The decision will be significant for shareholder litigation, including securities class actions, as it will mean that shareholders generally have no entitlement to production of the company's privileged material
The Privy Council has held unanimously that the so-called Shareholder Rule – ie that a company cannot assert privilege against its shareholders save in relation to documents created for litigation against that shareholder – forms no part of either Bermudian or English law: Jardine Strategic Limited v Oasis Investments II Master Fund Ltd [2025] UKPC 34.
In essence, the Privy Council held that the modern "joint interest" justification for the rule, based on the supposed joint interest between a company and its shareholders relating to the affairs of the company, cannot replace the original justification for the rule, which was based on the now-discredited notion that shareholders have a proprietary interest in the company's assets.
The decision notes that shareholders will often have diverging interests even among themselves, and that a company has various other groups of stakeholders whose interests must be taken into account, such as funders and employees. It concludes that the continued recognition of the Shareholder Principle would discourage directors from taking legal advice required in order to make decisions for the benefit of the company, due to the risk of it having to be disclosed to shareholders at a later date.
The Privy Council therefore decided to abrogate the Shareholder Rule, and used its power (recognised in Willers v Joyce (No 2) [2016] UKSC 44, considered here) to make a direction that its decision should be regarded as binding on the English courts, as well as deciding the appeal in Bermuda.
The decision means that companies can assert privilege against their shareholders, as the High Court had held in its decision last November in Aabar Holdings v Glencore [2024] EWHC 3046 (Comm) (see our blog post here). It will be highly significant in the context of shareholder litigation, including securities class actions, as it will mean that shareholders generally have no entitlement to production of the company's privileged material.
While rejecting the "joint interest" justification for the Shareholder Rule, the Privy Council made clear that nothing in its judgment should be taken as laying down the law about joint interest privilege generally (which may still apply to various relationships including principal and agent, trustee and beneficiary, joint venturers and various insurance-based relationships) or the difference between joint interest and common interest privilege.
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