In a decision that has reset the boundaries of corporate privilege, the Judicial Committee of the Privy Council has abrogated the so-called “Shareholder Rule” — a principle long thought to be embedded in English law. For more than a century, companies were prevented from asserting legal privilege against their shareholders, based on the idea that shareholders held a proprietary or joint interest in the affairs of the company. No longer.
In Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd [2025] UKPC 34, the Privy Council ruled that the Shareholder Rule “forms no part of English or Bermudian law” and made its ruling binding on English courts under its rarely exercised powers. The decision will have major ramifications for shareholder litigation, especially class actions, and solidifies directors’ ability to seek confidential legal advice without fear of disclosure to their own shareholders.
Where did the Shareholder Rule come from?
The Shareholder Rule was a product of Victorian-era corporate theory. Early decisions treated shareholders as having a quasi-proprietary interest in a company’s assets. Under this logic, if the directors obtained legal advice, it was deemed something to which the shareholders — as quasi-owners — had a right of access. This was often compared to the rights of beneficiaries under a trust, or partners in a partnership.
But the foundation of that thinking was upended in Salomon v Salomon [1897] AC 22, where the House of Lords confirmed that a company is a separate legal entity from its shareholders. Shareholders have no direct claim to the company’s assets. Despite this, the Shareholder Rule lingered on, surviving not because it was defensible, but because it had become entrenched in practice.
The UK test case: Aabar Holdings v Glencore
The first significant blow to the Shareholder Rule came in the High Court decision of Aabar Holdings v Glencore [2024] EWHC 3046 (Comm). There, shareholders accused Glencore of misleading them through its IPO prospectus and corporate disclosures, citing misconduct by subsidiaries in Africa and South America.
As part of the litigation, the claimants sought access to Glencore’s privileged legal advice, arguing that the Shareholder Rule entitled them to disclosure. Mr Justice Picken rejected that claim in its entirety. He found that the rule was “unjustifiable” in modern law, had no coherent basis after Salomon, and could not be rescued by reframing it as a species of “joint interest privilege.”
He also dealt with edge cases:
- Without prejudice communications: These remained protected even if the Shareholder Rule were valid.
- Subsidiary companies: If the rule applied, it could inadvertently open up privileged documents of subsidiaries to shareholder inspection which would be an untenable outcome.
- Nominee shareholders: The court held that the rule couldn’t apply to beneficial owners not listed on the shareholder register, underscoring the lack of a principled basis for the doctrine.
Still, the decision was only at High Court level, and a leapfrog appeal to the Supreme Court was declined. Many expected a definitive ruling to come in due course.
The Bermuda case that decided it all
That opportunity came unexpectedly, via an appeal to the Privy Council from Bermuda.
In Jardine Strategic, minority shareholders triggered a statutory mechanism to challenge the fairness of a share buy-out following a corporate amalgamation. They sought access to legal advice given to the company as it calculated the fair value offer. Once again, the Shareholder Rule was invoked. The Bermuda courts sided with the shareholders, finding a flexible application of the rule was still appropriate.
But on appeal, the Privy Council overturned that reasoning. In a unanimous judgment by Lord Briggs and Lady Rose, the Court traced the history of the Shareholder Rule and found no justification for its continued existence.
It made four critical observations:
- The original justification — proprietary interest — is defunct. Shareholders have no ownership claim over the company’s legal advice.
- The modern “joint interest” rationale doesn’t hold. Companies and shareholders often have diverging interests, even among shareholders themselves.
- Privilege must be predictable. A rule allowing for vague, fact-specific exceptions would render privilege uncertain and discourage directors from seeking legal advice at all.
- Corporate governance must reflect stakeholder complexity. Employees, funders, regulators, and others also have an interest in company decisions — making shareholder privilege uniquely unworkable.
Crucially, the Privy Council didn’t just apply this analysis to Bermuda. It invoked its power under Willers v Joyce (No 2) [2016] UKSC 44 to make the decision binding on English courts.
What this means for companies
The implications are immediate and far-reaching.
Legal advice stays confidential: Companies can now withhold privileged material from shareholders, even in litigation, unless one of the recognised exceptions to privilege applies (e.g. fraud).
Directors can seek advice with confidence: The ruling protects the boardroom from the chilling effect of potential shareholder scrutiny of privileged discussions.
Clarity on governance boundaries: The decision confirms that shareholders, while important, are not beneficiaries of the company, nor do they have an entitlement to peer into its legal strategy.
What this means for shareholders
The decision will make it harder for shareholders to obtain key evidence in litigation. In securities class actions or challenges to corporate decisions, claimants can no longer rely on the Shareholder Rule to compel disclosure of internal legal advice. They will need to demonstrate a different basis for access , for example, that they were joint clients of the advice, or that it falls within a separate category of privilege (like common interest privilege).
A new chapter for privilege
This is more than a technical ruling on disclosure. It’s a reaffirmation of the importance of legal professional privilege as a bedrock of corporate life. As the Privy Council put it, any erosion of privilege must be tightly justified, not built on 19th-century analogies or vague ideas of joint interest.
The Shareholder Rule had survived more by habit than logic. With this ruling, the English courts are no longer bound by that habit.
