In brief:
- In a landmark decision, the UK Privy Council has confirmed that the shareholder rule should no longer be recognised as forming part of English law.
- This means that a shareholder will no longer be entitled to disclosure of a company's privileged documents when it is litigating against that company, and will have a significant impact on companies, shareholders and their advisors.
- The decision also confirms the English Commercial Court's decision last year in Aabar Holdings SARL v Glencore PLC & Ors (which we discussed here), although the wider question raised by that judgment in relation to joint interest privilege remains unanswered.
Background
The context to Jardine Strategic Limited v Oasis Investments II Master Fund Ltd & Ors No 2 [2025] UKPC 34 was the amalgamation of two companies within the Jardine Matheson group - a multinational conglomerate incorporated in Bermuda. Under the applicable Bermudan statute, shareholders who dissented to the amalgamation were to be paid a fair value for their shares. However, the dissenting shareholders were dissatisfied with the amount they were offered and applied to the Bermudan court to determine the fair value of their shares. In the course of those proceedings, the shareholders sought disclosure of legal advice given to the Jardine Matheson group when it set the amount to be offered.
Although the shareholders accepted that advice received by the pre-amalgamation companies was of a type that would ordinarily be protected by legal advice privilege and therefore not normally disclosable, they contended that the shareholder rule applied, overriding that privilege. At first instance, the Bermudan court agreed, and that decision was upheld by the Court of Appeal for Bermuda. The shareholders therefore appealed to the Judicial Committee of the Privy Council, the final court of appeal for UK overseas territories, and certain other Commonwealth countries.
Privilege and the shareholder rule
Legal professional privilege has been repeatedly recognised as a fundamental human right by the UK courts - a necessary corollary of the right of any person to obtain skilled advice about the law. It ensures that confidential communications between a lawyer and their client that are sought for the dominant purpose of giving or receiving legal advice will be protected from disclosure.
The shareholder rule has historically been recognised as an exception to that principle, enabling a shareholder in proceedings against a company to obtain privileged documents belonging to the company that came into existence before the litigation was commenced or in contemplation. The traditional justification for the rule is that the shareholder has a proprietary interest in the advice. Thus, in Sharp v Blank (2015), the English court stated that "a company taking advice on the running of the company's affairs and paying for it out of the company's assets cannot assert a privilege against the shareholders who … have indirectly paid for it". However, given the recognition of separate corporate personality and the fact that shareholders have no direct interest in a company's property, doubt has been cast on that justification. More recently commentators have suggested that the rule is a sub-set of joint interest privilege, justifiable on the grounds that a company and its shareholder have a joint interest in the relevant advice.
Nevertheless, the rule was regarded as well settled, and so Mr Justice Picken's conclusion in Aabar Holdings SARL v Glencore plc that it should be abandoned was, as the Privy Council suggested, something of a surprise. Mr Justice Picken concluded that the shareholder rule could no longer be supported, either by reference to its traditional proprietary justification, or on the basis that it was covered by joint interest privilege. A leap-frog appeal to the Supreme Court on that decision was rejected on the basis that the issue would be addressed by the Privy Council in Jardine (an appeal to the Court of Appeal in Aabar is, however, currently listed to be heard later this year).
The Privy Council's decision
The Board of the Privy Council has now unanimously allowed the appeal in Jardine, concluding that "like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed". The shareholder principle formed no part of the law of Bermuda, and ought not to continue to be recognised in England and Wales either.
The Board observed that the original proprietary justification for the rule was wholly inconsistent with the proper analysis of a registered company as a legal person separate from its members. Moreover, it could not sensibly be said that there was always a community of interest between every company and its shareholders, either as a class or individually, so the alternative justification on the basis of a joint interest also failed to justify the rule. The Board added that it would be strange if an exception to legal professional privilege could be mounted on the basis of the relationship between shareholder and company in circumstances where the express contractual terms of that relationship normally restrict what the shareholder is entitled to see outside the litigation context.
The Bermudan Court of Appeal had alternatively suggested that there may be a narrower and more nuanced basis for occasionally depriving a company of legal professional privilege in litigation with its shareholders where the shareholder can demonstrate a sufficient joint interest in the obtaining and receiving of advice, on the particular facts of the case. However, the Board rejected that suggestion, commenting that it would give rise to unacceptable uncertainty, with the result that directors would just have to make a general assumption that they could never obtain legal advice in confidence.
Decisions of the Privy Council are not normally binding on the English courts, although they are regarded as of great weight and persuasion. However, in some cases, where the Board decides that an earlier decision of the Supreme Court or Court of Appeal on English law was wrong, the Board can expressly direct that domestic courts should treat the decision of the Privy Council as representing the law of England and Wales. In this case, there was some doubt as to whether such a direction was necessary. However, given the forthcoming appeal in Aabar and to avoid future doubt, the Board declared that its decision should be regarded by English courts as abrogating the shareholder rule.
The implications
The Privy Council's decision represents a decisive end to the shareholder principle and means that directors can now be comfortable that privileged legal advice obtained on behalf of the company will not be subject to disclosure obligations in the event of a subsequent dispute arising with shareholders.
However, the decision is not necessarily an end to the story. In Aabar Mr Justice Picken not only held that the shareholder rule should no longer be supported, but he also concluded that there was no overarching joint interest privilege principle. The Board of the Privy Council made clear that in Jardine it was not laying down the law about joint interest privilege generally. That will be a question for another day.