“Can a company assert privilege over its legal advice against a shareholder only where litigation privilege is established, or from the time that the interests of the company and shareholder became adverse?” This question was recently placed before the courts of Bermuda.
The Judicial Committee of the Privy Council handed down a landmark judgment in Jardine Strategic Holdings Ltd and another v Oasis Investments II Master Fund Ltd and 80 others (No 2) [2025] UKPC 34, abolishing the long-standing “shareholder rule.” This rule had long prevented companies from asserting legal advice privilege against their own shareholders in litigation.
The Privy Council when considering this question, not only abolished the rule but also confirmed that the abolition binds the courts of England and Wales stating the decision “should be regarded by courts in England and Wales as abrogating the shareholder rule for the purpose of litigation in those courts.” The judgment has sweeping implications for corporate governance and shareholder litigation.
Background
Proceedings arose following a dispute arising because of the amalgamation of two companies in the Jardine Matheson group. Following the transaction, 81 shareholders (originally 90) brought appraisal proceedings under section 106(6) of the Bermuda Companies Act 1981. They sought an order for the court to determine the “fair value” of their shares and the disclosure of documents which the company had sought to assert privilege over.
Included in the disclosure requests were copies of the legal advice given to the company when deciding what value to offer the shareholders. The company accordingly asserted the advice was covered by legal advice privilege and resisted the disclosure requests on this basis. The shareholders therefore sought an order for the company to disclose these documents as a company cannot in the course of litigation between its shareholders/former shareholders withhold documents for inspection on the grounds of legal advice privilege.
The court at first instance found in favour of the shareholders and an appeal was dismissed by the Court of Appeal, the company therefore sought a decision from the Privy Council.
Where did the shareholder rule come from?
The shareholder rule was originally applied on an analogy with the trustee/beneficiary principle; trustees cannot normally assert privilege against beneficiaries in relation to trust matters.
However, this analogy is clearly problematic, and this relationship can clearly be distinguished. Firstly, a trustee has a beneficial ownership of a trust’s assets, and secondly a trust is not a separate legal entity like a company
The Privy Counsel’s decision
The Privy Counsel unanimously allowed the appeal and found that the shareholder rule to be a “now antiquated principle” that should form no part of the law in Bermuda and ought not to be recognised in England and Wales either.
“Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed.”
The Privy Council concluded that privilege belongs to the company as the client, and there is no principled reason why shareholders should be able to override it.
Implications of the Privy Counsel’s decision
- For companies, they can be assured that they can assert legal advice privilege against shareholders in these types of disputes, ensuring communications with lawyers are protected.
- For shareholders, they can no longer rely on the shareholder rule to obtain company privileged communications; their avenues to access information are limited.
- For lawyers advising companies, the decision removes a long-standing anomaly and aligns privilege law with orthodox principles. Privilege attaches to the client and will not be displaced by shareholder status. Practitioners should, however, continue to stress the importance of preserving privilege through careful advice and document management.
Conclusion
The Privy Council’s ruling in Jardine Strategic v Oasis draws a clear line under an outdated and anomalous rule that had lingered in common law for nearly 140 years. By abolishing the shareholder rule, the Board has reaffirmed that legal advice privilege belongs to the company as the client and cannot be displaced simply by shareholder status.
For companies and their boards, the judgment offers welcome certainty and reinforces the integrity of confidential legal advice. For shareholders, it curtails a powerful disclosure tool and for practitioners, it is a timely reminder of the central role that privilege plays in enabling candid legal advice.
Ultimately, the decision modernises the law, aligns it with the principle of corporate separate legal personality, and strengthens the protection of privilege across corporate litigation in both Bermuda and England and Wales.
The message is clear: shareholder status is no longer a route to piercing privilege.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.