Commercial Court finds that companies are entitled to claim privilege against their own shareholders

28/11/24

Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm)

For over 135 years it has been a rule of English law that a company cannot claim privilege against its own shareholder (save in relation to documents that came into existence for the purpose of hostile litigation between the company and that shareholder) (the so-called “Shareholder Rule”).

In an important judgment in the Commercial Court, however, Picken J has held that the Shareholder Rule is “unjustifiable” and “should no longer be applied”.

The issue arose for determination in the context of large-scale shareholder group litigation brought by a number of separately represented claimant groups against Glencore Plc under s.90 and/or s.90A of the Financial Services and Markets Act 2000.

The Shareholder Rule was established in the 19^th Century in Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498, in which Chitty J held that the position of shareholders was analogous to that of trust beneficiaries and partners. 

But Picken J held at [35]-[59] that the Shareholder Rule could no longer be sustained on this basis following subsequent developments in company law and, in particular, the seminal decision of the House of Lords in Salomon v A Salomon & Co Ltd [1897] AC 22:

“Whatever historical similarities there may once have been between the positions of an investor in a company, and partners or trust beneficiaries at the time that Gouraud was decided … those similarities (and so the analogy with a partnership or a trustee/beneficiary relationship) ceased to exist with the decision in Salomon …”

Picken J also rejected the argument that the Shareholder Rule could be justified on the alternative basis that it was a species of what has been called ‘joint interest privilege’.

As to this, Picken J held that:

1. There was no binding authority which established that the Shareholder Rule could be justified on the basis of joint interest privilege (“what there is, in truth, amounts to little more than passing (and anyway obiter) comment in cases where the Shareholder Rule was not in issue … and without independent analysis of the underlying basis for the Shareholder Rule”) ([60]-[93]).
2. In any event, “the concept of joint interest privilege as a freestanding or standalone species of privilege is not supported by the authorities”; on proper analysis, joint interest privilege is simply an “umbrella term” or “convenient shorthand” that has been used in previous cases to describe a variety of different situations in which one party is unable to assert privilege against another party on narrower and more conventional grounds ([94]-[105]).
3. Even if there was a general concept of joint interest privilege, there was no justification, as a matter of principle, for the conclusion that that concept extended to the company/shareholder relationship, so as to prevent a company from asserting privilege against its own shareholder ([106]-[116]).

Picken J also went on to consider various issues as to the scope of the Shareholder Rule (if it existed).  In this regard, Picken J held that, if the Shareholder Rule did exist, then:

1. It could not be a blanket rule which applied automatically in every claim between company/shareholder; rather, whether a sufficient joint interest existed on the particular facts would “depend on the circumstances” ([118]).
2. It would apply to documents that would otherwise be protected by legal advice privilege and/or litigation privilege, but not to documents covered by without prejudice privilege ([119]-[130]).
3. It would not be limited to direct/registered shareholders or current shareholders ([131]-[153]).
4. It could not be invoked by a subsequent purchaser of shares in relation to documents created prior to the date on which that purchaser acquired its shares ([157]).
5. It would apply to the privileged documents of a subsidiary of the company in which the shareholder held its shares ([159]-[167]). 

The judgment resolves an important point of principle which has arisen in a number of a recent shareholder group actions in England and also in the context of other litigation between companies and shareholders both in England and in other jurisdictions.

The judgment is here.