November 29, 2024
In a landmark ruling the Commercial Court has held that companies can generally assert privilege against their shareholders.
Since the 19th Century it has been considered a rule of English law that companies cannot assert privilege against their own shareholders, outside the recognised exception when litigation between the company and the shareholder is actual or threatened.
This principle, known as the “Shareholder Rule” was recently challenged by the Defendant, Glencore, in Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm). The litigation comprises a large scale shareholder claim under s.90 and s.90A of the Financial Services and Markets Act 2000.
Picken J held that, correctly analysed, the Shareholder Rule was unjustifiable and should no longer be applied, notwithstanding the line of cases running from Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498, through the Court of Appeal decision in Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559, and through a number of more recent authorities. This was because the original basis of the Shareholder Rule was rooted in the concept that shareholders had a proprietary interest in the company’s assets (and therefore in advice taken, and paid for, by the company), which is incompatible with the modern analysis of company law (post Salomon v Salomon). In addition, although more recent textbooks and dicta in the authorities have attempted to rationalise the Shareholder Rule on the basis of “joint interest privilege”, properly analysed this did not provide a justification for the rule either.
Richard Hill KC successfully argued the point for Glencore.
Read the judgment.
