In this article, Shail Patel KC and Ed Grigg of 4 New Square Chambers analyse the decision of the Privy Council in Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd and others [2025] UKPC 34 and discuss the ramifications for dispute resolution practitioners and shareholders alike.
Introduction
For 140 years, English law recognised the existence of the “Shareholder Rule”, the principle that a company cannot, during litigation with its own shareholders, withhold documents from them on
the ground that they are covered by legal advice privilege. A number of judges in that time had
applied the Rule or had proceeded on the basis that it existed. In a landmark judgment, the Judicial Committee of the Privy Council has abolished the Rule and made a Willers v Joyce direction confirming that it should no longer be regarded as good law in England and Wales.
Background
The underlying litigation concerned the amalgamation of two companies within the Jardine Matheson group. The new entity formed by this amalgamation was the Appellant, JardineStrategic Ltd. As part of the process, all shares in one of the existing companies were cancelled. The Appellant was required to pay fair value for these shares to any shareholders who had voted against the proposed transaction.
The shareholders subsequently began proceedings under section 106(1) of the Bermuda Companies Act 1981 to determine what that fair value was. As part of these proceedings, the shareholders sought disclosure of legal advice given to the Jardine Matheson group when the US$33 share price offered to them was being set. The Appellant, for its part, asserted that the documents were covered by legal advice privilege. At first instance and in the Court of Appeal, the shareholders were successful.
Decision
The appeal presented the Board with an opportunity to scrutinise the Shareholder Rule and consider its foundations. In a joint judgment, Lord Briggs and Lady Rose reviewed the long line of authorities said to support the Rule and held that they provided no support at all. Instead, the Board concluded that “Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed” (at paragraph 82).
The Board’s analysis rested on three key pillars. First, the Board rejected the proprietary justification for the Rule which had emerged in 19th Century case law, according to which shareholders could be said to have a proprietary interest in the company funds used to pay for the relevant legal advice. This rationale was completely inconsistent with the correct analysis of a registered company as a separate legal person from its members.
Second, the Board also rejected the notion of any presumed “joint interest” existing between a company and its shareholders. It could not properly be said that a community of interest would always exist between these parties. On the contrary, the interests of a company and shareholders might often diverge.
Third, the Board rejected the suggestion made below by Kawaley JA in the Bermuda Court of Appeal that a sufficient “joint interest” might arise in certain scenarios, subject to an open-textured assessment on the facts of each case. The Board held that this would introduce significant uncertainty and make it all but impossible for directors to know whether advice might be privileged or not.
Practical implications
The Board’s decision is significant.
First, it no doubt provides welcome clarity for companies and their directors. As the Board explained, the need for certainty as to whether legal advice will be privileged or not demands a “bright line” (at paragraph 94). The Board has drawn that line in clear and robust terms. Second, the flipside of the Board’s decision is that it will have ramifications for the ability of claimant shareholders to obtain disclosure of company documents in a number of contexts where the Shareholder Rule had previously been understood by English practitioners to be available. These include:
- Unfair prejudice proceedings under section 994 of the Companies Act 2006. A number of the historical cases addressing the Shareholder Rule had arisen in this context.
- Derivative actions under section 260 of the Companies Act 2006, and their common law equivalent.
- “Fair Value” assessments in other offshore jurisdictions with comparable legislative regimes to Bermuda. These include section 238 of the Companies Act in the Cayman Islands and section 179 of the BVI Business Companies Act. Given the popularity of these jurisdictions for the incorporation of corporate holding vehicles, litigation under these “dissenting shareholder” provisions has been commonplace in recent years.
- Claims for compensation under sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA) for misleading statements and omissions in prospectuses and market
publications.
Practitioners and shareholders may (not unfairly) complain that Jardine is a case of the tail wagging the dog. Shareholders occupy a spectrum, from those closely involved with the business of a
company to those, at the other extreme, acquiring shares purely in order to take up litigation against it. Jardine was an instance of the latter, though this did not itself amount to a defence to the claim, as confirmed by the Board in its earlier decision on the same day (Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd [2025] UKPC 33). ClientEarth v Shell [2023] EWHC 1897 (Ch) involved a similar fact pattern, and a derivative claim brought for environmental purposes. Institutional investors now
commonly bring FSMA claims against issuers for compensation, and seeking to uphold standards of conduct and governance.
These sorts of claims are both increasingly common and a far cry from the context in which the Shareholder Rule was created, and it is perhaps unsurprising that they have provided the rocks on which the Rule has foundered. By a side wind, shareholders in smaller, private companies, engaged in more typical company and shareholder disputes, have been deprived of potentially valuable rights.
A possible solution, for those in the process of structuring a private business or shareholder agreement, is to provide expressly for the company’s privilege to be shared with shareholders, in the company’s constitutional documents.
Third, the Board’s decision is an emphatic endorsement of privilege as a fundamental right for which any inroad requires proper justification. Although the Board took care to set out the importance of preserving privilege, it notably did not engage in any weighing exercise from the claimant shareholders’ perspective. In other litigation contexts, like actions under sections 90 and 90A of FSMA, there is often an imbalance between the information available to shareholder claimants as against corporate defendants. While that inequality of arms is not itself a reason to water down a company’s right to assert privilege, it is a reminder that the Board’s decision to afford greater protection to corporate defendants may make an already steep hill that bit harder to climb for claimants.
Fourth, the “bright line” position now adopted has the added benefit of resolving a large number of uncertainties regarding the scope of the Shareholder Rule, which themselves have been the subject of litigation in earlier cases. For example:
- Does the rule apply only to registered shareholders, or does it extend to shareholders holding shares (as is now extremely common in UK plc) through a chain of intermediation?
- Does it only apply to legal advice privilege, or could it apply to litigation privilege and/or without prejudice privilege?
- What is the relationship (if any) between the time period when the party is a shareholder and his rights to documents? Does the right to inspection of the company’s documents ‘run with the shares’ so as to accrue to new shareholders? Or could different shareholders have different rights to documents based on their dates of acquisition?
Fifth, stepping back, the Board’s reasoning in relation to “joint interest” privilege chimes with commercial reality. The corporate world today is far more sophisticated and complex than it was when the Rule originated in the late 19th century, and that is true of many companies’ shareholder bases as well. In the case of listed companies in the UK, for example, it is difficult to see how their many shareholders, with different outlooks and investment horizons, could ever be said to have a sufficiently common interest. Some of these tensions were evident in Aabar Holdings S.à.r.l. v Glencore plc and others [2024] EWHC 3046 (Comm), where Picken J held that, if the Shareholder Rule did exist, then it could be relied on by unregistered shareholders who held their shares via a chain of securities. Given that most securities in the UK are held on an intermediated basis through the CREST depository, this finding would have expanded the Shareholder Rule to a potentially vast number of shareholders, arguably stretching the “joint interest” analysis to breaking point.
Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com.
