In Aabar Holdings SARL & ors v Glencore PLC & ors [2024] EWHC 3046 (Comm), the High Court examined important issues relating to privilege, including whether the so-called 'Shareholder Rule' exists in English law and the scope of its application, and whether joint interest privilege is a 'standalone' type of privilege. 

The Shareholder Rule plays a crucial role in determining the extent to which shareholders can access privileged communications of a company. The High Court has however decided that the Shareholder Rule is "unjustifiable and should no longer be applied".

Background: The Shareholder Rule 

As it was understood, the Shareholder Rule is a principle that a company cannot assert privilege against its own shareholder, meaning that in a disclosure scenario a shareholder would be entitled to see legal advice obtained by the company. An exception applied if the documents in question came into existence as a result of actual or contemplated litigation between the shareholder and the company. 

The High Court's analysis

The High Court undertook a detailed analysis of whether the Shareholder Rules exists in English law. 

Proprietary interest basis

The court scrutinised the basis on which the Shareholder Rule is said to exist, first considering the proprietary interest basis, referencing historic cases like Gouraud (1888) and Bristol v Cox (1884). These cases were decided on the premise that shareholders had a proprietary interest in the company's assets, which justified their access to privileged documents, given that advice taken by the company had been paid for using the company's funds. However, this rationale was undermined by the landmark decision in Salomon v A Salomon & Co Ltd (1897), which established that a company is a separate legal entity distinct from its shareholders. 

The court then looked at subsequent cases that applied the Shareholder Rule, such as Woodhouse (1914), Dennis (1943), and Hydrosan (1991), noting that these cases did not involve a thorough analysis of the rule's rationale or that comments on the Rule were obiter. Importantly, it was noted that the Court of Appeal decision in Woodhouse has been cited in subsequent first instance cases in favour of the existence of the Shareholder Rule, without proper analysis. 

It was found that "it is clear that the Shareholder Rule is not (or can no longer be) founded on the principle that a shareholder has a proprietary interest in the company's assets and, therefore, in advice taken by the company and paid for out of the company's funds".

Joint interest privilege

The judgment went on to critique the notion that the Shareholder Rule can be justified on the basis of joint interest privilege – in other words, that the shareholder has a joint interest with the company in the subject matter of relevant privileged documents. The court found that this concept is not well-supported by the authorities and lacks a clear, principled foundation. It concluded that there was no binding authority which decides that the Shareholder Rule can be justified on the basis of joint interest privilege.

In fact, the judge doubted whether the joint interest privilege principle "has any independent existence".  In this respect, the court concluded that:

The most that might be said is that to refer to there being a joint interest privilege is a convenient shorthand with which to group various disparate categories of case where privilege has been held to apply ...  it would be wrong to conclude that there was something intrinsic in the fact of a shared interest that is of itself sufficient to prevent the parties from asserting privilege against each other since, as can be seen, those cases ... where privilege has been found to exist have involved a justification going beyond the mere sharing of an interest in the documents. There is nothing in any of the cases which would justify a read across to the company/shareholder situation. There is nothing by way of a unifying set of characteristics which are definitional or sufficient to enable it to be said that a joint interest privilege, because it arises in one situation, should be taken as arising also in another, different situation.

It follows that, in my view, the concept of joint interest privilege as a freestanding or standalone species of privilege is not supported by the authorities. What there are are cases where privilege arises on other, case-specific grounds that provide no concrete justification for the suggestion that there is an overarching joint interest privilege concept.

The judge noted that, even if that conclusion was incorrect and there is a standalone concept of joint interest privilege, there is no justification for a conclusion that it applies in a general sense to the relationship between companies and shareholders. The fact that shareholders' interests are generally aligned with those of the company, that they have a direct economic interest in the company's performance or that the company's affairs are conducted for the mutual benefit of the company and its shareholders did not provide sufficient justification to override a company's fundamental right to privilege. Further, outside of the litigation context shareholders do not generally have any rights to access the company's documents (whether such documents are privileged or non-privileged). 

In respect of large public companies with significant numbers of shareholders which regularly change, the court could not fathom how there could be said to be a joint interest, particularly as their interests would vary widely. 

Extending joint interest privilege (even if it was a standalone concept at all) to the company-shareholder relationship could undermine the public policy rationale for legal professional privilege, potentially discouraging directors from seeking legal advice.

In conclusion, the court held that the Shareholder Rule is unjustifiable and should no longer be applied. The Rule's original rationale no longer applies and that the suggested joint interest privilege rationale was said neither to be supported by authority nor warranted as a matter of principle. 

In the alternative...

The court went on to conclude to consider, in the alternative, that if the Shareholder Rule did exist:

• It would only do so if it could be determined that a joint interest existed as between a company and shareholder on the circumstances of each individual case;
• It would not apply to without prejudice privilege;
• It would extend to beneficial owners of the shares (provided they could establish the necessary joint interest);
• The time for assessing whether or not there was a relevant joint interest is when the communication was made, so it is irrelevant if a shareholder has since ceased to be a shareholder;
• A successor in title stands in the shoes of its predecessor with respect to privilege so that the Shareholder Principle (if it exists) applies; and
• Lastly, "If there is a chain of holding companies and each shares the requisite joint interest in a communication, meaning that none can assert privilege against the other, then, the ultimate subsidiary company should not be able to assert privilege against any of them including the ultimate holding company".

Implications for businesses and shareholders

The Aabar Holdings SARL v Glencore PLC decision marks a critical development in the application of the Shareholder Rule and in relation to privilege. The court's decision has significant implications on the extent to which shareholders can access privileged documents from a company.

Companies should carefully consider how they document and manage privileged communications. It is crucial to ensure that the purpose of the communication is clearly documented and aligns with the criteria for maintaining privilege.

This decision may be the subject of an appeal and, given the importance of the decision and several other cases in the pipeline which deal with this topic, there is sure to be more to come.

We offer training to businesses on privilege issues. Please contact Fraser Mitchell or Nicola Thompson for further information.