A company can claim privilege against its own shareholder

“The Shareholder Rule is unjustifiable and should no longer be applied”¹

Legal professional privilege is a fundamental right central to civil litigation under English law which, broadly speaking, enables a party to obtain legal advice and produce documents in contemplation of litigation by protecting such advice and documents from disclosure.

It has however been firmly established for over 135 years that a company cannot claim privilege against one of its own shareholders, except in relation to documents created for the dominant purpose of hostile litigation between the company and that particular shareholder. This is known as the Shareholder Rule.

In the landmark judgment given in Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) (Aabar Holdings), this entrenched rule has now been renounced as “unjustifiable” and a principle which “should no longer be applied”. As a result, as matters stand, a company can now assert privilege against its own shareholder.  

The Shareholder Rule

The Shareholder Rule was established in 1888² when the court held that a company shareholder seeking to set aside an agreement could see communications (relating to the problematic agreement) exchanged between the company in question and its lawyers. The view was that: i) the position of shareholders was analogous to that of trust beneficiaries and partners; and ii) shareholders accordingly had a proprietary interest in company assets and, as a result, legal advice the company had paid for. 

A long-standing body of case law supporting the idea that a shareholder has a right to see privileged company information followed, with the Shareholder Rule continuing to be recognised into the 21st century³. However, in 2023, the Shareholder Rule was questioned before the High Court⁴ and doubt over its foundations expressed for the first time. Reference was made to the fact that the rule had emerged nine years before a “seminal case”⁵ which set out that a company is to be regarded as a distinct legal person, separate from its directors, shareholders, employees and agents. Recognising that, the Shareholder Rule was said to be premised on a “somewhat shaky foundation”⁶ with the relationship between a company and its shareholders “clearly not a relationship of trustee and beneficiary”, given even directors had been held not to be trustees of company property^7. 

In short, whilst the judge in that case, Mr Justice Michael Green, as a self-deprecatingly proclaimed “lowly first instance judge”⁸, concluded that he could not say that the Shareholder Rule did not exist, the logic on which the rule was founded was indisputably called into question by his judgment. In the same year, the Shareholder Rule was also subject to critique before the courts of the Cayman Islands and Bermuda⁹ and 2023 culminated in calls in commentary for consideration of the ongoing legitimacy and scope of the anomalous¹⁰ Shareholder Rule. To echo the analogy utilised by Green J, the foundations of the rule appeared at best shaky and at worst, crumbling. 

Rejection of the Shareholder Rule

Just over a year later - and seemingly in answer to those calls for consideration of the Shareholder Rule - came the judgment of Mr Justice Picken in Aabar Holdings. This considered the Shareholder Rule in the context of a claim brought by Aabar Holdings S.á.r.l against Glencore Plc and others under sections 90 and 90A of the Financial Services and Markets Act 2000 as part of shareholder group litigation against Glencore. The question of whether Glencore was entitled to claim privilege against the claimant shareholders was in dispute.

The claimant shareholders argued that the existence of the Shareholder Rule meant Glencore could not claim privilege. Whilst noting that the Shareholder Rule had in some earlier cases been justified on the basis of shareholders having a proprietary interest in the company’s assets, the claimant shareholders put forward a “modern rationale”¹¹ for the Shareholder Rule - the concept of joint interest privilege.

Joint interest privilege was said to exist when:

• even though there was never any joint retainer between party A and party B (i.e. only one of them was party to the relevant lawyer-client relationship); and 
• even though party A and party B had never shared their privileged documents with each other, 

the parties still had a joint interest in the subject matter of the privileged documents at the time they came into existence¹². It was argued that if joint interest privilege was identified, neither party could claim privilege against the other in respect of the relevant documents.

In response, Glencore emphasised that the Shareholder Rule was rooted in findings from the 19th century and should no longer be applied, with joint interest privilege being an unsuitable “alternative or substitute justification”¹³ for the rule.

