In Owners and/or Demise Charterers of the Dredger Kamal XXVI & the Barge Kamal XXIV (Claimants) v Owners of the Ship Ariela (Defendants) & Catlin (Five) Ltd (on its own behalf and on behalf of Syndicate 2020 at Lloyds for the 2003 year or account) & anor (Third Parties) [2010] EWHC 2531 Comm., the Applicant shipowner applied for disclosure by the Respondent underwriters in relation to an application for a third party costs order.

The Applicant had been held liable for a collision between its vessel and two vessels owned by the Claimants. The Claimants were only awarded minimal damages, as the court had concluded that the claim was fraudulent and resulted from both fraudulent statements made by the Claimants as to the extent of the loss, and fraudulent concealment by them of the true nature of the claim. The Claimants were ordered to pay the Applicant’s costs on the indemnity basis, and to pay back a sum which the Applicant had paid on account of costs. The Applicant sought an order under s.51(3) Senior Courts Act 1981 for the Respondent to pay the costs incurred by the Applicant but not recovered from the Claimants. The basis for this was that the Respondent had supported and funded the claim, and instructed the solicitors who acted in pursuing recovery against the Applicant of both the insured claim, and in respect of the Claimant’s uninsured losses.

The Court held that if the disclosure sought was relevant to the issues in the s.51 application, and was not protected by privilege, it was in this case appropriate to make the order. It would not be disproportionate, unnecessary or unjust. There would have been the need for some further disclosure in any event, and the interests of justice required the issues between the Applicant and Respondent to be properly dealt with by the Court, so there ought to be an order for disclosure.  

It was stated that the documents were disclosable on the basis that they were relevant to the issues of how the Respondent determined that the claim should be fought, how it controlled and conducted the litigation and whether it did so exclusively or predominantly for its own interests.  

The Court decided that it was arguable that the issue as to whether the Respondent could and should have discovered the fraud, and if so when, would go to the question of whether it was just and equitable to make an order under s.51. Other relevant issues were the fact that the Respondent itself had been the victim of fraud, and had paid out monies that it was unlikely to recover. As there was such an arguable issue, disclosure should be given.  

The Respondent and the solicitors, instructed partly by the Respondent and partly by the fraudulent client, were used as the mechanism for the Claimant to achieve its fraud. As a result, neither legal advice nor litigation privilege was available to the Respondent or the solicitors.