Access to privileged company documents: shareholder rule abolished

In a landmark decision, the Privy Council has unanimously held that the shareholder rule that allowed shareholders to access legally privileged company documents no longer applies and declared that this ruling will be binding on English courts (Jardine Strategic Limited v Oasis Investments II Master Fund Ltd and 80 others (No 2) (Bermuda) [2025] UKPC 34).

Understanding the shareholder rule

The shareholder rule refers to the principle that a company cannot claim privilege against one of its own shareholders except in relation to documents that were created for the dominant purpose of hostile litigation between the company and that shareholder. The rule has enabled shareholders that are litigating against their company to obtain documents containing legal advice that was given to the company before litigation was in contemplation and that relate to the subject matter of the proceedings. While company constitutional documents do not typically grant shareholders a general right to access company documents, the shareholder rule has offered litigating shareholders a route to review what would otherwise be privileged legal advice given to the company.

The shareholder rule was historically premised on the basis that shareholders have a proprietary interest in company assets and, as a result, in legal advice that the company had paid for. In Various Claimants v G4S Plc, the High Court expressed doubts over the foundations of the shareholder rule given that it emerged before Salomon v Salomon & Co Ltd, which confirmed that a company is a distinct legal person that is separate from its directors, shareholders, employees and agents ([2023] EWHC 2863 (Ch); [1897] AC 22). However, while noting that the shareholder rule was based on what it termed a shaky foundation, the court in G4S concluded that it could not say that the rule did not exist.

Joint interest privilege

The shareholder rule fell under the spotlight again in Aabar Holdings Sárl v Glencore Plc in which claimant shareholders put forward what was described as a modern rationale for the rule; that is, the concept of joint interest privilege ([2024] EWHC 3046 (Comm); see News brief “Privilege in shareholder disputes: the end of the shareholder rule?”). Echoing the deliberations of the court in G4S, the High Court in Aabar confirmed that the shareholder rule could no longer be justified by suggesting that a shareholder has a proprietary interest in a company’s assets and went on to question whether joint interest privilege could be a sufficient alternative justification ( see box “Analysis of joint interest privilege”).

The court summarised that the shareholder rule was unjustifiable and should no longer be applied. However, whether that analysis would be endorsed in subsequent cases remained to be seen. The Privy Council’s judgment in Jardine has now brought much needed clarity to the status of the shareholder rule.

Privilege claim

The appeal to the Privy Council of a decision of the Court of Appeal for Bermuda was brought by Jardine Strategic Limited, an entity formed from the amalgamation of two companies in the Jardine Matheson group: Jardine Strategic Holdings Ltd (Jardine Holdings) and JMH Bermuda Ltd. The amalgamation resulted in all of the shares in Jardine Holdings being cancelled and Jardine Strategic Limited was required to pay a fair value for those cancelled shares to shareholders that voted against the transaction. Some shareholders, dissatisfied with the share price offered, triggered a mechanism under the Bermuda Companies Act 1981 that required the court to determine the fair value of their shares.

During the discovery process, Jardine Strategic Limited asserted privilege over legal advice given to the group when contemplating the share value to be offered to shareholders. The claimant shareholders relied on the shareholder rule to argue that they should be granted access to this advice. While accepting that advice of this nature would typically be protected from disclosure by legal advice privilege, the shareholders’ position was that as the parties seeking access to the advice were shareholders, or had been shareholders at the time that the advice was sought or received, the shareholder rule meant that Jardine Strategic Limited could not claim privilege.

Before the appeal to the Privy Council, both the Chief Justice and the Court of Appeal for Bermuda had found in favour of the shareholders, stating that Jardine Strategic Limited could not claim privilege against shareholders over this advice ([2024] CA (Bda) 7 Civ). While the Court of Appeal for Bermuda accepted that the shareholder rule could not be applied on a blanket basis, with its application instead depending on whether a shareholder has sufficient interest in the legal advice in all the circumstances, it considered that this threshold had been met in this case.

No justification for shareholder rule

On appeal, the Privy Council held that the shareholder rule forms no part of the law of Bermuda and ought not to continue to be recognised in England and Wales, commenting that there is no justification for the rule. Historic attempts to justify the rule with reference to shareholders having a proprietary interest in company assets are inconsistent with the established analysis that a company is a distinct legal person, separate from its shareholders. Similarly, efforts to justify the rule on the basis of some joint interest between a company and its shareholders fail to acknowledge that those interests will not always align.

While confirming that it was not the occasion for a general review of what has come to be known as joint interest privilege, the Privy Council held that a relationship between a company and its shareholders does not fall within the scope of this principle. It held that the interests of a company and its shareholders may well diverge and there is not a sufficient analogy between the relationship that a company has with its shareholders and the other types of relationship that are typically considered to fall within joint interest privilege. A broad-based exception from legal advice privilege as between a company and its shareholders that is founded on a supposed joint interest between them would likely discourage companies from obtaining candid legal advice on decisions that they need to take in the companies’ best interests.

The Privy Council also rejected the Court of Appeal for Bermuda’s narrower circumstantial approach to the assessment of whether the shareholder rule applies as between a company and its shareholders, given that this would make it near impossible for a director to know, when deciding whether to take legal advice, whether it would be privileged against shareholders in litigation. This would result in directors having to make a general assumption that they could not obtain legal advice in confidence.

When concluding its judgment, the Privy Council issued a Willers v Joyce direction that expressly binds the courts of England and Wales ([2016] UKSC 44). This was particularly notable in the circumstances, given that an appeal of Aabar is pending before the UK Court of Appeal.

Implications

The Privy Council’s decision in Jardine is a refreshing acknowledgment of the practical reality that the interests of companies and shareholders can, and often do, diverge. Unless shareholders have already been provided with a copy of the legal advice that was given to the company before a dispute arose, they will no longer be entitled to access that advice during the disclosure process in litigation. In terms of their ability to access privileged company information, shareholders are simply in the same position as any other party that may wish to litigate against a company, where privilege is only lost in certain established circumstances. However, while providing much-needed confirmation of the end of the shareholder rule, for now, the wider questions regarding the existence of joint interest privilege raised by the High Court in Aabar remain unanswered.