The so-called “Shareholder Rule”: can a company assert privilege against their own shareholders?

It has long been regarded as a rule of English law that a company cannot claim privilege against its own shareholders, unless the privileged documents were created for the purpose of proceedings between the company and its shareholders. This is the so-called “Shareholder Rule”.

In essence, the Shareholder Rule is an exception to privilege because it allows a company’s privileged documents to be disclosed to its shareholders.

However, in the recent landmark ruling of the Commercial Court in Aabar Holdings SARL v Glencore PLC & Ors [2024] EWHC 3046 (Comm), Picken J held that this so-called “Shareholder Rule” does not exist in English law and that companies can generally assert privilege against their shareholders.

Aabar Holdings SARL v Glencore PLC & Ors – the background

Aabar were one of several claimants making a claims against Glencore under sections 90 and 90A of the Financial Services and Markets Act 2000.

In the run up to the hearing, it was disputed whether Glencore could assert privilege over several disclosed documents. Whilst other claimants changed their stance, indicating on further reflection that they did not presently intend to challenge Glencore’s claims to privilege, Aabar indicated that it did, based on the Shareholder Rule.

Aabar’s challenge eventually led to an interim hearing, where several important privilege-related issues were addressed. The most central legal question was: does the Shareholder Rule exist in English law?

Does the Shareholder Rule exist in English law? 

It was accepted by both sides at the hearing that, following the long-established principle that a company is a legal entity separate and distinct from its shareholders, the Shareholder Rule is not (or can no longer be) justified on a proprietary interest basis.

The question, therefore, was whether the Shareholder Rule could be justified on the basis that a joint interest privilege arises between a company and its shareholders. The claimants argued that shareholders are treated in English law as having a joint and aligned interest in the administration of the company’s affairs due to a shareholder’s direct economic interest in the company’s performance.

However, this argument was rejected by the judge who concluded that, in the context of shareholders and companies, there is no binding authority to justify the Shareholder Rule on the basis of joint interest privilege, nor is it warranted as a matter of principle, and he held that the Shareholder Rule is “unjustifiable” and “should no longer be applied”.

Is this really the end of the Shareholder Rule?

Notwithstanding previous case law, the judge’s decision moves away from the long-standing principles of joint interest privilege and the Shareholder Rule, concluding that the latter is no longer good law. This decision will have serious consequences in any case where a shareholder is seeking privileged documents from a company.  

However, whilst this first instance decision may be encouraging for companies, a cautious approach should be taken as it remains to be seen whether the ruling will be appealed.