On 24 July 2025 the Judicial Committee of the Privy Council handed down judgment in Jardine Strategic Limited (Appellant) v Oasis Investments II Master Fund Ltd and 80 others (Respondents) No 2 (Bermuda) [2025] UKPC 34, a case on appeal from the Court of Appeal of Bermuda. In doing so, it abolished a well-established principle of company law – the Shareholder Rule.
Background
Jardine Strategic Holdings Limited (“JSHL”) was a Bermudan incorporated company within the Jardine Matheson corporate group. The majority (some 85%) of JSHL’s shares were held by another company within the Jardine Matheson group, whilst the remaining 15% were traded publicly.
On 8 March 2021, JSHL announced to the market that it intended to undertake a restructuring exercise, by way of an amalgamation with JMH Bermuda Ltd. The proposal involved the cancellation of JSHL’s publicly traded shares in return for a payment to the shareholders, and the formation of Jardine Strategic Limited, the Appellant.
A special general meeting of JSHL was called and took place on 12 April 2021. A number of the minority shareholders objected to the aforementioned proposal on the basis that the price offered to them as a ‘fair value’ for their shares was too low. Despite the objections, the resolution carried due to JSHL’s majority ownership and the amalgamation was thereby approved.
The Claimants, consisting of a number of the unhappy minority shareholders, consequently commenced an action pursuant to section 106 of the Bermudan Companies Act 1981, requesting that the court determine the fair value of the shares.
The Claimants sought disclosure of documents that predated the special general meeting from the Appellant, specifically, any legal advice obtained for the purpose of assisting the Appellant in its determination of the ‘fair value’ share price that was to be offered to the minority shareholders. The Appellant asserted that these documents were covered by legal advice privilege and were therefore not available for inspection. Whilst the Claimants accepted that the advice received would typically be protected by legal advice privilege, they argued that they were entitled to inspect the documents under the Shareholder Rule – a longstanding exception to the general privilege rules.
At first instance and in the Court of Appeal, the courts agreed with the Claimants, finding that the Shareholder Rule meant the Appellant company could not withhold documents from its own shareholders under the veil of legal advice privilege.
The key issue in the appeal to the JCPC was whether a company could, in the course of litigation with its shareholders, refuse to disclose documents for inspection on the basis that the documents were covered by legal advice privilege. In short, did the Shareholder Rule exist?
What is the Shareholder Rule?
The Shareholder Rule has been a longstanding doctrine of company law that has prohibited a company from relying on legal advice privilege to withhold documents when in dispute with its shareholders.
As the Board explained in its judgment, the Rule dates back to 1888 where, in Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJ Ch 498, Chitty J rejected a company’s claim to privilege as against one of its shareholders. Notably, Gouraud predates the landmark company law decision of Salomon v Salomon & Co Ltd [1897] AC 22, which established that a company is a separate legal personality, distinct from its shareholders. This then goes some way to explaining the court’s ruling in Gouraud, where it foundthat “a party cannot resist production of documents which have been obtained by means of payment from the moneys belonging to the party applying for their production”. This proprietary principle that a shareholder, through their own interest in the company’s money, had effectively paid for the company’s legal advice and was therefore entitled to see it, was the rationale that created the Shareholder Rule. In reaching this conclusion, analogy was drawn between the relationship between a shareholder and their company, and between a trustee and their beneficiary; a comparison which has now long since been rejected. Whilst company law itself changed course with Salomon, the Shareholder Rule did not and has remained in place for over 130 years.
In more recent times it has been suggested that the relationship between shareholder and company is one in which joint interest privilege would arise, and that this would provide a more substantial grounding for the Rule. However, the recent judgment of Picken J in Aabar Holdings S.á.r.l. v Glencore Plc [2024] EWHC 3046 (Comm), dismissed both the idea that the Rule could be founded on the old proprietary principle, and the alternative modern justification based on joint interest.
The Board’s view
In its judgment, the Board rejected the Shareholder Rule in no uncertain terms, stating that the Rule “forms no part of the law of Bermuda, and that it ought not to continue to be recognised in England and Wales either”. The Board recognised that the Rule was “without justification” in circumstances where its original proprietary basis was now “wholly inconsistent” with modern company law and the recognition of a company as a separate legal person.
The Board also firmly rejected the submission that the Rule could remain by means of the joint interest privilege justification. They noted that whilst a company’s interests may align with its shareholders in some situations, in reality the interests of different shareholders may well diverge (as in the instance case) resulting in no joint interest. They found that it would be unsuitable to derive a test to determine whether there was or was not a qualifying joint interest given the uncertainty that this would create.
Whilst decisions of the JCPC do not normally have the effect of binding the courts of England and Wales (although are considered great to be of great weight and persuasive value), following the decision in Willers v Joyce (No. 2) [2016] UKSC 44, the Supreme Court considered that the Board may, if it considered the action to be appropriate, expressly direct that domestic courts should treat its decision as representing the law of England and Wales.
The Board queried whether such a direction was formally required in this case but expressed the view that its decision should be considered to be binding on the domestic courts, thereby repealing the Shareholder Rule as a matter of English law.
Comment
The abolition of the long-standing Rule will attract attention from legal practitioners and will have significant impact on both directors and shareholders alike. Directors will undoubtedly welcome the Board’s decision as it brings clarity and certainty that any legal advice obtained on behalf of the company will not, as a matter of right, be disclosable to shareholders in the event of future litigation.
In contrast, with their route to accessing privileged company documents closed off, shareholders are now in the same position as any other litigant with only limited scope to obtain such documents when pursuing claims against a company.
Enyo Law regularly advises in relation to shareholder disputes. If you would like to discuss the contents of the article further, please contact Jonathan Brook.