Litigation Trend: The Future of the Shareholder Rule

Is the Shareholder Rule coming to an end? Last week, Mr. Justice Picken made a groundbreaking decision that could change shareholder litigation and legal advice for corporate clients. He stated that the long-standing English legal principle, the Shareholder Rule, might not actually exist.

The Shareholder Rule has been around for over 135 years and poses a challenge for companies seeking legal advice on contentious issues involving shareholders. It means that a company cannot keep legal advice privileged from its shareholders, except in cases of hostile litigation. This rule is increasingly important in securities and shareholder disputes.

In a recent case involving Aabar Holdings and Glencore PLC, the question of the Shareholder Rule’s existence came up. Judge Picken ultimately ruled that the Shareholder Rule is not a valid legal principle in English law.

Picken J’s decision was based on the recognition of a company’s separate legal identity, proven in the historic House of Lords ruling in Salomon v A Salomon & Co Ltd [1897] AC 22. He found no clear evidence supporting the existence of joint interest privilege between a company and its shareholders.

In his analysis, Picken J pointed out that previous judicial comments in favor of the Shareholder Rule were not based on a strong legal foundation. He also questioned the general concept of joint interest privilege in the context of companies and shareholders. The judge’s thorough examination led him to the conclusion that the Shareholder Rule is unjustified and should not be applied.

While this decision is likely to be appealed, it could have a significant impact on how companies seek and receive legal advice related to shareholder disputes. It’s essential for corporate clients and legal professionals to stay informed about this evolving legal landscape in shareholder litigation.