The recent High Court decision in Aabar Holdings Sarl v Glencore plc [2024] EWHC 3046 (Comm) marks a significant development in the intersection of corporate privilege and shareholder rights.

The case affirms that companies can assert legal professional privilege (LPP) to deny disclosure of confidential communications, even when requested by their own shareholders.

Case Overview

• Aabar Holdings Sarl, a shareholder in Glencore plc, sought disclosure of certain documents during litigation. These documents, central to the proceedings, were subject to LPP, as they included communications between Glencore and its legal advisers.
• Aabar contended that as a shareholder, it had a right to access this material, relying on arguments related to corporate transparency and accountability.
• Glencore opposed the application, asserting that LPP is a cornerstone of English law, designed to protect confidential legal communications from being disclosed, irrespective of the requestor’s identity.

What is the Shareholder Rule

• The principle of the Shareholder Rule existed for over 100 years and was developed in the case of Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498.
• The notion of the Shareholder Rule is that a company cannot assert privilege against its own shareholder, save in relation to documents that came into existence for the purpose of hostile litigation against that shareholder.

Applicability of the Shareholder Rule

• Aabar contended that the Shareholder Rule—which traditionally prevents companies from asserting privilege against shareholders—should apply.
• Glencore challenged the existence of the Shareholder Rule, arguing that it is outdated and unprincipled.
• The High Court determined that the Shareholder Rule does not form part of English law. The original justification for the rule, based on the concept of a proprietary interest, was rendered obsolete by the landmark decision in Salomon v A Salomon & Co Ltd [1897] AC 22, which established that a company is a separate legal entity with its own distinct legal personality.
• The court also examined whether the rule could be supported by joint interest privilege. Mr. Justice Picken dismissed this argument, finding no basis for treating joint interest privilege as a standalone legal concept. He clarified that it is simply a term used to describe limited circumstances where one party cannot assert privilege against another, based on narrower and more conventional legal grounds.
• Even if joint interest privilege were accepted as a separate concept, Mr. Justice Picken found no authoritative support for applying it to the company/shareholder relationship. He outlined practical and legal objections, including:

1. Shareholders’ rights are contractual and defined by a company’s articles of association, which often expressly exclude shareholders from accessing company documents (as in Glencore’s case). Recognizing joint interest privilege would contradict these agreed terms.
2. The diverse and often conflicting interests of shareholders make it unrealistic to assume alignment with the company

While the court firmly rejected the Shareholder Rule as a general principle, it left open the possibility of its application in rare, case-specific circumstances.

Key Findings from the Judgment

The High Court’s ruling emphasized three main principles:

1. Preservation of Legal Privilege:

• The court reaffirmed LPP as a fundamental principle of English law, protecting confidential communications between companies and their legal advisers.

2. Rejection of the Shareholder Rule:

• Shareholders do not have an inherent right to access privileged materials. Privileged communications belong exclusively to the company, which is legally distinct from its shareholders.

3. Public Policy Considerations:

• Undermining privilege would discourage companies from seeking legal advice and disrupt effective corporate governance and decision-making.

Implications for Companies and Shareholders

This decision has far-reaching implications for corporate governance and shareholder relations:

• Enhanced Legal Safeguards: Companies can confidently engage in privileged communications, knowing they are protected from disclosure, even in disputes with shareholders.
• Clarification of Shareholder Rights: The judgment reinforces that shareholder rights are contractual, defined by the company’s articles, and do not automatically include access to privileged materials.
• Stronger Corporate Governance: By rejecting the broad application of the Shareholder Rule, the court ensures that companies can operate independently and seek confidential legal advice without interference.

Conclusion: A Landmark Decision for Company Law

The High Court’s decision in Aabar Holdings Sarl v Glencore plc underscores the enduring importance of LPP in corporate governance. While the court rejected the longstanding Shareholder Rule as a blanket principle, it left the door open for limited, case-specific applications. This ruling strengthens corporate autonomy and provides clarity on the balance between shareholder rights and the confidentiality of legal advice.

The decision may also have significant implications in jurisdictions such as Cyprus, where similar principles of corporate governance and privilege apply.