While shareholders rightly view themselves as owners of the company in which they hold their shares, as any student of English company law will know from the seminal nineteenth century decision in Salomon v Salomon, shareholders do not have any ownership interest in the company's property, the company alone (by virtue of its "separate legal personality") being the legal and beneficial owner of its property.
Despite this fundamental tenet of company law, courts in England and other commonwealth jurisdictions have – until now - been willing to recognise an interest by shareholders in the company's property insofar as it comprises information that is subject to legal advice privilege. This recognition, in the form of the so-called 'Shareholder Rule', has enabled shareholders to obtain access to privileged information belonging to the company as an exception to the rule that privileged information belongs exclusively to the client (i.e. the company).
However, in a decision handed down today by the Judicial Committee of the Privy Council, Jardine Strategic Holdings Ltd & another v Oasis Investments II Master Fund Ltd & 80 others (No. 2) [2025] UKPC 34, the Shareholder Rule has been emphatically abolished, the Privy Council describing it as a "rule without justification" and a rule "altogether unclothed" in the manner of Hans Christian Andersen's naked emperor.
The abolition of the Shareholder Rule does not apply only to Bermuda (the jurisdiction from which the appeal arose) but, as the Privy Council declared, it "should be regarded by courts in England and Wales as abrogating the Shareholder Rule for the purpose of litigation in those courts."
The question in Jardine concerned whether there was an exception to the ordinary rules of privilege so as to prevent a company from asserting privilege against its shareholders. The early application of the Shareholder Rule was based on an analogy with the position in relation to trusts whereby a trustee cannot assert privilege against a beneficiary in respect of legal advice in relation to the administration of the trust which has been paid for out of trust funds. This is because, unlike the position of a shareholder in relation to the company's property, a beneficiary of a trust is a beneficial owner of the trust's assets and, unlike a company, a trust does not enjoy separate legal personality. Perhaps unsurprisingly, the Privy Council considered this proprietary foundation inapt.
In rejecting the alternative suggestion that the relationship between company and shareholder was one which could automatically give rise to a joint interest privilege, the Privy Council noted the potential for significant divergence of interest even between and among the shareholders, particularly in a large company, never mind between the shareholders as a general body and the company: "Shareholders are simply not a homogeneous block with a single shared interest which may coincide with, or diverge from, the interests of the company." The Board also found that a status-based joint interest would "discourage companies from taking candid legal advice in confidence", "ignore the separate personality of the company" and "wrongly assume a simple coincidence of interests contrary to the typical commercial reality".
Jardine involves a claim by shareholders seeking "fair value" for their shares following an amalgamation pursuant to Bermuda's Companies Act 1981 in relation to which the shareholders sought access to legal advice given to the company concerning the amalgamation. While the decision will be seen as a blow to shareholders, like those in Jardine, who are seeking redress from a company or its directors (as they will be unable to access the privileged advice upon which a company's board has based its decisions), it is likely be welcomed by company directors, who will be spared from the chilling effect of having to perform their duties under what the Privy Council described as "the general assumption that they could not obtain legal advice in confidence."
The Privy Council's judgment can be accessed here: https://jcpc.uk/cases/jcpc-2024-0077
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Kennedys operates in Bermuda in association with Kennedys Chudleigh Ltd.
