Clifford Chance

In Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd [2025] UKPC 34 the Privy Council found that the "Shareholder Rule", previously used to justify shareholders seeking disclosure of privileged documents of companies, is a rule without justification that should no longer be followed.

Following on from the landmark decision of the English High Court in Aabar Holdings S.à.r.l. v Glencore plc [2024] EWHC 3046 (Comm), this confirms that a shareholder cannot, in the course of litigation between it and the company in which it holds shares, inspect documents covered by legal professional privilege.

The "Shareholder Rule"

The Shareholder Rule, also known as the Shareholder Principle, is the name given to (what was understood to be) an English law rule originating in the 19th century, that a company could not assert privilege against its own shareholders, except in respect of documents created for the dominant purpose of actual or threatened litigation between the company and the shareholders.

While the rule had been applied or acknowledged in securities group action cases as recently as 2023, in Aabar Holdings S.à.r.l. v Glencore plc [2024] EWHC 3046 (Comm), the High Court found, for the first time, that the Shareholder Rule did not exist.

Prior to the Aabar decision, it had been said that the Shareholder Rule was well-established in English law for over 130 years; originating in the 19th century, and justified on the basis that shareholders had a proprietary interest in the company's property, so should be entitled to see the company's privileged documents. Despite those foundations, the Rule had survived the landmark decision in Salomon v Salomon [1897] AC 22, that a company has a separate legal personality distinct from its shareholders. To address the significant shift in Salomon, subsequent decisions and academic commentary have justified the Shareholder Rule on the basis of joint interest privilege; arguing that there is a joint interest between a company and its shareholders, and so the company cannot claim privilege in litigation with shareholders, unless the documents in question concerned litigation with those shareholders.

Jardine

In Jardine, the existence and scope of the Shareholder Rule arose after a number of minority shareholders brought claims against Jardine Strategic Limited. The litigation arose out of an amalgamation between two companies, and a dispute as to whether the affected shareholders had received "fair value" for their shares under Bermudan law. The Shareholder Rule came into focus when the affected shareholders sought disclosure of legal advice received by the company in setting the "fair value" price. The company claimed that the advice was privileged, whereas the affected shareholders asserted an entitlement to disclosure by virtue of the Shareholder Rule.

First Instance and Court of Appeal

At first instance and in the Court of Appeal, the claimants were successful, with both courts finding that the Shareholder Rule was applicable and so the documents could not be withheld from inspection by the company.

Privy Council

In determining that the Shareholder Rule does not exist, the Privy Council started by considering the scope and importance of legal professional privilege itself. The Privy Council reflected on the existence of privilege as a fundamental right and a condition on which the administration of justice rests. While there are some limited exceptions to this, such as in circumstances where a document came into existence in furtherance of iniquity, it is otherwise an absolute privilege and any inroads into privilege must therefore be carefully considered.

The Privy Council considered the broad question of "Should the Shareholder Rule continue to exist in some form". This broad formulation sought to accommodate any possible basis by which legal advice privilege may be resisted between the shareholder parties to the litigation and Jardine.

The Privy Council was satisfied that the Shareholder Rule forms no part of the law of Bermuda and that it ought not to continue to be recognised in England and Wales. It highlighted that the original proprietary justification of the rule is wholly inconsistent with the proper analysis of a registered company as a legal person separate from its members. As a consequence, the Privy Council saw the Shareholder Rule as a rule without modern justification. As the Privy Council put it "Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed".

As to joint interest privilege, the Privy Council found that this could not sensibly justify an automatic status-based denial of legal professional privilege between every company and all shareholders. This is primarily because it cannot be said that there is always a community of interest between every company and its shareholders and, within shareholders, there are often diverging interests. In addition, shareholders are not the only stakeholders in a company and other interests, such as of employees or of providers of finance, must be balanced by directors of a company.

The Privy Council then considered whether a narrower, more nuanced version of the Shareholder Rule could exist, as advanced by Kawaley LJ in the Bermudian Court of Appeal. In this version, the existence of the shareholder relationship would be the starting point for a fact sensitive inquiry as to whether that shareholder could prove it had a joint interest in specific advice, and so could demand disclosure in litigation. The Privy Council considered that this would make it all but impossible for directors to know, when deciding whether or not to seek legal advice, whether the advice would be protected for production to shareholders in future litigation. Here, the Privy Council considered there needs to certainty as to whether legal advice will be privileged, otherwise it will fail to serve the objective of encouraging the taking of legal advice.

The Privy Council therefore decided that the Shareholder Rule should no longer apply.

Willers v Joyce

Jardine was, strictly, an appeal from the Bermudian Courts. Accordingly, the Privy Council's decision would not automatically apply in England unless there was a specific order (called a Willers v Joyce order) to that effect. Jardine invited the Privy Council to make such an order.

While the Privy Council queried whether a Willers v Joyce direction was formally required, the Privy Council confirmed in clear terms that this decision should be regarded by courts in England and Wales as abrogating the Shareholder Rule for the purpose of litigation in those courts. The effect of this direction is that the Shareholder Rule is now defunct in English law.

Comment

Whilst the Shareholder Rule existed on paper, it was often not applied in practice. In several previous shareholder actions that reached the disclosure phase, companies claimed privilege against their shareholders and this claim was not challenged. In the G4S case the defendant’s privilege claim was challenged on the basis of the Shareholder Rule, but the challenge came too late in the proceedings and therefore failed. The Aabar v Glencore case was the first case in which a full-scale challenge was mounted against a company claiming privilege against its own shareholders and the decision in Glencore relating to the status of the Shareholder Rule was effectively upheld here.

This decision has provided much-needed clarity on the so-called Shareholder Rule:

• For companies, the decision confirms that the usual privilege rules will apply in disputes between companies and shareholders. This offers companies certainty that privilege can be claimed in litigation that might eventuate with shareholders (or, indeed, any other party with an interest in the company).
• For companies defending s.90 and/or s.90A FSMA claims, where the Shareholder Rule has featured in recent years, the decision should foreclose the risk that claimants pursue opportunistic disclosure applications for disclosure of a company's legal advice.

Clifford Chance has represented and is representing defendants in previous and ongoing s.90 and s.90A FSMA cases (including the action against Glencore).