The unlamented demise of the Shareholder Rule

This is a short update for business owners and GCs on the demise of the “Shareholder Rule” relating to legal advice privilege in the Judicial Committee of the Privy Council (“JCPC”) case of Jardine Strategic Limited v Oasis Investments II Master Fund Ltd & 80 ors No. 2 [2025] UKPC 34 (“Jardine No.2”).

The judgment of the JCPC was handed down on 24 July and related to a Bermudan matter but which in truth decides an issue of English and Welsh law. 

The Shareholder Rule was understood to mean that in the course of litigation between a company and its shareholders, or former shareholders, it was not possible to withhold documents from inspection on the ground that the documents were covered by legal advice privilege. This was a useful means by which shareholders could obtain disclosure from a company of documents relating to the legal advice received by a company in relation to the subject matter that is being litigated (as opposed to the litigation itself which is covered by a different form of privilege).

The Shareholder Rule dates back to the Gouraud decision of 1888. It was based on the increasingly deprecated belief that a shareholder, as a subscriber in a company, had a status that was akin to that of a beneficiary of a trust i.e. that he/she had a share of the company’s property and by implication part ownership of legal advice received by the company. This analysis of company law is now well out of fashion and considered to have always been wrong.

The wheels started to come off the wagon with Michael Green J’s decision in Various Claimants v G4S Plc [2023] EWHC 2683 in which he wrote “the principle itself, while well-recognised in the authorities, has a somewhat shaky foundation in light of the current ways of viewing the position of shareholders… It is clear that a company is totally separate from its shareholders and holds its property for itself… Therefore, the common fund basis is now dubious”.

In Jardine No.2 the JCPC has driven in the final nail. It has found, on a wide ranging analysis of English law, that the Shareholder Rule has never been good law and simply does not exist. The implication is that a company is entirely within its rights to withhold inspection of documents subject to legal advice privilege from shareholders even if that advice would otherwise be disclosable in litigation between the company and its shareholders.

The primary reason for this finding appears to be that a company must not be prevented from receiving legal advice from its lawyers, whatever that advice may say about the company's position, and that there would be prejudice to the company’s interests if, because of the potential disclosure of that advice to interested third parties, it should not do so. This public policy principle will be familiar to lawyers as a justification for the existence of professional privilege in the first place. Another reason is that it is common enough for the interests of a company and its shareholders not to align perfectly, which is especially true given modern company law developments in differing voting rights etc… and as such there is a meaningful divergence of interests that should allow for the sanctity of legal advice received by the company. 

As Lord Briggs’ speech giving the JCPC’s judgment pithily states “The status-based automatic Shareholder Rule is therefore now, and in truth has always been, a rule without justification. Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed”.

Where does this leave companies and shareholders? Only time will tell – but from now on aggrieved shareholders will need to attack the existence of legal advice privilege rather than rely on the defunct Shareholder’s Rule as a way of avoiding it altogether. A company may be more assured than ever that the legal advice it receives should, with few exceptions, remain privileged to itself.

It is worth noting in passing that while the JCPC is not a court of the UK, the decision will for all practical purposes be treated as binding on the courts of England and Wales by virtue of the fact that: (a) the panel is made up of justices of the Supreme Court of the UK, (b) the substance of the decision concerned English authorities and an English legal doctrine, and (c) the court explicitly made a Willers v Joyce direction that the decision overruled earlier decisions of the English appellate courts. No doubt the latter feature will give legal academics plenty to debate.