The end of the Shareholder Rule

For over a century, when a company has been sued by a shareholder, difficult questions have arisen about privilege. The rule in English law has been that companies are unable to withhold documents from their own shareholders on the basis of privilege unless the relevant advice relates to actual, threatened or contemplated litigation between the shareholders and the company. That is the “Shareholder Rule”. It sounds simple enough to apply in theory but, in practice, it can be fraught. For example, at what precise point in the chronology of a dispute does litigation become “contemplated”? When does advice “relate” to the litigation? What if the advice relates not only to that contemplated litigation but to broader concerns? Many litigators will be familiar with the sinking feeling of acting for a company in a disclosure exercise which, with the benefit of hindsight, has been rather more loose-lipped about a shareholder claimant or defendant than perhaps it ought to have been, in the reasonable expectation that it would never have to hand over privileged materials.

In a key decision at the end of 2024, however, the High Court in Aabar Holdings S.à.r.l. v Glencore Plc [2024] EWHC 3046 (Comm) found that the Shareholder Rule no longer exists as a blanket rule and therefore has limited, if any, application in English law. Mr Justice Picken meticulously examined the historical development of the rule and found that its original foundation, namely a shareholder’s proprietary interest in company assets, was incompatible with modern company law principles, particularly the concept of separate corporate personality. Subject to any appellate review, the decision in Aabar therefore means that companies will no longer need to undertake the careful and often difficult analysis to determine when their interests have diverged sufficiently from their shareholders to entitle them to assert privilege over documents that the Shareholder Rule alone would otherwise oblige them to produce.

The judgment also addressed whether the Shareholder Rule could be justified as a type of joint interest privilege, but Mr Justice Picken found that there was no general principle that could support a broad joint interest privilege encompassing the company-shareholder relationship. There may be specific instances where a shareholder and company could genuinely share a joint interest, potentially allowing a shareholder access to privileged documents, but this would always turn on the facts. It is also worth noting that Mr Justice Picken expressed considerable scepticism as to whether a self-standing concept of “joint interest” privilege exists at all; in his view, the various categories of relationship to which joint interest privilege may be thought to arise could be better explained on other more orthodox grounds (see the obiter passage in the judgment from [94]).

The judgment emphasises that asserting legal professional privilege is a fundamental right of companies and this right should not be easily overridden. Mr Justice Picken also expressed concerns about the negative policy implications of the Shareholder Rule. Extending it to cover without prejudice privilege, for example, could deter parties from engaging in settlement negotiations with companies for fear of those negotiations being disclosed to shareholders in subsequent litigation. The rule could also discourage companies from seeking legal advice in the first place, ultimately undermining the public policy rationale behind legal professional privilege. This ruling brings English law closer in line with other jurisdictions like Canada and Australia, where courts have rejected the Shareholder Rule.

Litigants are advised to keep an eye out for any Court of Appeal treatment of this case in due course.