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  • Oct 6, 2025

From transparency to privilege in company proceedings: The shareholder rule overturned by the Privy Council

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Privilege and the Shareholder Rule

Communications that would otherwise need to be disclosed in legal proceedings are protected from disclosure where legal professional privilege attaches to them. The rationale is clear: clients should be able to obtain legal advice in confidence and without fear of disclosure, that what they reveal may later be used against them. As Lord Hoffmann stated in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21 (House of Lords), legal professional privilege is “a fundamental human right long established in the common law.”

The “shareholder rule” has long represented an exception to legal advice privilege in proceedings involving a company and its shareholders, allowing shareholders to access a company’s privileged legal advice in litigation against the company with understandable tactical benefit. In Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJ Ch 498, the court held that the shareholder rule was justified on the basis that shareholders had a proprietary interest in the company’s assets including advice paid for from those assets, thereby entitling them to access that advice.

Over time, the rationale in Gouraud has become increasingly inconsistent with the principle of separate legal personality as established in Salomon v A Salomon & Co Ltd [1897] AC 22. Courts have been reluctant to uphold the shareholder rule but have stopped short of abolishing it altogether.

On 24 July 2025, the Judicial Committee of the Privy Council (“Privy Council”) delivered its judgment in the landmark case of Jardine Strategic Limited v Oasis Investments II Master Fund Ltd and 80 others (No 2) (Bermuda) unequivocally abolishing the shareholder rule. In doing so, the Privy Council:

  1. emphasised the importance of legal advice privilege for UK companies;
  2. confirmed that the historical justification for the shareholder rule is incompatible with the modern principle of company law which recognises a company as a separate legal entity; and
  3. rejected the argument made by the Court of Appeal for Bermuda that the shareholder rule was based on “joint interest privilege” – the notion that shareholder and company interests are necessarily aligned.

Background

The case arises from a corporate reorganisation within the Jardine Matheson group, where Jardine Strategic Limited was formed through the amalgamation of two group companies, resulting in the cancellation of shares in one. Under Bermudian law, dissenting shareholders were entitled to be paid the “fair value” of their shares. When the company offered $33 per share, some shareholders disputed the valuation and initiated proceedings for the court to determine the fair value.

As part of those proceedings, the dissenting shareholders also sought disclosure of the legal advice the company relied on when setting the valuation. The Court of Appeal for Bermuda applied the shareholder rule and ordered disclosure, reasoning that shareholders have a joint interest in legal advice concerning a company’s affairs.

The company appealed to the Privy Council, arguing that the shareholder rule should no longer be recognised under English law—whether based on its historical foundation or as a form of joint interest privilege—and therefore has no applicability in Bermuda.

Decision

The Privy Council unanimously allowed the appeal, holding that the shareholder rule did not exist in Bermuda and also stating that it should also be abolished in England and Wales. Applying the decision in Willers v Joyce (No. 2) [2016] UKSC 44, the Privy Council confirmed that its decision should be considered binding in England and Wales.

In its reasoning, the Privy Council held:

  1. the shareholder rule’s proprietary basis is “wholly inconsistent” with the legal reality that a company is a separate legal person;
  2. joint interest privilege is a “serious oversimplification” of the relationship between a company and its shareholders reflected in the facts of Jardine where the shareholders sought to push up the share price from the fair value determined by the company; and
  3. a case-by-case approach to joint interest privilege would create uncertainty, discourage companies from seeking legal advice and undermine the purpose of legal privilege.

The Privy Council also reasoned that because the relationship between a company and its shareholders is contractual (deriving from its articles of association) it would be “strange” if privilege could be overridden when those very documents deny access.

Practical Takeaways for Companies and Directors

The Privy Council’s decision provides long-awaited clarity and will be welcomed by directors and advisers to directors and companies. Companies in shareholder disputes can now seek privileged legal advice with confidence that such communications will remain privileged. Whilst clearly the determination of the Privy Council is not precedential, the views of the judges are clear. The rule should be treated as no longer applying.

Disclosing Legal Advice to Shareholders

Although the shareholder rule has been abolished, companies may (in certain circumstances) wish to share legal advice with its shareholders. However, extreme caution is advised, as disclosure may waive legal privilege. We outline certain practical steps which companies may wish to consider when disclosing legal advice to shareholders:

  1. Define access clearly: specify which shareholders may access legal advice, the reasons for this and under what conditions, to be clearly reflected in contractual documents, including  confidentiality undertakings.
  2. Limit disclosure: disclosure should be limited to a “need to know” basis to preserve privilege, including sharing summaries of the conclusions of the legal advice rather than the full advice.
  3. Label documents: clearly label all legal communications as “Privileged and Confidential” and include non-waiver statements.
  4. Training: ensure directors and senior managers are trained and understand how privilege can be lost or undermined e.g. forwarding legal opinions to external parties or discussing them in open forums.
  5. Hybrid roles: where some shareholders are also directors, establish protocols to govern access. Consider limiting access to instances where no conflict exists or that legal advice is not to be disclosed to any shareholders under any circumstances (even if the shareholder is also a director).
  6. Joint interest privilege: although rejected in Jardine, the Privy Council did not rule out its future application where interests are genuinely aligned. However, judicial clarification will be required to explore this further. The absence of a definitive ruling on joint interest privilege means that its potential applicability in future shareholder disputes remains a grey area. The facts of Jardine are such that there was a clear absence of interest alignment.

Wedlake Bell has extensive experience advising companies on shareholder matters, legal professional privilege and shareholder communications. We regularly assist clients in drafting confidentiality undertakings, structuring access protocols, and navigating privilege risks in contentious and non-contentious contexts. If your organisation is considering disclosing legal advice or needs support implementing robust privilege protections, our Corporate and Commercial Disputes teams are here to help.

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