Privy Council abrogates so-called "Shareholder Rule" under English law: companies can assert privilege against their shareholders

In a decision handed down this morning on an appeal from the Court of Appeal for Bermuda, the Privy Council has held unanimously that the so-called Shareholder Rule – ie that a company cannot assert privilege against its shareholders save in relation to documents created for litigation against that shareholder – forms no part of either Bermudian or English law: Jardine Strategic Limited v Oasis Investments II Master Fund Ltd [2025] UKPC 34.

In essence, the Privy Council held that the modern "joint interest" justification for the rule, based on the supposed joint interest between a company and its shareholders relating to the affairs of the company, cannot replace the original justification for the rule, which was based on the now-discredited notion that shareholders have a proprietary interest in the company's assets.

The decision notes that shareholders will often have diverging interests even among themselves, and that a company has various other groups of stakeholders whose interests must be taken into account, such as funders and employees. It concludes that the continued recognition of the Shareholder Principle would discourage directors from taking legal advice required in order to make decisions for the benefit of the company, due to the risk of it having to be disclosed to shareholders at a later date.

The Privy Council therefore decided to abrogate the Shareholder Rule, and used its power (recognised in Willers v Joyce (No 2) [2016] UKSC 44, considered here) to make a direction that its decision should be regarded as binding on the English courts, as well as deciding the appeal in Bermuda.

The decision means that companies can assert privilege against their shareholders, as the High Court had held in its decision last November in Aabar Holdings v Glencore [2024] EWHC 3046 (Comm) (see our blog post here). It will be highly significant in the context of shareholder litigation, including securities class actions, as it will mean that shareholders generally have no entitlement to production of the company's privileged material.

While rejecting the "joint interest" justification for the Shareholder Rule, the Privy Council made clear that nothing in its judgment should be taken as laying down the law about joint interest privilege generally (which may still apply to various relationships including principal and agent, trustee and beneficiary, joint venturers and various insurance-based relationships) or the difference between joint interest and common interest privilege.

Background

The dispute arose out of the amalgamation of two companies within the Jardine Matheson corporate group to form Jardine Strategic Ltd (the "Company"). The result of the amalgamation was that all shares in one of the amalgamating companies were cancelled.

Under the relevant Bermudian statutory provisions, the Company was required to pay fair value for those cancelled shares. Some shareholders were not satisfied with the offer made of $33 per share. They triggered the statutory mechanism which requires the court to determine the fair value.

The shareholders applied for disclosure of the legal advice provided to the Company when formulating its share offer. The Company asserted legal advice privilege, and the shareholders relied on the Shareholder Rule to override the privilege.

Both the Chief Justice and the Court of Appeal for Bermuda found that the Company could not assert privilege against the shareholders. In the Court of Appeal, Kawaley JA rejected the traditional view that the Shareholder Rule applied on a blanket basis, instead finding that its application is more flexible and depends on whether the shareholders have a sufficient interest in the particular advice in all the circumstances (which he was satisfied they did in this case).

The Company appealed to the Privy Council, arguing both that the Shareholder Rule should not form part of Bermudian law and that it should no longer be recognised as forming part of English law.  

Decision

The Privy Council unanimously allowed the appeal, finding that the Shareholder Rule forms no part of either Bermudian or English law. Lord Briggs and Lady Rose gave the leading judgment, with which Lord Leggatt, Lord Burrows and Lord Richards agreed.

The Privy Council said that any consideration of whether such an "important inroad" into legal professional privilege is justified must start with a consideration of the scope and importance of privilege itself. On that point, it noted that privilege has been described in various House of Lords and Supreme Court decisions as a fundamental human right and a necessary corollary of the right to obtain skilled advice about the law. Those authorities have emphasised that such advice cannot be effectively obtained unless the client is able to put all the facts before their lawyers, without fear that it will not be disclosed without their consent.

The decision traces the history of the Shareholder Rule, noting that it was originally justified on the basis that shareholders had their own proprietary interest in the company's assets. That justification was no longer sustainable following the House of Lords decision in Salomon v Salomon [1897] AC 22, which recognised that a company is both legal and beneficial owner of its property. Nonetheless, the Shareholder Rule continued to be accepted without question in the case law.

The Privy Council noted that in Various Claimants v G4S plc [2023] EWHC 2683 (Ch) (considered here) Michael Green J had expressed serious doubts about the Shareholder Rule but considered it too well settled to be capable of being set aside other than by the Supreme Court. However, in Aabar (referred to above) – in a decision which the judgment notes "probably came as a considerable surprise" in light of the long list of authorities applying or at least recognising the rule – Picken J had found that the Shareholder Rule did not exist. (As noted in the Privy Council's judgment, Picken J gave permission for a "leap-frog" appeal to the Supreme, but that court declined the leap-frog in light of the current appeal and the potential for the Privy Council to make a Willers v Joyce order so that its decision would be binding in England and Wales.)

The Privy Council held that there was no justification for the Shareholder Rule, as applied in its traditional status-based form. As noted above, its original proprietary justification was inconsistent with the proper analysis of a company as a legal person separate from its members who have no proprietary interest in its assets. Further, the alternative justification for the rule, based on joint interest, could not sensibly justify an automatic denial of privilege between every company and its shareholders since there will not always be a community of interest between them.

The Privy Council noted that the Company's main argument was not that the Shareholder Rule applied on a blanket basis. Instead, the Company's position was that the company shareholder relationship was an established type of relationship where joint interest generally existed, and that while there might be exceptions where the interests were not sufficiently aligned when the legal advice was obtained, this was not one of them.

As for that argument, the Privy Council said it was "not the occasion for a general review of what has come to be known as joint interest privilege". However, it was satisfied that the company shareholder relationship does not fall within the joint interest privilege principle, as there is no sufficient analogy with the other relationships that are generally considered to do so (such as trustee beneficiary or principal agent). Although a company's interests are, in a very general sense, frequently aligned with its shareholders (as long as the company is solvent), the interests between shareholders and between company and shareholders may diverge:

"Shareholders are simply not a homogeneous block with a single shared interest which may coincide with, or diverge from, the interests of the company. Even in a small family-owned company there may be sharp differences in view between different generations as to the best way forward for the company."

Further, even a solvent company has other stakeholders, such as employees and funders, whose interests must be taken into account.

In the Privy Council's judgment, the recognition of a broadly based exception from legal advice privilege as between company and shareholders was not justified and would discourage companies from obtaining legal advice on decisions they are required to take in the companies' best interests.

The Privy Council also considered the narrower, "more nuanced" basis for finding that a company cannot claim privilege against its shareholders, as advanced by Kawaley LJ in the Court of Appeal, which depends on whether there is a sufficient joint interest on the particular facts of the case. The Privy Council rejected this formulation also, finding that it would make it all but impossible for directors to know, when deciding whether or not to seek legal advice, whether that advice would be privileged against shareholders in any litigation:

"In order for privilege to deliver its intended objective, there must be reasonable certainty as to whether it will or will not apply on a particular occasion for the taking of legal advice. A general rule that privilege would not be available, subject to fact-sensitive exceptions, would be even worse. Directors would just have to make the general assumption that they could not obtain legal advice in confidence."