Changes to the privilege rules between companies and shareholders

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Background

In a very recent decision in Aabar Holdings S.a.r.l v Glencore Plc [2024] EWHC 3046 (Comm), the Commercial Court considered the "Shareholder Rule" established in 19th century case law. This is an exception to the law of privilege that prevented a company from asserting privilege against its own shareholders save in relation to documents that came into existence for the purpose of hostile litigation against a shareholder. The principle was based on the findings in the cases in the 19th century that shareholders had a proprietary interest in the company's assets, including legal advice paid with using company funds. Subsequently it was determined in Saloman v Saloman & Co Ltd [1897] AC 22 that a company has a separate legal personality from its shareholders and since that decision there has been a tension between that principle and the Shareholder Rule.

What are the key findings?

The judge in this decision made two key findings:

The "proprietary interest" approach was no longer correct in law after the Saloman case, and the Shareholder Rule did not exist in English law.
He rejected the argument that a form of joint interest privilege could apply to the relationship between a shareholder and the company (a point which had been raised in other cases).

Why is this important?

This decision is perhaps surprising – although not without its critics, the Shareholder Rule has been regarded as a rule of English law for over a century. It is, however, thoroughly and carefully reasoned. The decision may well impact the ability of shareholders to pursue claims against a company, where access to privileged material belonging to the company may have assisted. For example, we have seen more instances of shareholder activism particularly in the area of climate change (eg ClientEarth v Shell Plc & Others [2023] EWHC 1897 (Ch)). It is also a first instance decision, so ripe for appeal to the higher courts. We therefore expect there to be more developments in this area of the law although it is unclear what view an appeal court would reach.