The "Shareholder Rule", a principle of the law of England and Wales which has been applied for nearly 140 years, appears to have finally been abolished, only months after it was effectively put on life- support.
History of the Shareholder Rule
The Shareholder Rule prevents a company from claiming legal privilege against its own shareholders. As a result, shareholders are allowed to access company documents that would otherwise be protected by privilege. The exception to the Shareholder Rule prevents shareholders from accessing documents arising from or for the purpose of adverse litigation between the shareholder and the company.
The Shareholder Rule was established in 1888 on the ground that the position of shareholders is analogous to that of trust beneficiaries and partners (Gouraud v Edison Gower Bell Telephone Co Ltd (1888) 57 LJ (Ch) 498). The principle behind the rule was that shareholders have a proprietary interest in company assets, including the legal advice that the company has paid for.
The rule was then frequently applied for over a hundred years before it was deemed to be on a "shaky foundation" by Mr Justice Green in Various Claimants v G4S Plc ([2023] EWHC 2863 (Ch)). This was on the basis that it was not aligned with the House of Lords' decision in Salomon v Salomon & Co Ltd. ([1897] AC 22) which found that a company is a distinct legal person, separate from its directors, shareholders, employees and agents. Mr Justice Green noted that the relationship between a company and its shareholders was "clearly not a relationship of trustee and beneficiary", however he deferred from concluding that the Shareholder Rule was inapplicable.
December 2024 – the Shareholder Rule on life support
The end to the Shareholder Rule appeared inevitable following a High Court judgment in December 2024.
In Aabar Holdings SARL v Glencore PLC & ors [2024] EWHC 3046 (Comm), a claim was brought by investors against Glencore and certain former directors for alleged misstatements in published information. In that case, the court considered the Shareholder Rule when determining whether Glencore was entitled to assert privilege against the claimant investors.
The parties accepted that the original rationale for the Shareholder Rule was no longer applicable in light of Salomon v Salomon & Co Ltd. Instead, the Claimants argued that the rule represented a form of joint interest privilege, arising between a company and its shareholders by virtue of a shared interest in communications relating to the administration of the company. This argument was rejected by the court, which outlined why there was no justification, in principle, for there being a Shareholder Rule founded on joint interest. Mr Justice Picken ruled that the Shareholder Rule was "unjustifiable" and "should no longer be applied".
The Aabar Holdings judgment was the first systematic analysis of the Shareholder Rule, building on previous judgments that were sceptical of its basis and existence. Although it appeared to denote, and was widely considered to constitute, the end of the Shareholder Rule, it was unclear whether that constituted a final end to the rule, or whether a higher court was required to provide a final determination.
However, in February 2025, the Supreme Court refused permission to the claimant to appeal directly to the Supreme Court, instead taking the view that the issue would likely be resolved in an ongoing appeal to the Judicial Committee of the Privy Council which could if appropriate make a Willers v Joyce (No 2) [2016] UKSC 44, [2018] AC 843 order so that its decision would be binding in England and Wales.
July 2025 – the end of the Shareholder Rule is confirmed
In its judgment released this week (In Jardine Strategic Holdings Ltd and another v Oasis Investments II Master Fund Ltd and 80 others No 2 [2025] UKPC 34), the Judicial Committee of the Privy Council does appear to have declared the last rites for the Shareholder Rule.
The proceedings were held in Bermuda and resulted from the amalgamation of two companies within the Jardine Matheson group. The shares in one of the amalgamated entities were cancelled, leading to a dispute over the fair value of the cancelled shares for shareholders who voted against the proposed transaction.
Lord Briggs and Lady Rose, giving the judgment of the Board (as the panel of judges is known), agreed that the original justification for the Shareholder Rule (i.e. the proprietary basis whereby shareholders had their own proprietary interest in the company's money from which legal advice is paid for) had collapsed. That justification had been replaced by those seeking to rely on the Shareholder Rule by an argument for joint interest. Nonetheless, they concluded: "it cannot sensibly be said that there is always a community of interest between every company and its shareholders, either as a class or a fortiori individually".
Notably, they concluded: "The status-based automatic Shareholder Rule is therefore now, and in truth has always been, a rule without justification. Like the emperor wearing no clothes in the folktale, it is time to recognize and declare that the Rule is altogether unclothed."
The Board, all being Justices of the Supreme Court, decided to make a Willers v Joyce direction, declaring that they were "firmly of the view that this decision should be regarded by courts in England and Wales as abrogating the Shareholder Rule for the purposes of litigation in those courts".
Effect of the demise of the Shareholder Rule
The end of the Shareholder Rule will be a welcome boost to corporates, particularly at a time of increasing shareholder activism, and significant value group claims. The development will also likely have a detrimental impact on shareholders in unfair prejudice and derivative actions, in limiting their access to privileged advice. Companies will now have additional comfort that they can seek and obtain legal advice without concern that shareholders will be able to access that advice.
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