knowledge 16 September 2025 |

Shareholder Rule abolished by Privy Council as matter of English law – “a rule without justification”

What is the Shareholder Rule?

The Shareholder Rule developed as a matter of English common law during the late nineteenth century, and in its contemporary form, operated to prevent a company from claiming legal advice privilege against its shareholders, save for advice relating to hostile litigation against that shareholder.

The historic rationale for the Shareholder Rule was that shareholders held a proprietary interest in company assets, including legal advice. This view pre-dates the understanding of companies as having a separate legal personality from their shareholders, as established in the landmark decision of Salomon v Salomon & Co Ltd³. Post-Salomon, the Shareholder Rule was justified on the basis that a company and its shareholders shared a joint legal interest in the subject-matter of legal advice that would otherwise be subject to legal advice privilege.

Criticism of the Rule

The Shareholder Rule had come under recent scrutiny from the Commercial Court of England and Wales in Aabar Holdings SÀRL v Glencore plc & Ors⁴, where Pickens J held that the continued use of the Rule was “unjustifiable” in the context of modern legal practice, as the historic rationale no longer applied and the joint interest privilege rational was neither “supported… by [legal] authority nor warranted as a matter of principle”.

A leap-frog appeal by Aabar Holdings SÀRL to the UK Supreme Court in February 2025 was rejected on the basis that the same issue would likely be resolved by the Council in the Jardine Strategic proceedings.

The decision in Jardine Strategic

Jardine Strategic arose out of the amalgamation of two companies within a pre-existing corporate group, the “Jardine Matheson” group, in Bermuda in 2021. Certain shareholders who had voted against the amalgamation and whose shares were cancelled as a result of the process initiated statutory appraisal proceedings in Bermuda for the court to determine the “fair value” of their shares. Relying on the Shareholder Rule, these shareholders also sought disclosure of the legal advice obtained by the company in setting the share price.

The Shareholder Rule was applied at first instance and on appeal in the Court of Appeal of Bermuda, with each court upholding the rule before the appeal was submitted to the Council.

The Council’s judgment

Ultimately, the Council disagreed with the Court of Appeal, abolishing the Shareholder Rule entirely and holding that it was, and had always been, “a rule without justification”. In so doing, the Council considered the various justifications for the rule.

The Council rejected the historical proprietary rationale for the Shareholder Rule finding that it was wholly inconsistent with the principle of separate legal personality and that shareholders had no proprietary entitlement to company assets, including funds used for the payment of legal advice.

The shareholder respondents argued, and the Bermudian courts had previously accepted, that the Shareholder Rule could be recast as a species of joint interest privilege. In rejecting this analysis, the Council distinguished the company / shareholder relationship from those that fall within the remit of joint interest relationships, noting that it would be “simply unrealistic” to suppose that the shareholder’s interests would readily align with those of the company. The Council also acknowledged that the affirmation of the Shareholder Rule would “discourage companies from obtaining candid legal advice in confidence”, which is key to directors tasked with acting in the best interests of the company, and would “ignore the separate personality of the company”.

The Council further disagreed with the more nuanced formulation of the Shareholder Rule by the Court of Appeal whereby its application would depend on whether joint interest privilege is recognised on the specific facts and circumstances of each case. The Council reasoned that a case-by-case inquiry left too much ambiguity for directors regarding the status of any legal advice sought by the company.

The Council made a Willers v Joyce direction that this decision should be followed by the courts of England and Wales.

Ireland’s Position

The “joint interest” principle is recognised in Ireland in the context of legal advice privilege. In Carlo Tassara Assets Management S.A. v Eire Composites Teoranta⁵, the High Court held that, in principle, shareholders are entitled to access legal advice obtained by a company regarding a proposed course of action (even if the action might later give rise to litigation) because it is of joint interest to a shareholder claiming such actions amount to oppression; however, that entitlement falls away after the concerned actions have been taken and when litigation is contemplated (as covered in our previous briefing note on the topic here). This approach was recently re-affirmed in Re Brock Delappe Limited⁶ where the High Court decided a shareholder was entitled to view legal advice obtained by the company before hostile proceedings were threatened or initiated, but the company could assert privilege over legal advice relating to the anticipated litigation.

To date, therefore, the key dividing line in Ireland has been whether the company and shareholder remain aligned or are “sundered by litigation”. The Council’s decision in Jardine Strategic considers that approach. If Jardine Strategic was followed in this jurisdiction, it would extend privilege even to pre-litigation advice, giving companies and directors greater certainty and confidentiality, but at the cost of reduced transparency and fewer tools for shareholders to scrutinise or contest company decisions.

Comment

In abolishing this dated exception to legal privilege, the Council has re-enforced the universality of privilege as a fundamental right. The ruling enhances certainty and aligns with the modern understanding of corporate personality and privilege. Companies can now assert legal professional privilege against shareholders in both Bermuda and England and Wales, and directors can seek legal advice without fear of disclosure.

The ruling also harmonises English and Bermudian law with that of other common law jurisdictions. However, it is yet to be seen if Ireland will follow this approach.   

Also contributed to by Kelsey Ahern