Introduction
In November 2024, Picken J held in Aabar Holdings SARL v Glencore PLC & Ors [2024] EWHC 3046 (Comm) that the Shareholder Rule is "unjustifiable" and "should no longer be applied". This answers a long-running debate as to the Shareholder Rule's position in English law. Companies should take note that their shareholders will be entitled to the company's privileged documents in far fewer circumstances moving forwards.
The Shareholder Rule
The Shareholder Rule has traditionally been defined as a principle entitling a shareholder to all documents obtained by the company in conducting its business, including legal advice (unless the legal advice relates to actual or threatened hostile litigation between the shareholder and the company). Early iterations of the Shareholder Rule were based on proprietary principles: that shareholders were entitled to documents that they paid for (via the company's funds) (Mayor and Corporation of Bristol v Cox (1884) 26 Ch D 678; Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498).
Over time, however, arguments in support of the Shareholder Rule morphed in their underpinning principles. In recent times, the rule was said to be based on the notion of joint interest. In short, this perspective argues that, where shareholders and the company have a shared interest in the subject matter of the relevant privileged document, the privilege belongs to both parties.
Some view the Shareholder Rule as long enshrined under English law. Phillimore LJ described it as "well settled" in 1914 (Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559) and approving remarks have been made about the rule at the appellate level and at the Supreme Court. However, Picken J has questioned the trend of using Woodhouse as an authority for the rule, stating in Aabar Holdings v Glencore that "despite the absence of any analysis of the Shareholder Rule in Woodhouse, it is a case that has been cited in subsequent cases at first instance which have assumed, apparently without question and anyway without analysis, the existence of the Shareholder Rule".
The Aabar Holdings v Glencore judgment outlines that the rule's early support in case law does not provide justification to the Shareholder Rule when considering it from a joint interest standpoint. Mr Richard Hill KC, acting for Glencore PLC, argued that the rule today is "anomalous, unprincipled and should no longer be applied".
The judgment
All parties agreed that the Shareholder Rule is not, or can no longer be, founded on the principle that a shareholder has a proprietary interest. Instead, the critical question to be determined was whether the rule can be sustained on the basis that a joint interest privilege arises between a shareholder and a company.
Picken J ultimately held that the Shareholder Rule cannot be supported by joint interest principles and, consequently, does not exist. In deciding this, Picken J noted that:
- Woodhouse and Gouraud, key early cases said to underpin the rule, were "plainly premised on there needing to be a proprietary interest". Cases following these early judgments failed to provide separate analysis of the rule that supported a joint interest analysis.
- Though several cases made reference to the concept of joint interest privilege, such cases did not themselves involve the application of the Shareholder Rule (James-Bowen v Comr of Police of the Metropolis [2018] 4 All ER 1007, [2018] UKSC 40). Considering relevant case law in detail, the rule is not supported by any binding authority. Picken J acknowledged recent cases in Bermuda that supported the rule but highlighted that such cases do not bind English courts.
- The concept of joint interest privilege is not a "freestanding concept", it is "merely an umbrella term that has been used to describe a variety of different situations in which one party is unable to assert privilege against another".
- If there was such a concept as joint interest privilege, there would be no justification for a conclusion that it applies in any generalised sense to the relationship between companies and shareholders. The authorities analysed do not support this idea and arguments in favour of the rule are not sufficient to override a company's fundamental right to privilege.
Picken J concluded the judgment by making several observations about the application and scope of the rule if it were to exist. This commentary may be useful if the case is subject to a successful appeal. In particular, the judge found that the rule could apply retrospectively, would extend to privileged documents belonging to subsidiary companies and would apply to legal advice and litigation privilege (but not without prejudice privilege).
In conclusion
Arguments in favour of the Shareholder Rule have been insufficient to overpower a company's fundamental right to privilege, even against its shareholders. Picken J commented that the rule would unduly limit the scope of privilege, leaving a company's right to privilege open to challenges from a variety of parties.
The judgment may have international consequences in common law jurisdictions, where case law to date has been supportive of the Shareholder Rule.
Absent a successful appeal, the judgment provides a clear decision as to the status of the rule. Minority shareholders seeking remedies against defendant companies should take note – they will struggle to make an argument that they are entitled to the company's privileged documents.
