As alluded to in our recent article ‘Privilege in shareholder disputes – is change afoot?’, the eagerly awaited judgment of Aabar Holdings S.À.R.L v Glencore PLC has provided fresh judicial insight on the validity of the shareholder principle.
Although the shareholder principle has existed for over 135 years, remarkably the High Court has now concluded that the principle is ‘unjustifiable’ and ‘should no longer be applied’.
Background
Aabar v Glencore is a High Court judgment following a two-day hearing in November at which a number of important privilege-related issues were addressed. The first and most crucial issue to be determined was whether the shareholder rule existed in English law.
The context in which this arose is a claim under sections 90 and 90A of the Financial Services and Markets Act 2000 brought by Aabar as the sole shareholder of a company called Commodities S.à.r.l., a company that was the ultimate beneficial owner of shares in Glencore via intermediated securities through CREST.
Aabar sought disclosure of documents by invoking the shareholder principle and Glencore informed them of its intention to seek a court declaration asserting its right to withhold privileged documents.
Does the shareholder principle exist in English law?
In his judgment, Picken J examined the foundational basis of the shareholder principle. This hinges on the notion that a company and its shareholders share a joint-interest privilege because their relationship is analogous to that of trustees and beneficiaries.
Picken J recognised and shared the scepticism about the principle expressed by Mr. Justice Green in Various Claimants v G4S PLC. Drawing from Mr. Justice Green’s analysis that the shareholder/company relationship is no longer analogous to that of trustee/beneficiary Picken J decided that the principle’s original rationale can no longer apply and that joint-interest privilege cannot be supported within such a relationship. Picken J therefore concluded that the shareholder principle can no longer exist in English law.
Despite this decision, Picken J went on to discuss the alternative scenario in which the shareholder principle existed and, in that scenario, how it would operate. He referred to the recent Bermudian Court of Appeal case, Oasis Investments II Master Fund Ltd v Jardine Strategic Holdings which concluded that the question of whether a joint interest existed as between company and shareholder "depends on the circumstances of each individual case" and that “the joint interest principle does not extend to give the shareholder an absolute right to access any company legal advice”. In essence, any joint interest in privilege will be assessed based on the actual circumstances rather than being treated as a matter of right because of the shareholder/company relationship.
This landmark judgment has potentially far-reaching consequences, not only in securities litigation but for company litigation generally. Companies will no doubt seek to rely on this judgment in both unfair prejudice proceedings and derivative actions to resist any shareholder attempt to obtain privileged documents.
Update: Privy Council confirms the shareholder principle no longer applies in England & Wales.
Further information
If you have any questions regarding this blog, please contact Katie Allard or Bethany Hall in our Dispute Resolution team.
About the authors
Katie Allard is a Senior Associate in the Dispute Resolution Team. She has a wide-ranging commercial practice with particular interest and expertise in complex civil fraud and asset tracing investigations, boardroom and shareholder disputes, and breach of contract claims, acting for both claimants and defendants.
Bethany Hall is currently in her first seat with the Dispute Resolution team. Prior to joining the firm, Bethany worked as an Administrator and Paralegal in a law firm in the Isle of Man. She assisted mainly on personal injury and clinical negligence cases and also helped on family and criminal matters. She also assisted in assessing clients for Legal Aid.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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