This rule provided that a company could not, in the course of litigation between a company and shareholders, withhold documents from inspection on the basis of legal advice privilege. The Board held that the original proprietary justification for the Shareholder Rule no longer exists and the company shareholder relationship is not one that falls into the joint privilege relationship family.

The Board also held, pursuant to its Willers v Joyce  jurisdiction (where the Privy Council, not being a court of the United Kingdom but comprising the same Justices those who sit in the House of Lords and the UK Supreme Court, may direct that its decision also represents the law of England and Wales), that the domestic courts of England and Wales should treat this decision as binding and part of the law of England and Wales.

This decision is significant for common law jurisdictions – it is binding in Bermuda and England and Wales, and likely to be highly persuasive in other common law jurisdictions such as the Cayman Islands. It provides certainty to company directors seeking legal advice and, in the context of shareholder appraisal proceedings under section 106 of the Bermuda Companies Act (and likely also in the Cayman Islands in shareholder appraisal proceedings under section 238 of the Cayman Islands Companies Act), clarifies that companies are not required to produce legal advice obtained when setting fair value offered to dissenting shareholders.

This is the second decision of the Privy Council arising out of the amalgamation of two companies within the Jardine Matheson group and section 106 proceedings issued by the dissenting shareholders seeking a fair value appraisal by the Court.

In the present matter on appeal, the dissenting shareholders had sought discovery of legal advice that was given to the Jardine Matheson group when it was setting the $33 value which was offered as fair value to dissenting shareholders who had their shares cancelled.

The Company asserted that the advice was covered by legal advice privilege. The dissenters asserted that where a party seeking to access the documents is a shareholder, that will override the usual rules on privilege. They submitted that the Shareholder Rule was in reality a sub-set of joint interest privilege, such that it remains justified notwithstanding the fading away of the original proprietary basis for its creation.

The primary issue for the Board was whether the Shareholder Rule exists as a matter of Bermudian law.

At first instance, Chief Justice Narinder Hargun of the Court of Appeal of Bermuda rejected the Company’s claim to privilege on the basis that the Shareholder Rule was a long established and complete answer to any assertion of legal professional privilege by a company against its shareholders.

The Company appealed the decision. The Court of Appeal of Bermuda dismissed the appeal.

Justice of Appeal Geoffrey Bell who gave the main judgment, recognised that the Shareholder Rule had not been applied in any decision in Bermuda but that the Court of Appeal had clearly operated on the basis that the rule did exist in at least one previous case. Justice of Appeal Bell regarded the rule, if it existed, as based on joint interest privilege and not 19^th century case law (from which the rule originated).

Justice of Appeal Ian Kawaley reached a more nuanced conclusion. He rejected the traditional view that the company shareholder relationship was enough to establish an exception to privilege. Rather, it would depend upon all the circumstances and was a flexible and context-based rule rather than status-based rule.

President Sir Christopher Clarke agreed with both judgments and added that the joint interest principle, applicable to defeat what would otherwise be a successful claim to legal advice privilege, had a firm foundation in the recognition by the courts that the shareholder and the company may have a joint interest in the subject matter of the relevant communication.

The Board, however, disagreed.

The Board first considered the history of the Shareholder Rule noting that it originated from nineteenth century case law and its foundation seemed to be a migration of “the Trustee Rule” – that trustees could not claim privilege against beneficiaries for materials obtained at the beneficiary’s expense – to the relationship between a company and its shareholders.

The first reported case in which the Shareholder Rule appeared to have been applied Gouraud v Edison Gower Bell Telephone Co of Europe  in 1888 before the Chancery Division of the High Court of Justice of England and Wales) was expressly decided on the basis there was a true analogy as between company and its shareholders and the Trustee Rule. This was on the basis that shareholders could be said to be the true beneficial owners of the company’s property, even though the company was a separate legal entity, and therefore had effectively paid for the legal advice of which they were seeking disclosure. Since directors were in the same position for the shareholders as Trustees for their beneficiaries no legal advice privilege could be maintained.

The approach of the Court in Gouraud  was accepted without question by the English Court of Appeal in Woodhouse & Co Ltd v Woodhouse  in 1914. Justice Lush (sitting in the Court of Appeal) held that where a company obtained advice in the common interest and paid for it out of the common fund, the shareholder would undoubtedly have a right to see it.

The Board noted that it has also been recognised for at least 100 years that a company is both the legal and beneficial owner of its property.^[1] Further, it has long been established that directors owe their fiduciary duties to the company alone, although they must take into account the interests of shareholders and, in the context of insolvency, the company’s creditors. Nonetheless, until very recently a general rule remained, that where a company takes the opinion of counsel and pays for it out of the funds of the company, a shareholder has a right to see it. This was, considered the Board, even though the original proprietary justification for it had faded quietly away.

