In the case of the Dredger Kamal5, the judge was satisfi ed that the common law had extended the fraud exception to communications with ‘innocent’ clients and granted the order for disclosure. The ‘fraud exception’ provides that there is no privilege if the communication came into being for the purpose of furthering the commission of a fraud.
The owners of the ship Ariela incurred costs of over $1.25m in defending a fraudulent claim by Kamal’, who then failed to pay any sum to the owners of Ariela. The application for disclosure was made against Kamal’s insurers, on the basis that they had supported and funded Kamal’s action and instructed the solicitors who acted in the fi rst action.
The issue in question was whether the insurers should have discovered the fraud when they fi rst inspected and investigated. This was as much an issue when considering whether it was just and equitable to grant the disclosure, as the counter argument that they were also victims of the fraud. Had it not been for the insurers’ ability to pay out the grossly infl ated claim and then pursue losses, the fraud would never have been perpetrated. It was in the interests of justice that the issues should be properly considered by the court.
This decision will be particularly relevant to parties seeking disclosure of otherwise privileged documents from an innocent party, who has been used as a ‘mechanism’ for achieving the fraud.