- within Government and Public Sector topic(s)
Abolition of the Shareholder Rule – what difference will this make to shareholder actions?
The so-called 'Shareholder Rule', which provided that a company could not, in litigation, withhold documents from its shareholders on grounds of legal advice privilege, has been abolished by the Privy Council.
In a world of increasing shareholder activism, this decision may encourage directors to obtain legal advice more readily, without fear that shareholders may later be able to access it as of right. Shareholders may also find it harder to obtain documents to ground claims against the company, such as unfair prejudice petitions.
The Privy Council is not a court of the United Kingdom and so while its decisions are persuasive, they are generally not binding as a precedent. However, in the case (Jardine Strategic Limited v Oasis Investments II Master Fund Ltd & Others), the Board (also being Justices of the Supreme Court) made a direction under Willers v Joyce and declared that this decision is binding in the courts of England and Wales.
The Jardine case
In Jardine Strategic Limited v Oasis Investments II Master Fund Ltd & Others, the Privy Council considered the original proprietary underpinning for the Shareholder Rule – namely, company funds were used to procure the advice, so shareholders (as owners of the company) should be able to access those documents – and found it to have "collapsed" as a justification. The board went as far as to say: "Like the emperor wearing no clothes in the folktale, it is time to recognise and declare that the Rule is altogether unclothed."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
