The Privy Council Abolishes the Shareholder Rule

In a landmark judgment handed down in July 2025¹, the Privy Council departed from the exception to legal advice privilege applying as between a company and its shareholders and declared that the ‘Shareholder Rule’ (as it’s known) was abrogated for the purpose of English litigation.

The decision follows a 2024 case² in which the Shareholder Rule was criticised, and on which we wrote earlier in the year³. 

This judgment is relevant to company directors and in-house legal teams, who will now be able to seek legal advice on behalf of their companies secure in the knowledge that the advice will not automatically be exempt from privilege if a dispute with shareholders arises.

Background

The underlying dispute arose from the amalgamation of Jardine Strategic Holdings Ltd (Jardine Strategic) and another company to form Jardine Strategic Limited (the Company). Following the amalgamation, the Company was required to pay a fair value for the cancelled shares of Jardine Strategic to its shareholders. Legal action was then taken in Bermuda by a group of 90 shareholders who were unhappy with value offered by the Company (the Shareholders).

As part of that process, the Shareholders applied to the court for an order that the Company produce the legal advice that it had obtained when assessing the fair value of the cancelled shares. Documents containing legal advice would ordinarily be subject to legal advice privilege, meaning that the opposing party in litigation would not be entitled to see such documents.  However, the Shareholders sought to invoke the ‘Shareholder Rule’, which had for decades been recognised as an exception to legal advice privilege, and which enabled shareholders to obtain copies legal advice given to companies in which they held shares when in proceedings against the Company. The Company argued that the Shareholder Rule should be abandoned.

What is the Shareholder Rule?

The Shareholder Rule exception was established in 1887 and was further developed in the 19^th century⁴ by analogy to the Trustee Rule, which provides that trustees could not claim privilege against their beneficiaries for materials which they had obtained at the beneficiaries’ expense. The justification for the Shareholder Rule, in essence, was that a company (similarly to a trust) obtaining legal advice did so by using assets ultimately belonging to the shareholders (analogous to beneficiaries of a trust), and as such it could not prevent its shareholders from viewing that advice. 

An alternative justification emerged, namely that the relationship between a company and its shareholders was one of ‘joint interest’.  As such a company should not be entitled to withhold documents containing legal advice from its shareholders.

Proceedings in Bermuda

The lower court in Bermuda sided with the Shareholders, finding that “it is established under English law that a company may not claim privilege against its shareholders”⁵ and that the issue of whether the Shareholder Rule should be imported into Bermudian law should be determined by the Court of Appeal.

The Court of Appeal for Bermuda upheld that decision, holding that the Shareholder Rule was established in the English law of privilege and that there was no reason why Bermuda should not follow it⁶.

The Privy Council’s Judgment

In March 2025, the Judicial Committee of the Privy Council (JCPC)⁷ heard the appeal from the Court of Appeal for Bermuda. 

In reaching its decision, the JCPC observed that the original proprietary justification had not been followed in case law or in academic texts for some time. 

As to the alternative argument (joint interest between the company and its shareholders), the JCPC commented that it “has been prayed in aid by those seeking to explain the continued existence of the Shareholder Rule in the light of the collapse of its original justification.” Joint interest cannot be said to exist universally between a company and its shareholders, many of whom (as in the present dispute) may have divergent views and objectives.

The JCPC also emphasised the importance of legal professional privilege in general, referring to earlier case law⁸ describing privilege as a fundamental human right and a condition “on which the administration of justice as a whole rests.” Therefore, maintaining the Shareholder Rule as a broad exception from legal advice privilege as between company and shareholders would discourage companies from obtaining honest legal advice.

Applicability under English law

Although the JCPC is not an English court, the decision is binding as a matter of English law by virtue of the JCPC giving a Willers v Joyce⁹ direction to that effect. As a result, the Shareholder Rule exception is not recognised in England.

Implications for Companies and Shareholders

This decision provides further clarity on the question of privilege as between a company and its shareholders.  Most significantly, companies (acting through their directors) can now seek legal advice in relation to the running of a company without fear that, if a dispute arises between the company and its shareholders, that legal advice will need to be produced to the shareholders. 

However, privilege over legal advice obtained by a company is not absolute. While the decision abolished the Shareholder Rule exception, other exceptions exist – such as joint retainer privilege and the iniquity exceptions.

Importantly, the Shareholder Rule exception and the judgment concerned privilege extending over legal advice obtained by a company. If a dispute arises between a company and its shareholders, litigation privilege may still apply to confidential communications falling within that category of privilege.

There have been reported judgments from the BVI dealing specifically with the Shareholder Rule exception.  While the decision does not directly bind the BVI Courts, it will be highly persuasive in circumstances where the Privy Council is the final appellate court. 

The legal framework governing disclosure and privilege between companies and their shareholders in litigation has undergone a significant transformation.

With the removal of the “Shareholder Rule” exception, directors are now better positioned to obtain confidential legal advice concerning the company’s affairs without the concern that such advice might later be disclosed to shareholders whose interests may diverge from those of the board.  Conversely, shareholder claims, such as derivative actions and unfair prejudice claims brought under section 184I of the BVI Business Companies Act may be affected by this decision.

Footnotes

1. Jardine Strategic Limited (Appellant) v Oasis Investments II Master Fund Ltd and 80 others (Respondents) No 2 (Bermuda) [2025] UKPC 34
2. Aabar Holdings SARL v Glencore Plc and others [2024] EWHC 3946 (Comm) 
3. Has the English court signalled the end of the Shareholder Rule? – HFW
4. The rule was first applied in Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJ Ch 498.
5. [2023] SC (Bda) 8 Civ at [143]
6. [2024] CA (Bda) 7 Civ
7. The case was heard before Lord Briggs, Lord Leggatt, Lord Burrows, Lady Rose and Lord Richards.  Lord Briggs and Lady Rose gave the judgment in this case.
8. R v Derby Magistrates’ Court, Ex p B [1996] AC 487.
9. Willers v Joyce (No 2) [2016] UKSC 44