The End of the “Shareholder Rule” Exception to Legal Advice Privilege

Landmark decision means companies can assert legal advice privilege against their shareholders in litigation before the English courts.

On 24 July 2025, the Privy Council handed down its decision in Jardine Strategic Ltd v. Oasis Investments II Master Fund Ltd and Others (No 2) (Bermuda) [2025] UKPC 34 (Jardine), abolishing the so-called “Shareholder Rule” exception to legal advice privilege as a matter of both Bermudian and English law. The Shareholder Rule prevented a company, in the course of litigation against its shareholders, from withholding documents from inspection on the basis that the documents are covered by legal advice privilege. As the Privy Council found, “[l]ike the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed”.¹

Background to Jardine

This landmark decision arose from the amalgamation of two companies in the Jardine Matheson group. Pursuant to the Bermudian Companies Act 1981, shareholders who voted against the amalgamation were entitled to be paid the fair value of their cancelled shares. Some of those shareholders were not satisfied with the amount offered to them, and subsequently applied to the Bermudian courts for an appraisal of the fair value of their shares.

The shareholders, relying on the Shareholder Rule, sought inspection of legal advice that was given to the Jardine Matheson group when it set the amount to be offered as fair value.

The Shareholder Rule: A Long but Shaky Past

Before considering whether the Shareholder Rule should continue to exist, the Privy Council traced its history under English law,² beginning with Gouraud v. Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498 more than 135 years ago. By analogy to the relationship between trustees and beneficiaries, the Shareholder Rule was found to exist in that case on the basis that shareholders could be said to have a proprietary interest in the company’s assets, including the funds used by the company to pay for legal advice. As the Privy Council recognised, however, at least since Salomon v. Salomon and Co Ltd [1897] AC 22, the Shareholder Rule can no longer be sustained on such basis. Despite this, the Shareholder Rule survived, largely unchallenged, throughout the 20th century.

It was only in Various Claimants v. G4S Plc [2023] EWHC 2863 (Ch) (G4S) that the basis for the Shareholder Rule was seriously doubted, with Michael Green J stating that the “common fund basis is now dubious”,³ although he felt unable to overturn the Shareholder Rule sitting at first instance.

Aabar Holdings SARL v. Glencore Plc and Others [2024] EWHC 3046 (Comm) (Glencore)marked the “first full-frontal challenge”⁴ to the Shareholder Rule in the English courts. Picken J concluded that the Shareholder Rule was “unjustifiable and should no longer be applied”.⁵ The Shareholder Rule found no support on the basis of its traditional proprietary justification, nor could it be justified on the basis of joint interest privilege, as advocated for by counsel for the claimant.

The Privy Council’s Judgment

The Privy Council considered three possible formulations of the Shareholder Rule:

1. The traditional proprietary formulation of the Shareholder Rule
2. The joint interest formulation of the Shareholder Rule, pursuant to which the relationship between a company and its shareholders constitutes an established type of relationship where a joint interest generally exists
3. A more nuanced, circumstances-based formulation of the Shareholder Rule, pursuant to which the burden would lie on a shareholder to demonstrate a sufficient joint interest on the particular facts of the case (an approach Kawaley JA articulated in the Court of Appeal’s decision in Jardine)

The Privy Council rejected all three formulations, finding that:

1. the traditional proprietary formulation is “wholly inconsistent with the proper analysis of a registered company as a legal person separate from its members such that the members have no proprietary interest in the funds of the company used to pay for the advice”.⁶ The Privy Council observed that this formulation of the Shareholder Rule is “now, and in truth has always been, a rule without justification”;⁷
2. the joint interest formulation wrongly views the company shareholder relationship as within the joint interest family of relationships, assuming that shareholders are a homogeneous block whose interests are generally aligned.⁸ As Jardine demonstrates, that is not always the case. The Privy Council also found that such a broadly based exception “would discourage companies from obtaining candid legal advice in confidence. It would ignore the separate personality of the company and it would wrongly assume a simple coincidence of interests contrary to the typical commercial reality”;⁹ and
3. Kawaley JA’s more nuanced formulation gives rise to unacceptable uncertainty. The Privy Council found that the “very uncertainty whether, in relation to a particular matter for decision, there was or was not the coincidence of interest between company and shareholders sufficient to engage the exception from privilege would make it all but impossible for directors to know, when deciding whether or not to seek legal advice, whether the advice once received would be privileged from production to shareholders in the event of subsequent litigation between them”.¹⁰ The need for certainty demands a bright line rule.¹¹

The Privy Council gave a Willers v. Joyce direction — a direction that the English courts should treat the decision of the Privy Council as representing the law of England and Wales — with the result that Jardine abrogates the Shareholder Rule as a matter of English law.¹²

Takeaways

Previously recognised as a “general rule”¹³ that is “well established by authority”,¹⁴ Jardine conclusively marks the end of the Shareholder Rule. This should provide comfort to companies and their directors, who can rest assured that the legal advice they obtain will not be at risk of being disclosed to their shareholders in any subsequent litigation against their shareholders (subject to the usual exceptions to legal advice privilege).

Jardine is of particular relevance in light of the growing number of claims pursued in the English courts by shareholders pursuant to Sections 90 and 90A of the Financial Services and Markets Act 2000 for allegedly untrue or misleading statements in or omissions from a company’s published information, in which shareholders have sought to rely on the Shareholder Rule to inspect legal advice given to the company (as was the case in G4S and Glencore). The Privy Council’s decision provides much-needed clarity in this regard.

This post was prepared with the assistance of Efe Kati in the London office of Latham & Watkins.

1. Jardine, paragraph 82. 
2. See Jardine, paragraphs 28 to 44. 
3. G4S, paragraph 42. 
4. Jardine, paragraph 41. 
5. Glencore, paragraph 117. 
6. Jardine, paragraph 80. 
7. Jardine, paragraph 82. 
8. Jardine, paragraph 86. 
9. Jardine, paragraph 89. 
10. Jardine, paragraph 93. 
11. Jardine, paragraph 94. 
12. Jardine, paragraph 113. 
13. Jardine, paragraph 33, quoting Re Hydrosan Ltd [1991] BCC 19, 21B. 
14. Jardine, paragraph 35, quoting Arrow Trading & Investments Est 1920 and Another v. Edwardian Group Ltd and Others [2004] EWHC 1319 (Ch), paragraph 24.