In family businesses, it is common for family members to wear several different “hats” – such as both shareholder and director, shareholder and employee, or shareholder and ultimate beneficial owner. That shareholder may be privy to company privileged information in their capacity as a director, or because the family business' natural governance or custom is that information is shared between family members.
The close-knit nature of family businesses may mean that more transparency is expected or required to avoid conflict, and there is likely an accompanying expectation from family members that information, including the company's legal advice, will not be withheld. In a sense, until the recent Privy Council decision in Jardine, the “Shareholder Rule” complemented that reality.
What's next for family businesses now Jardine has abolished the Shareholder Rule?
Privilege and the Shareholder Rule
Legal professional privilege is recognised as a fundamental human right by the courts, and is a necessary corollary of a person's right to obtain skilled advice about the law. Communications between a client and lawyer, for the dominant purpose of giving or receiving legal advice, are protected from disclosure.
For the past 135 years, the courts of England and Wales have applied the Shareholder Rule as an exception to legal professional privilege. The rule was engaged wherever there was a company-shareholder relationship: when the company and shareholder were in litigation against one another, the company could not assert privilege over documents against its shareholders unless those documents were created for the purpose of the litigation. The exception was limited strictly to the context of litigation between the company and the shareholder. A traditional justification for the exception was that the shareholder had a proprietary interest in the advice, i.e. they had (albeit indirectly) paid for the advice. The Privy Council rejected the proprietary justification for the rule as inconsistent with the English law position that a registered company is a separate legal personality, distinct from its members.
The Rule was said to apply to all companies, no matter their size or the number of shareholders – the Privy Council accepted this in Jardine and confirmed that it either applied to all companies, or it applied to none.
The new legal landscape
In Jardine (which we discussed in detail), the Privy Council confirmed that the Shareholder Rule should no longer be recognised as forming part of English law. Shareholders are now no longer entitled to disclosure of a company’s privileged legal documents during litigation.
The decision aligns with the English Commercial Court's decision in Aabar Holdings SARL v Glencore PLC & Ors, although the wider question raised in relation to joint interest privilege remains unanswered. An appeal in Aabar is expected to be heard by 26 January 2026.
This change is particularly significant for family businesses, where shareholders often also have different responsibilities and roles because of the different "hats" they wear, raising important questions about transparency, expectations and managing disputes and, given that the separate legal personality of a corporate structure is, at least in terms of the practical day to day reality of operating the business, is often seen as more opaque. This seismic change will have a significant impact on companies, shareholders and their advisors.
Next steps for family businesses
With the abolition of the Shareholder Rule, the legal framework is no longer compatible with an expectation of transparency in the same way: while there may still be a history or custom of sharing information, there is no longer a legal obligation enforcing it. There are several factors for a family business to consider regarding the new legal landscape.
When setting up companies in a family business context, consideration might be given to whether the company's constitutional documents (its articles of association and any formal shareholders' agreement) should seek to address this issue from inception so that it, and its stakeholders, are clear as to their respective powers.
Existing family businesses should seek advice as to whether their continued sharing of information with their stakeholders will constitute a waiver of privilege, and how they might address this to future proof the business in the event of potential disputes. Privilege is waived when the party who the privilege belongs to, in this example the company, acts in a way that is inconsistent with its confidentiality. Due regard should be given by advisers as to whether the ad hoc sharing of information would amount to a much broader waiver of privilege over all legal advice and whether protocols might be implemented so that advice might be shared in a manner that protects its confidentiality. At a practical level, expectations should be managed going forward if information is no longer to be shared.
Moving forward
As is clear, there are several important points to consider with this significant development in the law, and careful legal advice should be obtained. Family businesses should also look out for updates following the Aabar appeal due to be heard in the next few months.