Underwriters can be ordered to disclose documents related to an application against them for a third party costs order under the Senior Courts Act s.51(3). In Owners and/or Demises Charterers of the Dredger Kamal XXIV v Owners of the Ship Ariela and Ors [2010] EWHC 2531 (Comm), the underwriters had been used by the insured as part of the mechanism for achieving fraud and under the circumstances it was held that a disclosure order was appropriate.

The owners of the ship Ariela incurred costs of over $1.25m defending a claim brought by Kamal, the owners of a dredger and a barge which collided with the Ariela. It was held, in two previous decisions (see [2009] EWHC 177 (Comm) and [2009] EWHC 3256 (Comm)), that Kamal's claim was fraudulent as most of the damage had occurred before the collision. Kamal failed to repay any sum to Ariela and so Ariela then pursued the underwriters to recover the costs through a third party costs order under s.51 Senior Courts Act 1981. This was on the basis that the underwriters supported and funded Kamal's action and instructed the solicitors who acted in the first action.

Ariela sought disclosure by the underwriters of documents relating to the proceedings. Mr Justice Burton said that, as a starting point, if the disclosure sought was relevant to the issues in the s.51 application and there was no privilege, then an order could be given. To determine whether it was relevant to the issues he looked at the five non-exclusive features stated by Phillips LJ in Chapman Ltd v Christopher and another [1998] 1 WLR 13 at 20F to decide whether a s.51 action would succeed. "The features ... to justify seeking a costs order against the insurers include the following: (1) the insurers determined that the claim would be fought; (2) the insurers funded the defence of the claims; (3) the insurers had the conduct of the litigation; (4) the insurers fought the claim exclusively alternatively predominantly to defend their own interests; (5) the defence failed in its entirety." On the basis that the documents sought were relevant to these issues, as they went to whether the underwriters determined that the claim should be brought, the documents were disclosable.

In deciding on whether any privilege was available, Burton J said that because the underwriters had been part of Kamal's mechanism to achieve fraud by funding the claim and instructing solicitors, then the fraud exception applied and neither legal advice nor litigation privilege applied. As to whether the underwriters should have discovered the fraud, Burton J said this would go to whether it was just and equitable to make an order under s.51. Based on all of the above, he decided that it was.