The key findings of Picken J can be summarised as follows:

• Echoing the deliberations of the High Court in 2023, Picken J confirmed that the existence of the Shareholder Rule could no longer be justified by suggesting a shareholder has a proprietary interest in a company’s assets, definitively stating “whatever historical similarities there may once have been between the positions of an investor in a company, and partners or trust beneficiaries” have ceased to exist¹⁴. 
• Whilst the Shareholder Rule could therefore not be maintained on a proprietary interest basis, the key question was whether it could be justified with reference to the principle of joint interest privilege. Whilst Picken J accepted there are cases that reference joint interest privilege in a shareholder / company context¹⁵, he highlighted that those cases did not address the application of the Shareholder Rule and concluded:
  
  “There is no binding authority which decides that the Shareholder Rule can be justified on the basis of joint interest privilege. What there is, in truth, amounts to little more than passing (and anyway obiter) comment in cases where the Shareholder Rule was not in issue … and without independent analysis of the underlying basis for the Shareholder Rule”¹⁶. 
• Cementing his views, Picken J went on to add that:
• There were no authorities supporting the suggestion that joint interest privilege was even a standalone species of privilege¹⁷. Joint interest privilege was held to be merely an “umbrella term” used to describe a range of scenarios in which one party is unable to assert privilege against another, not because there is a freestanding concept of joint interest privilege, but on “narrower and more conventional grounds”¹⁸. 
• Even if joint interest privilege was a freestanding species of privilege, there is no justification for concluding that it applies to a relationship between companies and shareholders¹⁹ so as to prohibit a company from asserting privilege against its own shareholder. 

Picken J summarised “the Shareholder Rule is unjustifiable and should no longer be applied. Its original rationale no longer applies…and the suggested joint interest privilege rationale is neither supported, at least in the shareholder / company context, by authority nor warranted as a matter of principle”²⁰.

Implications  

Whether Picken J’s analysis will be endorsed in subsequent cases remains to be seen, although the wait may not be a long one – the continuation of the Shareholder Rule was recently challenged in the court of first instance in another ongoing securities litigation case, Allianz & Others v Barclays Plc, in which judgment is expected shortly. An appeal of Picken J’s judgment does however also remain a very real possibility. As Green J noted, it may be that the Shareholder Rule is so entrenched that it is for the Supreme Court to overturn it²¹. 

Leaving that to one side, the judgment has potentially far-reaching consequences, not only for securities litigation but for company law litigation generally. If followed, Picken J’s findings will for example impact on the ability of shareholders to obtain documents in both unfair prejudice proceedings and derivative actions. On a practical level, companies will also welcome this enhanced ability to benefit from the protection of legal professional privilege. With this judgment arriving just days before activist investor Palliser Capital stepped up its campaign against Rio Tinto , this is likely to be particularly welcome news for companies in a climate of increasing shareholder activism. However, for now, directors may wish to exercise caution by continuing to bear the Shareholder Rule in mind until the dust settles and the status of the rule is definitively confirmed by a higher court. 

¹  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [117]. 
²  Gouraud v Edison Gower Bell Telephone Co Ltd (1888) 57 LJ (Ch) 498.
³  See for example Sharp v Blank [2015] EWHC 2681 (Ch).
⁴  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch).
⁵  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [25], referring to Salomon v A Salomon & Co Ltd [1897] AC 22. 
⁶  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [42].
⁷  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [25].
⁸  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [30].
⁹  See for example In the matter of the Companies Act (2020 Revision) and In the matter of 58.Com Inc March 22 2023, Cause FSD02275/2020; and In the matter of Jardine Strategic Holdings Ltd [2023] SC (Bda) 8 Civ.
¹⁰  “Time to wipe the slate blank? The shareholder exception to legal professional privilege: Various Claimants v G4S Plc [2023] EWHC 2863 (Ch)”, Joseph Khaw, Civil Justice Quarterly C.J.Q. 2024, 43(3), 199-211. 
¹¹  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [60]. 
¹²  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [19].
¹³  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [32].
¹⁴  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [56].
¹⁵  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [66], referencing James-Bowen v Comr of Police of the Metropolis [2018] 4 All ER 1007, [2018] UKSC 40; Dawson-Damer v Taylor Wessing LLP [2020] 3 WLR, [2020] EWCA Civ 352; and Oasis Investments II Master Fund Ltd v Jardine Strategic Holdings [2024] CA (Bda) 7 Civ.
¹⁶  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [93].
¹⁷  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [105].
¹⁸  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [94].
¹⁹  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [106].
²⁰  Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) at [117].
²¹  Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [29]. 
²²  “Activist shareholder intensifies campaign for Rio to quit London”, The Financial Times, 4 December 2024