What is Privilege?

Privilege is a fundamental legal right to resist disclosure of confidential and sensitive documents.

What was the ‘Shareholder Rule’?

The shareholder rule meant that a company could not assert privilege against its own shareholder, save in relation to documents that came into existence for the purpose of hostile litigation against that shareholder on the basis that as the shareholders were the beneficial owners of the company, they also owned the advice that the company was provided with (and paid for). I.e., The shareholder rule meant that shareholders asserted a proprietary right to legal advice given to a corporate entity, on the basis that they held shares in the company.

This rule has been controversial in the courts, because the courts have long recognised that companies are separate legal entities to their shareholders (determined in at least 1887), and therefore shareholders could not have any interest in the company’s assets.

However, the law did not change to fit this determination. One legal justification was “joint interest” privilege (rather than proprietary interest).

Aabar Holdings SARL v Glencore plc and others [2024] EWHC 3046 (Comm)

Briefly, Jardine Strategic Holding Ltd (“JSH”) amalgamated with JMH Bermuda Ltd (“JMHB”) to become Jardine Strategic Ltd (“JSL”). They were the two companies in the Jardine Matheson corporate group (“the JM Group”)

JSL was the appellant, whereas the shareholders of JSH were the respondents.

In the amalgamation, all shares of JSH were cancelled, and the shareholders were offered $33.00 per share as a ‘fair value’ of their cancelled shares.

The shareholders rejected the offer of $33.00 per share, which triggered a statutory mechanism, pursuant to s.106(6) of the Bermudan Companies Act 1981 (“the Act”).

The shareholders sought various orders for “discovery” (what we call “disclosure”), including the legal advice that the JM Group received when determining the $33.00 per share price.

JSL argued that the specific documents requested, attracted legal advice privilege. However, JSH argued that the shareholder rule meant they had an interest in the documents, and privilege could not block disclosure of the same.

The Bermudan Court of Appeal held that if the shareholder rule existed in English law, then it could apply in Bermuda.

JSL appealed again to the Board of the Privy Council. They allowed the appeal, unanimously, but stated that the shareholder rule formed no part of Bermudan law, and also should no longer be recognised in English Law.

This is now certain law, as the Privy Council also issued a “Willers v Joyce” direction. This binds the decision to the courts of England and Wales.

This decision is particularly useful for companies that become embroiled in litigation against their shareholders. It also gives the majority shareholders an advantage in unfair prejudice proceedings.

If you have a shareholder dispute and need legal advice, consult with an expert, such as Griffin Law.