability and that of an existing defendant depend upon one investigation. An arbitration agreement between the foreign defendant and an existing defendant carries little or no weight where the claimant is not a party to it and the proceedings determine no rights between its parties.

A reinsurance broker claimed unpaid brokerage from European reinsurers on the basis of market custom and implied contracts. It alternatively claimed the brokerage, or damages for its loss, from the reinsured under a broker-of-record letter governed by Connecticut law but considered on the assumption that Connecticut law was the same as English law.

The Commercial Court dismissed the reinsured's application to set aside permission to serve it outside the jurisdiction. The reinsured appealed on the grounds that there was no serious issue to be tried against it and no good arguable case that it was a necessary or proper party under the Civil Procedure Rules 1998. It did not appeal the finding that England was the proper forum.

The central questions were whether the broker's contractual case was more than fanciful and whether the closely connected, alternative claims against the reinsurers and reinsured should be determined in one investigation.

1. Appeal dismissed unanimously. The broker had a real issue which it was reasonable for the court to try against the reinsured. Its alternative claim was not fanciful, notwithstanding the broker-of-record letter's statement that its remuneration would be paid entirely by reinsurers.

2. The merits threshold for service outside the jurisdiction was substantively the same as the real-prospect-of-success threshold under the Civil Procedure Rules 1998. It was not a high test. A claim possessed a real prospect of success where its prospects were not fanciful. The disputed market custom and practice required evidence, making final determination of the contractual questions inappropriate at this interlocutory stage.

3. The earlier appointment letter, its addendum, the reinsurance treaties and the manner in which the arrangements had operated were arguably admissible background to construction. It was arguable that the reinsured had undertaken to pay gross premiums to the reinsurers or the broker, thereby enabling the broker to deduct or receive its brokerage. It was also arguable that the contract contained an implied term preventing the reinsured from withholding gross premiums so as to deprive the broker of remuneration. The court expressed no concluded view on the contract's true construction or on the terms ultimately to be implied.

4. The broker also established a good arguable case that the reinsured was a proper party under rule 6.20(3). That standard required a strong argument but fell short of proof on the balance of probabilities. The claims against the reinsurers and the alternative claims against the reinsured were closely connected and depended upon one investigation into liability for the brokerage, including the alleged market custom and practice.

5. The arbitration clauses between the reinsured and reinsurers carried little, if any, weight. The broker was not a party to those agreements, and the action determined rights between the broker and each group of defendants rather than rights between the reinsured and reinsurers. Any dispute falling within an arbitration clause could be addressed by an application under section 9 of the Arbitration Act 1996. An arbitration agreement between two defendants does not prevent a non-party claimant from joining both in court proceedings.

1. Court of Appeal (Civil Division): The reinsured's appeal was dismissed. The court upheld the findings that there was a serious issue to be tried against it and a good arguable case that it was a proper party to the broker's claims against the reinsurers: [2005] EWCA Civ 645.

2. Commercial Court: His Honour Judge Havelock-Allan QC dismissed the reinsured's application to set aside Morison J's order permitting service of the claim form outside the jurisdiction: EWHC 2221 (Comm).