Further to my colleague Luke Hackett's post reporting that "The Shareholder Rule, a doctrine which had precluded companies from asserting Legal Professional Privilege against their shareholders, is no more" it is important to consider the implications that the Privy Council's decision has on directors and shareholders alike given this principle, rightly or wrongly, has stood in English law since the late 19th century.
Impact on Companies:
- Directors and boards can seek legal advice candidly and confidentially, removing fears of automatic shareholder scrutiny as they can now assert legal professional privilege in litigation against shareholders, protecting confidential legal advice from disclosure.
- Reinforces the principle that the company is a separate legal entity, ensuring internal affairs remain confidential.
Impact for Shareholders:
- Shareholders will face greater difficulty accessing privileged company information in litigation or disputes and can no longer rely on the Shareholder Rule to compel disclosure of legal advice.
- Reinforces that the company/shareholder relationship is essentially contractual and thereby increases the importance of the articles, shareholders agreements, shareholder governance, nominee director oversight, or negotiated access via joint privilege agreements.
Pending abrogation on any appeal to the Supreme Court, these implications will influence corporate governance procedures and shareholder litigation tactics significantly in the future.
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