High Court decision in Aabar v Glencore redefines legal privilege in English law

The High Court has ruled in Aabar Holdings SARL v Glencore PLC & Ors [2024] that the "shareholder rule" does not exist in English law, meaning shareholders have no automatic right to disclosure of a company's privileged documents.

'Shareholder rule'

For over 130 years it had been widely understood that under English law a company was not entitled to claim privilege against its own shareholders – a rule known as the "shareholder rule". The only exception to this was where documents came into existence for the purpose of hostile litigation between the company and the shareholder itself.

In his recent High Court decision in Aabar, Mr Justice Picken held that the shareholder rule does not in fact exist in English law – and probably hadn't since 1897 – and should no longer be applied.

The shareholder rule had not been without criticism. Mr Justice Green expressed reservations about the justification for it last year in Various Claimants v G4S Plc [2023]. Mr Justice Picken's decision in Aabar now overturns the long-established, so-called rule and greatly reduces the scope of documents a litigant shareholder is entitled to seek from a company.

Aabar background

Aabar Holdings is one of a number of claimants pursuing claims under sections 90 and 90A of the Financial Services and Markets Act 2000 against Glencore (and certain former directors) in relation to alleged (and in some cases, admitted) misconduct by certain group companies in Africa.

In the run up to the first case management conference, the parties disputed whether Glencore was entitled to assert privilege against the claimant shareholders or whether it was prevented from doing so by the shareholder rule. This issue was dealt with at a hearing which addressed a number of privilege-related questions, by way of preliminary issue, starting with whether the shareholder rule existed in English law. 

Seminal decision

In his judgment, Mr Justice Picken carefully went through the case law on the shareholder rule from its origins in the 1888 case of Gouraud v Edison Gower Bell Telephone Co of Europe Ltd to date.

He noted that the early cases in which the shareholder rule gained a foothold in English law were based on the prevailing view that shareholders had a proprietary interest in the company's assets.

However, cases that accepted the existence of the shareholder rule had ignored the seminal decision of the House of Lords in Saloman v A Saloman & Co Ltd [1897] AC 22 that a company has a separate legal personality, distinct from its shareholders. Shareholders do not in fact have a proprietary interest in the company's assets.

Mr Justice Picken therefore ruled the "proprietary interest basis" was no longer correct in law and the application of the shareholder rule is "unjustifiable".

He also found that an alternative basis for the rule put forward by Aabar based on the existence of "joint interest" privilege between the shareholder and company (analogous to that which exists between trustee and beneficiary) had no proper foundation. Whether or not a company and a shareholder have a joint interest will depend upon the circumstances.

Thus, under English law, companies may assert privilege against their own shareholders in litigation in the same way that privilege can be asserted against any other third party.  

Osborne Clarke comment

The judgment in Aabar is a significant departure from what has been, for well over a century, an important principle in corporate litigation, and one which is frequently relied upon to apply strategic pressure in proceedings between shareholders and companies.

The decision is likely to be appealed, but, if upheld, some shareholder claims – particularly those challenging acts and decisions of the board – may become significantly more difficult to pursue. A shareholder can no longer guarantee being able to review advice sought and obtained by a company in order to test its sense and accuracy.

At a time when it is predicted that there will be a spike in corporate disputes arising from the recent increase in M&A deal volumes, this judgment should, however, give comfort to company directors, enabling them to have greater confidence in speaking freely with the company's legal advisors to obtain the advice they need to perform their roles.