For over 135 years the ‘Shareholder Rule’ has been part of English law. The rule was inferred from the case Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) and essentially gives shareholders the right to access their company’s confidential documents, overriding certain privileges of the company. However, in the recent case of Aabar Holdings SARL v Glencore PLC and others (2024), Mr Justice Picken’s denied the existence of such a rule in English law and stated that it should no longer be applied. This article examines the impact of this decision on company-shareholder relationships.
Background of the case
In this case, Aabar and a number of other investors brought a claim against a global natural resource company Glencore. The claim concerned an investor loss which was suffered due to the misconduct of certain companies in Glencore Company group in some African and South American countries. It should be noted that Aabar was not a shareholder of Glencore itself, but a sole shareholder in Glencore’s Luxembourgian beneficial owner.
The claims were brough under s.90 of the Financial Services and Markets Act 2000 (‘FSMA’) in relation to the documents issued by Glencore. As well as a contractual claim and claim of torts regarding a negligent misstatement. In addition, the claims were made against a number of former directors of Glencore Group. Although the main argument arose in relation to the shareholder rule and whether Glencore would be able to assert privilege against its investors.
The shareholder rule
As stated above, the shareholder rule is a historic concept that has been widely used in English law. The rationale behind this rule was that, in 19th century most of the shareholders had a proprietary interest in the company. It was a common conception that a company manages the shareholders’ property, and it cannot retain certain confidential documents or information from the shareholders. For instance, a company cannot assert privilege and keep legal advice obtained or correspondence pertaining litigation procedures a secret from the shareholders.
When making a judgement, Mr Justice Pickens relied on the remarkable case of Salomon v A Salomon & Co Ltd (1897). In this case, the House of Lords determined that a company should be regarded as a separate entity that is distinct from its shareholders, directors, employees etc. All the previous concepts regarding the position of shareholders in the company and the trustee/beneficiary relationship are no longer applicable. Based on the previous precedent, Mr Justice Pickens determined that the Shareholder Rule does not exist in English law and should be disregarded. Former concepts regarding the proprietary interest of shareholders in the company are no longer applicable in the modern-day realm.
The joint interest
The dispute also assessed the question of whether claimants can rely on joint interest privilege. The joint interest privilege is when two or more parties instruct the same legal practitioner and the shared interests exist simultaneously. This concept was applied in the recent case of Sharp and others v Blank and others (2015) where a number of Lloyds Bank shareholders brought a claim after the Bank’s attempt to conceal information about acquisition of HBOS.
In Aabar v Glencore, the judge denied the possible application of the joint interest privilege and stated that it is no more then an ‘umbrella term’. It does not exist as a concept and is solely used to describe instances when one party cannot assert interest against another. Most importantly, the judge highlighted the importance of being able to assert privilege for the companies and keep the legal advice private and confidential.
The impact of the decision
The companies are often required to obtain guidance from legal professional on a variety of matters. They will be given freedom not to disclose the details of the legal advice in question with the shareholders and ‘the rule’ will no longer be a tool to get access to confidential information that otherwise would not be shared.
Although, the judgement on the shareholder rule should not be considered as a final decision because Aabar could be given the permission to appeal, it is important to consider the changes it might bring to the company-shareholder relationships.
