Shareholder rights redefined: High Court ruling limits shareholder access

The ‘shareholder rule’ has been in place for over 100 years helping shareholders get their hands on company documents which would ordinarily be privileged and hidden from view.

A recent decision of the High Court has ruled that this principle no longer applies. Alistair Gregory, dispute resolution partner at Primas Law reviews what the decision means for shareholders wanting access to such documents and to the board of directors wishing to conceal them.

What is the shareholder rule?

It’s the principle that a company cannot prevent disclosure of documents to a shareholder on the basis of legal professional privilege, unless those documents were created for the purpose of litigation. The logic behind the rule is largely that shareholders own the company and should have access to the company’s legal advice.

What does the recent ruling say?

The High Court’s landmark ruling is in the case of, Aabar Holdings Sárl v Glencore Plc [2024] and the key points of the ruling are:

• The shareholder rule should no longer be applied.
• A company will now be able to effectively refuse shareholder requests for privileged information.
• The principle of the company having its own legal identity is preferred over the logic of shareholders’ ownership.

What does this mean in practical terms?

As it stands, shareholders lose a significant tactical advantage in any disputes with the board of directors such as derivative actions and unfair prejudice proceedings; those on the board of directors will doubtless say that the advice to the company is fairly withheld.

One can expect that the decision will be challenged in the higher courts, and we will need to keep a careful watch over how that unfolds. The Court has paved the way for this review by noting in the judgment that if it were wrong and the shareholder rule did in fact exist, then:

• There could not be an absolute right to access company legal advice, and each case would need to be dealt with on a case-by-case basis;
• It could not extend to certain classes of documents such as without prejudice privilege (given the involvement of a third party in such communications) since both parties would need to consent for their communications to be disclosed; and
• It would not be restricted to shareholders, whether registered or otherwise.

Should you or your company require any advice on the issues set out above, please don’t hesitate to get in touch with the Primas dispute resolution team via alistair.gregory@primaslaw.co.uk.