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Ripping up the shareholder rule? An end to the shareholder’s right to access a company’s privileged documents

Posted on 29 November 2024

For many years the 'shareholder rule’ has been seen as an exception to legal professional privilege, entitling shareholders to disclosure of a company’s privileged documents. However, in a significant decision for both directors and shareholders, Mr Justice Picken in Aabar Holdings SARL v Glencore PLC & Ors [2024] EWHC 3046 (Comm) has concluded that the shareholder rule should no longer be applied, and cast doubt on the concept of joint interest privilege as a whole. 

Joint interest privilege and the shareholder rule 

Legal professional privilege – comprising legal advice privilege and litigation privilege – is a fundamental principle of civil litigation and public policy, providing a party with an absolute right not to produce confidential communications with their lawyers, or confidential communications made for the dominant purpose of litigation.

The shareholder rule has long been regarded as providing an exception to those rules, preventing a company from asserting privilege against its own shareholder, unless the otherwise privileged documents have been created for the purposes of hostile litigation between the company and the shareholder.

The basis for the rule is, however, unclear. Initially it was apparently justified on the basis that the shareholder had a proprietary interest in the company’s assets, and hence the advice taken for the company that was paid for from the company’s funds. However, more recently it has been seen as an emanation of joint interest privilege, which prevents one party asserting privilege against a third party that has a joint interest in the privileged materials (for example, the interest of the beneficiary of a trust in material held by a trustee).

Judicial doubt has increasingly been cast over the existence of and justification for the shareholder rule – most recently by Mr Justice Michael Green in Various Claimants v G4S Plc [2023] EWHC 2863 (Ch), who observed it had “a somewhat shaky foundation”. Aabar now appears to have sounded the death knell for the shareholder rule as an exception to the rules of privilege. 

The background  

The claimants in Aabar are pursuing claims against the global natural resources company, Glencore, under sections 90 and 90A of the Financial Services and Markets Act 2000. Glencore asserted privilege over a number of disclosed documents, and that assertion of privilege was challenged by one of the claimants, Aabar, on the basis of the shareholder rule. This challenge led to an interim hearing, at which a number of important privilege-related issues were addressed, the most fundamental of which was: does the shareholder rule exist in English law? Aabar argued that it did; Glencore submitted that it did not.  

Does the shareholder rule exist in English law?  

At the hearing, the parties both accepted that the shareholder rule could not be based on a proprietary interest, following the longstanding principle that a company is a separate legal entity, distinct from its shareholders.  

The claimants’ argument for the shareholder rule therefore depended on the existence of a joint interest privilege between a company and its shareholders. They argued that English law treats the shareholder as having a joint and aligned interest with the company in communications relating to the administration of the company’s affairs, due to the shareholders’ direct economic interest in the company’s performance as a result of their capital investment.  

Mr Justice Picken comprehensively dismissed that argument. After detailed examination of the case law, he concluded that there was no support for the existence of joint interest privilege as a freestanding concept. In the cases where joint interest privilege was found to apply, the judge considered there were case-specific grounds for a joint privilege existing (such as between trustee and beneficiary), but no concrete justification for asserting that joint interest privilege existed as an overarching concept.  

Further, the judge concluded that there was no principle that joint interest privilege generally operates between a company and a shareholder, or that there was even any justification for the shareholder rule, noting that:  

  • There is nothing in the company/shareholder relationship that justifies denying a company of its right to keep its confidential legal advice private and privileged. This can be contrasted with the inherent features of other joint interest relationships, such as between partners, trustees and beneficiaries, and joint venturers. In particular, directors do not owe their duties to the shareholders directly, but to the company itself.  
  • Shareholders do not generally have the right to access a company’s documents, whether they are privileged or not. A shareholder’s legal and economic interests are confined to the contractual rights they enjoy under the company’s articles of association.  
  • A shareholder’s interest in a company’s maximisation of profits is not sufficient to justify a blanket rule depriving the company from asserting its fundamental right to legal professional privilege. The absence of justification is even more pronounced where a company has thousands, or hundreds of thousands, of frequently changing shareholders, whose interests will vary widely.  
  • The shareholder rules itself risks undermining the public policy rationale for legal professional privilege. This is because it would potentially discourage directors from taking legal advice, in accordance with the duties they owe to the company, due to fear that that advice might be shared with large numbers of third parties. 

The end of the shareholder rule and joint interest privilege?  

Mr Justice Picken’s judgment carefully examines previous decisions relating to the shareholder rule, and concludes there is no binding authority in support of its existence and that it is no longer good law. The decision is likely to be particularly welcome news for companies in the face of increasing shareholder activism.  

Nonetheless, this first instance decision signals a significant departure from the long-accepted principles of joint interest privilege and the shareholder rule. It is therefore highly likely the decision will be appealed. Indeed, as Mr Justice Michael Green noted in G4S, the rule may be so well established that it is now for the Supreme Court to overturn it.  

Until the fate of the shareholder rule and joint interest privilege is therefore authoritatively decided, company directors may still prefer to take a cautious approach, and not take it for granted that legal advice taken by the company will be protected from future disclosure to shareholders. 

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