In this article, 4 New Square’s Shail Patel KC and Ed Grigg consider the High Court’s recent decision in Aabar Holdings S.à.r.l. v Glencore Plc & Others [2024] EWHC 3046 (Comm), which considered the right of a company to assert privilege, in various circumstances, against its own shareholders.
Introduction
In an important judgment on 27 November, Mr Justice Picken departed from a long line of authority, stretching back to the 19th century and taking in several Court of Appeal decisions, which had been understood to confirm and support the existence of the so-called “Shareholder Rule”; the principle that a company cannot assert privilege against its own shareholders except where it is claimed over documents which came into existence for the purpose of adverse litigation with that shareholder.
Background
The decision arose in the context of ongoing litigation between various claimant groups and Glencore, the mining and commodities conglomerate. The claims concern alleged (and in some cases admitted) misconduct by various subsidiaries of Glencore in several African and South American countries. Many of the claims against Glencore are brought under ss. 90 and 90A of the Financial Services and Markets Act 2000 (“FSMA”), which broadly provides a statutory regime for shareholders to sue companies in relation to misleading published information.
In the run up to the first CMC in May 2024, a dispute arose between Glencore and the claimants about whether, and if so to what extent, Glencore would be entitled to assert privilege against them. A further hearing was listed in October to determine these issues, although in the event only one of the claimants, Aabar, appeared before the Court. Aabar had never held shares in Glencore, but sought to rely on the Shareholder Rule on the basis that it had succeeded to the rights of another company which had, at all relevant times, been the ultimate beneficial owner of Glencore shares. These shares were held (as is commonplace) through an intermediated chain of securities in which the actual legal owner was a member of CREST, the electronic registration system for shares issued in dematerialised form.
Aabar therefore found itself in a similar situation to the claimants in Various Claimants v G4S Plc [2023] EWHC 2863 (Ch), the first case to consider the application of the Shareholder Rule to the owners of intermediated securities and in the context of ss. 90 and 90A FSMA claims. In G4S, the claimants argued that the Shareholder Rule should be extended to this constituency for reasons of principle and practicality, and that the Shareholder Rule should not be available to registered legal owners alone. Although Michael Green J accepted in G4S that the Shareholder Rule existed, he declined to extend it beyond legal owners. In Aabar, by contrast and as set out below, Picken J held that the rule does not exist at all, but if it does, then it should be capable of application to both legal owners and ultimate beneficial owners.
Decision
The bulk of the judgment concerned the first issue for determination: whether the Shareholder Rule exists. In a sweeping analysis, the Court considered the foundations of the Shareholder Rule, stretching back to the two 19th century cases of Mayor and Corporation of Bristol v Cox (1884) 26 Ch D 678 and Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498. His review led the Judge to reach the following conclusions.
First, he rejected the suggestion that the Shareholder Rule is founded on the principle that a shareholder has a proprietary interest in a company’s assets (at [33]). This analysis had appeared to inform early articulations of the rule (including the Court of Appeal’s decision in Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559) but had become unsustainable since Salomon v A Salomon & Co Ltd [1897] AC 22, the landmark House of Lords decision confirming the separate legal personality of a company as distinct from its shareholders.
Second, the Judge refused to accept that the Shareholder Principle had “morphed” into an emanation of “joint interest privilege”, or that it could be justified on this alternative basis (see [18]). This was the principal ground on which Aabar’s argument was advanced. The Court held that no binding authority on the point existed, and that what there was, “in truth, amounts to little more than passing (and anyway obiter) comment in cases where the Shareholder Rule was not in issue – often by reference to what is said about joint interest privilege in Thanki, The Law of Privilege – and without independent analysis of the underlying basis for the Shareholder Rule” (at [93]).
Third, the Judge went a step further and held that the very concept of joint interest privilege is “an umbrella term” used to describe different situations in which one party cannot assert privilege against another, rather than a freestanding concept itself (at [94]). The Judge found that, on close examination, there was a degree of circularity in the authorities for the concept of joint interest privilege, and no actual case supported the existence of a separate joint interest privilege category ([96]-[103]). Instead, on proper analysis, the cases grouped under the umbrella of joint interest were fact-sensitive with no unifying set of characteristics (see [104]-[105]).
