The ‘Shareholder Rule’ has been, until recently, a well-established principle that a company cannot assert legal privilege against its own shareholders in respect of privileged company documents. The only exception to the rule was in respect of privileged documents created for the purposes of hostile litigation between those shareholders and the company. However, in November 2024, the High Court handed down judgment in the case of Aabar Holdings S.à.r.l. v Glencore Plc and others [2024] EWHC 3046 (Comm) in which it concluded that the ‘Shareholder Rule’ is “unjustifiable” and “should no longer be applied”. The outcome of this ruling means that companies can more readily assert privilege against their shareholders, making it more difficult for shareholders to access company documents and potentially resulting in reduced corporate accountability and oversight.

Background

Glencore Plc (‘Glencore’) is a global natural resources company and the ultimate parent company of Glencore Group. Glencore is a Swiss company and is listed on the London Stock Exchange.

Aabar Holdings S.à.r.l. (‘Aabar’) is a Luxembourg company which is ultimately owned by the sovereign wealth fund of Abu Dhabi. Aabar is not and never has been a shareholder in Glencore. It was the sole shareholder in Commodities S.à.r.l. (‘Commodities’) and Commodities was alleged to be the ultimate beneficial owner of shares in Glencore, which it held indirectly through CREST. Aabar claimed that upon dissolution of Commodities in 2021, all of Commodities’ assets and liabilities transferred to Aabar.

Aabar has issued claims against Glencore and various other defendants in relation to alleged misconduct by certain subsidiaries of the Glencore Group in some countries in Africa and admitted oil price manipulation in relation to the fuel oil market at certain US ports. In particular, Aabar asserts that, as a result of the misconduct in question, certain documents issued by Glencore contained material misstatements and/or omissions, which in turn have led to losses on its investment. A number of other investors have also issued similar claims.

In the period leading to the first case management conference before the Judge, a dispute arose in correspondence in relation to whether (and, if so, in what circumstances) Glencore would be entitled to assert privilege against Aabar in the proceedings.

What is privilege?

Under normal circumstances, “privilege” enables a party, within the context of litigation, to withhold production of relevant documentation to another party and/or the court.

Various types of privilege exist, such as Legal Professional Privilege, Common Interest Privilege and Without Prejudice Privilege, but generally the rationale is to protect the sanctity of legal advice and facilitate certain types of protected communications. 

Glencore

In the Glencore case, the court was tasked with determining four issues, one of which was whether the general “Shareholder Rule” exists in English law.

Aabar sought to rely on the “well settled” principle known as the ‘Shareholder Rule’ meaning a company cannot assert privilege against its own shareholders and so they could access company documents otherwise protected by privilege (save for documents that came into existence for the purpose of the proceedings themselves). It was submitted that the ‘Shareholder Rule’ was an emanation of the principle of “joint interest privilege”, which was said to exist in a number of relationship contexts where parties had a joint interest in the communications in question.

In response, the Judge determined that there was no binding authority to support the proposition that the ‘Shareholder Rule’ was justified on the basis of joint interest privilege and even went so far as to doubt whether the concept of joint interest privilege even existed as a freestanding or standalone.

In determining that the “Shareholder Rule” did not exist, Mr Justice Picken gave detailed reasoning and commented “There is nothing in the company/shareholder relationship that justifies a conclusion, at least as a general matter, that the company should be deprived of its otherwise inviolable right to keep its confidential legal advice private and privileged.” In his judgment, the Judge emphasised that a company is a separate legal entity distinct of its shareholders and noted the fact “…that shareholders have no proprietary interest in their company’s assets”. He commented “….it is not to the shareholders that directors owe their duties. It is to the company that such duties are owed” and expressed concern that the extension of any concept of joint interest privilege to the company/shareholder relationship may deter directors from seeking legal advice.

Mr Justice Picken remarked that “outside of the litigation context shareholders do not generally have any rights to access the company’s documents (whether such documents are privileged or non-privileged) … a shareholder’s legal and economic interest is comprised of contractual rights against the company under the company’s articles of association” which articles in Glencore’s case did not provide inspection rights to shareholders.

Comment

This decision was unexpected and marks a significant shift in the legal landscape for companies who will have greater protection over their privileged communications and documents going forward. It is a High Court decision and therefore could be the subject of an appeal to the Court of Appeal. In the absence of any appeal (at the time of writing), it remains to be seen how other judges will interpret the decision. At present, it appears to be good news for companies, particularly those embroiled in boardroom disputes who will be able to withhold relevant documents from inspection where privilege attaches to them. Conversely, there risks being a negative impact on shareholders who want greater transparency over important company communications relevant to a claim.