Some doubt had, however, been cast in more recent times. The Board noted that in the English High Court decision of Aabar Holdings SARL v Glencore plc  (2024), Justice Simon Picken had held that the Shareholder Rule should be abandoned. Justice Picken concluded that it could no longer be supported by reference to its traditional proprietary justification and there was no overarching joint interest privilege between a company and its shareholders to bring it within that category of privilege. Picken J did not regard himself as bound by any contrary authority to decide otherwise.

The Board noted that the Shareholder Rule had not fared well in other jurisdictions, except for the Cayman Islands and Bermuda. In In re 58.Com Inc  Justice Kawaley (sitting in the Grand Court of Cayman Islands) held (in an appraisal action under section 238 of the Cayman Islands Companies Act) that the common law rule is that shareholders will generally have a joint interest in any legal advice which the company takes about the general administration of the company because the company is deemed to be obtaining the relevant advice on the shareholders’ behalf. His Lordship held that the rule deploys an equitable approach to mitigate the consequences of a strict legal approach based on the separation of legal personalities.

The Board held that:

• The Shareholder Rule forms no part of the law of Bermuda, and it ought not to continue to be recognised in England and Wales either. The dissenting shareholders therefore had no right to access the documents from the Company and the Company could resist production based simply on legal professional privilege.
• The original basis for the Shareholder Rule (being proprietary) is wholly inconsistent with the proper analysis of a registered company as a separate legal person. Members have no proprietary interest in the funds of the company that were used to pay for that advice.
• There is no automatic status-based denial of legal professional privilege between every company and all of its shareholders. There cannot always be said to be a community of interest between every company and its shareholders. Such an exception from legal advice privilege would also discourage companies from obtaining candid legal advice in confidence. It would wrongly incorrectly assume a coincidence of interests contrary to typical commercial reality.
• The relationship between a company and its shareholders is contractual and that the particular terms will typically restrict what a shareholder is entitled to see. It would be strange if an exception to the usual rules on privilege could be mounted on the basis of a special relationship, when the express contractual terms of that relationship point in the opposite direction.
• A more nuanced basis for occasionally depriving a company of legal professional privilege in litigation with its shareholders was also not justified. The uncertainty as to whether or not there is a coincidence of interests in any given case would make it all but impossible for directors to know whether the advice once received would be privileged from production. The need for certainty as to whether or not legal advice will be privileged demanded a bright line.
• Legal advice about the fixing of a fair price for the shares to be compulsorily acquired from minority shareholder was not a matter about which the Company and its shareholders shared a joint interest. There was a fundamental divergence of interest between the minority and the majority shareholders.

Given that the Board concluded that the Shareholder Rule did not apply and the dissenting shareholders had no right of access to the documents, the other issues in the appeal (relating to the application of the Shareholder Rule) were otiose or left to be decided in the context of joint retainer privilege cases in the future.

This decision abrogates the long-standing Shareholder Rule and will be of wider application outside the context of fair value appraisal litigation. It confirms that there is no automatic status-based denial of legal professional privilege between every company and all of its shareholders in litigation between the company and shareholders. Rather, any shareholders seeking to obtain copies of legal advice provided to the company would need to rely on a fact-specific joint interest privilege, or document access rights pursuant to their contract with the company.

The decision clarifies that the foundation for the original rule was the proprietary interest that a shareholder was said to have in the advice, not a joint interest that the company and shareholders may have. The proprietary basis for the rule has faded away. The shareholder and company relationship does not per se attract joint interest privilege. There is no general entitlement by shareholders to legal advice obtained by the company.

In the context of shareholder disputes including post privitisation fair value arbitrage proceedings, where dissenting shareholders would often seek production by the company of legal advice relating to the fixing of the merger price, a company will be entitled to resist disclosure of advice obtained in connection with fixing fair value provided it is protected by legal advice privilege. This provides welcome certainty for company directors and clarifies that dissenting shareholders have no automatic entitlement to such advice.

Given the Willers v Joyce  direction, this decision forms part of the law of England and Wales, as well as Bermuda. It will also likely be regarded as highly persuasive in other common law jurisdictions (such as the Cayman Islands, BVI and Hong Kong) both in fair value appraisal litigation and more general litigation between a company and shareholders. It could also conceptually be applied in other contexts (not relating to companies), such as in the Cayman Islands in the context of exempted limited partners where a limited partner may seek to obtain legal advice obtained by the general partner, although such a question would need to be decided in a future case.

^[1]Salomon v Salomon [1897] AC 22.

This article was first published by the Law360 on 6 October 2025.