In its decision last year in Aabar Holdings SARL v. Glencore PLC & Others,[1] the High Court handed down a landmark ruling overturning the ‘shareholder rule’, which has been applied to the analysis of legal professional privilege as between a company and its shareholders since the 19th century. The court deemed this long-settled principle of the law of privilege to be ‘unjustifiable’ and held that it should not be applied.
Background
Aabar Holdings is one of several claimants bringing claims against Glencore alleging misconduct by certain of its subsidiaries in several African countries. The claim is brought pursuant to the Financial Services and Markets Act 2000, which provides a statutory framework for shareholders to bring an action against a company for any misleading published information.
There was a dispute between Aabar Holdings and Glencore as to whether, and if so to what extent, Glencore would be entitled to assert legal professional privilege against it. Aabar Holdings’ position was that, in accordance with the shareholder rule, a company cannot assert privilege against its own shareholder, save in relation to documents that came into existence for the purpose of hostile litigation against that shareholder. Further, Aabar Holdings noted that this principle had been approved by both the Court of Appeal and the Supreme Court. Glencore’s position was, broadly, that the shareholder rule was ‘anomalous, unprincipled and should no longer be applied’.
The High Court decision
The court undertook an extensive examination of the case law considering the shareholder rule and came to the view that:
- Propriety interest: The shareholder rule was originally founded on the principle that a shareholder has a proprietary interest in a company’s assets, but this principle could no longer justify the shareholder rule. The principle of the relationship between a shareholder and a company as being a proprietary one had been overturned as early as 1897.
- Joint interest privilege: The shareholder rule also could not properly be subsumed into an extension of the scope of ‘joint interest privilege’. There was no binding authority in existence on the point, and the court considered what little judicial reference there was to this argument to be ‘little more than passing’. Further, the court was of the view that ‘joint interest privilege’ was not something that had any independent existence at all – but was rather merely an ‘umbrella term’ that described various fact-specific instances in which one party is unable to assert privilege against another. The shareholder rule was not one such instance that the court felt it could bring under this umbrella.
The court considered other matters of principle which it held to be supportive of the position that the shareholder rule should not exist. It pointed to the fact that the shareholder rule in its ordinary operation would deprive a company of its fundamental right to privilege as a separate legal entity, and that a company should not be deprived of its inviolable right to keep its confidential legal advice private and privileged. Further, the court also noted that a company has the right to withhold information from its shareholders in other aspects of the relationship between a shareholder and a company. For example, a shareholder does not generally have any rights to access a company’s documents.
For these reasons, the court held that the shareholder rule was unjustifiable and should no longer be applied, concluding:
‘Its original rationale no longer applies … and the suggested joint interest privilege rationale is neither supported, at least in the shareholder/company context, by authority nor warranted as a matter of principle’.
Takeaway
The High Court’s decision is remarkable and will have a material adverse impact on claimant shareholders seeking to compel disclosure of key documents from defendant companies. Defendant companies may anticipate novel arguments on the principle of common interest privilege to be raised by claimant shareholders seeking disclosure.
Aabar Holdings had a ‘leapfrog’ appeal rejected by the Supreme Court, and it is to be seen whether the matter will be brought before the Court of Appeal. Any such appeal will be a closely watched matter and a ripe opportunity for the Court of Appeal to helpfully restate the shareholder rule – and, if so, clearly articulate how far that rule should extend.
Contributors
Ben Sharrock-Mason