On 24 July 2025, the Judicial Committee of the Privy Council delivered a landmark judgment in Jardine Strategic Holdings Ltd (Appellant) v Oasis Investments II Master Fund Ltd and others (Respondents) No 2 (Bermuda) [2025] UKPC 34, abolishing the so-called “Shareholder Rule” in Bermuda and, by express direction, in England and Wales.
Companies are now entitled to assert legal advice privilege against shareholders in litigation, save for the established exceptions (e.g., fraud, crime, or joint retainer). The decision brings Bermuda and England into line with other major common law jurisdictions, including Australia, and casts doubt on the continued application of the Shareholder Rule in the Cayman Islands.
Background
The case arose from the amalgamation of two companies within the Jardine Matheson group, resulting in the cancellation of all shares in Jardine Strategic Holdings Ltd. Dissenting minority shareholders, dissatisfied with the offered price of US$33 per share, triggered statutory appraisal proceedings under the Bermuda Companies Act 1981, seeking a court determination of the fair value of their shares.
During discovery, the dissenting shareholders sought access to legal advice received by the company in determining the offer price, arguing that the so-called Shareholder Rule entitled them to see privileged legal advice obtained by the company prior to the onset of litigation. The company resisted, asserting privilege over the advice.
The Shareholder Rule: A Brief History
The Shareholder Rule, originating in 19th-century English case law, provided that a company could not claim legal advice privilege against its shareholders in litigation between them, on the basis that shareholders had a proprietary or joint interest in the company’s property and affairs. Over time, this justification was increasingly questioned, as the law recognised the company as a separate legal entity, distinct from its shareholders.
The Board noted that the Shareholder Rule had not fared well in comparable common law jurisdictions other than the Cayman Islands and Bermuda. In the Cayman Islands, the Shareholder Rule has most recently been considered in the decision of In re 58.com Inc. [2023 (1) CILR 328], where Kawaley J accepted a limited, modified form of the rule relevant specifically to section 238 appraisal proceedings enabling dissenting shareholders to access legal advice relevant to fair value where the advice was not otherwise subject to a claim for litigation privilege.
The Privy Council’s Decision
The Privy Council has now decisively rejected the Shareholder Rule, holding that:
- The original proprietary justification for the Rule is “wholly inconsistent” with modern company law, which recognises the company as the sole legal and beneficial owner of its property.
- There is no sufficient analogy between the company-shareholder relationship and other relationships (such as trustee-beneficiary or joint venturers) that might justify a joint interest exception to privilege.
- The existence of divergent interests among shareholders, and between shareholders and the company, means that neither a status-based nor a context-based exception (i.e. where a shareholder asserts a sufficient joint interest on the facts of the case) is workable. Such exceptions create uncertainty and undermine the fundamental purpose of legal professional privilege, which is to ensure that companies can seek and receive legal advice in confidence.
- The Board expressly declared that its decision should be regarded as abrogating the Shareholder Rule for the purposes of litigation in England and Wales, as well as Bermuda.
Implications for Companies and Shareholders
- Legal Advice Privilege Upheld: Companies may now obtain legal advice in confidence, without concern that such advice will be disclosable to shareholders in subsequent litigation, except in the established circumstances where privilege is lost (e.g., fraud, crime, joint retainer).
- No Automatic Right of Access: Shareholders, whether current or former, have no automatic right to inspect privileged legal advice obtained by the company, even in the context of litigation over share value or other disputes.
- Contractual and Statutory Rights Unaffected: The decision does not affect any express rights of inspection conferred by statute or the company’s constitutional documents, but these are typically very limited.
Comment
This decision marks a significant clarification of the law on legal professional privilege in the corporate context. Companies and their advisers should take note of the strengthened protection for confidential legal advice, and shareholders should recalibrate their expectations regarding access to such material in disputes with companies.
The Privy Council’s decision is not automatically binding on the courts of the Cayman Islands. Until the Cayman courts expressly reconsider the issue, the Shareholder Rule technically remains part of Cayman law. However, should the issue come before the Cayman courts again, the Privy Council’s reasoning would likely be given very considerable weight.
Campbells acts for a number of dissenting shareholders in the proceedings, in conjunction with local Bermuda counsel Trott & Duncan.
