A recent High Court ruling in Aabar Holdings S.à.r.l. v Glencore Plc & Others has fundamentally reshaped the legal landscape for company shareholders, particularly in relation to their ability to access a company’s privileged documents. This landmark decision has overruled the long-standing “shareholder rule,” significantly curtailing shareholders’ rights to obtain privileged legal materials. This article explores the implications of the ruling and what it means for shareholders and corporate entities moving forward.
Understanding legal privilege
Legal privilege is a fundamental principle in law designed to protect the confidentiality of communications between lawyers and their clients. There are two primary types of privilege:
- Legal Professional Privilege (LPP): Also known as legal advice privilege, this ensures that clients can communicate freely with their legal advisors without fear of disclosure. The only exception is the iniquity exception, which applies where legal communications further a crime, fraud, or similarly wrongful conduct.
- Litigation Privilege: This protects confidential communications between clients, lawyers, and third parties when they are made for the dominant purpose of ongoing or anticipated litigation.
Historically, these privileges have been subject to the shareholder rule in certain circumstances. However, the Aabar Holdings decision marks a departure from this principle.
The shareholder rule: A now-defunct doctrine
The shareholder rule, a doctrine that originated in the 19th century, traditionally allowed shareholders access to company documents that would otherwise be protected by privilege. The rationale was that shareholders, having a proprietary interest in the company and its assets, should have a right to review legal advice obtained using company funds.
There was, however, a key exception: if litigation was ongoing or anticipated between the shareholder and the company, privilege could still be asserted against the shareholder.
Before Aabar Holdings, the shareholder rule was well-established. However, Mr Justice Picken’s ruling on 27 November 2024 concluded that the doctrine no longer applies. The judge found that the historical justification for the rule—comparing shareholders to beneficiaries of a trust—no longer aligns with modern company law principles.
The Salomon principle and the court’s reasoning
A crucial aspect of the court’s reasoning was the Salomon v Salomon & Co Ltd principle, which establishes that a company is a separate legal entity from its shareholders, directors, employees, and agents. As such, a company owns its assets independently, meaning shareholders do not have an inherent right to privileged documents simply because the company funds the legal advice.
Mr Justice Picken’s decision aligns corporate law with this fundamental principle, holding that shareholders cannot claim a right to privileged materials merely by virtue of their shareholding. The ruling significantly impacts shareholder actions under sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA), which relate to misstatements in company reports and disclosures.
The role of joint interest privilege
The judgment also addressed joint interest privilege, a doctrine that allows parties with a joint legal interest to share privileged communications. Mr Justice Picken clarified that joint interest privilege is merely a broad term describing circumstances where one party cannot claim privilege against another, rather than an independent legal principle.
Importantly, even if joint interest privilege were to exist as a standalone concept, the court held that it could not be used to uphold the shareholder rule. The judgment reinforced that companies have a legitimate right to maintain the confidentiality of their legal advice, and shareholders do not have an automatic right to access privileged documents outside litigation.
What’s next? Implications for shareholders and companies
While the Aabar Holdings judgment is a significant shift in shareholder rights, it is not necessarily the final word. Given the profound impact of the ruling, an appeal is likely. If an appeal is unsuccessful—or if no appeal is brought—the ruling will set a strong precedent, making it considerably more difficult for shareholders to obtain a company’s privileged documents.
For now, shareholders should reassess their expectations regarding access to company documents, while companies can take greater comfort in the protection of their legal privilege.
In the meantime companies should continue to exercise caution around privilege and confidential information.
At Stephensons we have a wealth of expertise in advising both companies and shareholders in a variety of matters. Contact our commercial team today on 0161 696 6170.
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