Fourth, the Judge held that, even if the concept of joint interest privilege did exist, it could not support the application of the Shareholder Rule to the relationship between a company and its shareholders ([106]-[118]). This was for several reasons, including the lack of any principled analysis in the authorities to support such an approach (at [107]), the absence of any obvious justification to deprive a company of its otherwise inviolable right to keep its confidential legal advice private and privileged (at [109]), and the ordinary position that, outside of litigation, shareholders do not generally have any rights to access a company’s documents (at [111]).
After drawing these conclusions, it was not strictly necessary for the Judge to determine the other issues in dispute, since they were premised on the assumption that the Shareholder Rule exists. However, the Judge went on to address them, and in doing so made several interesting observations.
First, the Judge held that the Shareholder Rule did apply to legal advice and litigation privilege, but not to without prejudice privilege ([119]-[130]). In this regard, the Judge noted that without prejudice privilege involves a third party, in addition to the company and shareholder. Given this three-way dynamic, it is difficult to argue that the interests of all three can ever be said to be aligned (see [124]). The Judge’s conclusion on this point was the same as Michael Green J in G4S, who also noted the issues posed by a third party to the extension of the privilege.
Second, however, in a significant departure from G4S, Picken J held that the Shareholder Rule could, in principle, extend to unregistered shareholders like Aabar, which never held shares directly, but had succeeded to the rights of a company which had been the ultimate beneficial owner through a chain of securities ([133]-[151]). In reaching this view, Picken J cautioned against over-emphasising form over substance (at [139]), given that the vast majority of securities in the UK are held on an intermediated basis via CREST. Picken J also accepted the submission that the Shareholder Rule could apply retrospectively, in the sense that it may be invoked by a party which is no longer a shareholder, provided that it was a shareholder at the time the relevant communication was made ([152]-[153]).
Third, the Judge held that the Shareholder Rule would extend to privileged documents belonging to subsidiaries within Glencore’s corporate group (at [159]-[167). This issue was not before the Court in G4S but would (on the assumption that the Shareholder Rule exists) represent a further extension to its application.
Analysis
Mr Justice Picken’s decision is a major one, both in the context of company law generally and shareholder actions under ss. 90 and 90A specifically.
First, the decision could have far-reaching consequences for the ability of claimant shareholders to obtain disclosure of key documents in other fields of litigation – for example in unfair prejudice proceedings, derivative actions and other actions between members and companies, where the Shareholder Rule has been applied and assumed to exist for many years. Climate litigation (see, for example, ClientEarth v Shell Plc & Others [2023] EWHC 1897 (Ch)) may yet be an important area for the Shareholder Rule to be developed in, and it remains to be seen whether the Courts will consider this more fertile ground. It might be argued that while there is no sui generis species of joint privilege for shareholders, there are instances where particular shareholders and the company do have a sufficient common interest such that a privilege may be jointly held.
Second, there must be a real question about whether Aabar will be followed in other cases. On 28 November 2024, for example, the existence of the Shareholder Rule was challenged at a hearing in another securities litigation case under ss. 90 and 90A, namely Allianz & Others v Barclays Plc. Judgment in that case is awaited, and the Shareholder Rule may receive further scrutiny from the Privy Council if any further appeal is heard in Oasis Investments II Master Fund Ltd and Others v Jardine Strategic Holdings Ltd and Another [2024] CA (Bda) 7 Civ, a Bermudian Court of Appeal case discussed in Aabar.
Third, if the Shareholder Rule is reaffirmed by a Court of higher or coordinate jurisdiction in England and Wales, it will be interesting to see how that Court grapples with the question of how far the rule should extend. There is now a clear divergence in the authorities on this question, given that the High Court in G4S refused to extend the rule beyond registered shareholders, but in Aabar it considered that such an extension was justifiable and in step with the reality of how modern securities are held. Further, even if the joint privilege claim were to succeed, there remain difficult questions as to how a Court might manage group litigation where different parties have differing rights to privileged information depending on (e.g.) the time periods during which they were shareholders.
Shail Patel KC and Ed Grigg previously appeared before Michael Green J in G4S, arguing for the existence of the Shareholder Rule. Shail Patel KC has been involved in Aabar and most other settled and pending group securities cases in the English courts.
