It is a long-standing rule in English law that, if there is a dispute between the parties that is subject to court proceedings, each party should disclose not only the documents that may favour its case, but also those that are harmful to its case. Some documents may be exempt from disclosure, for example, documents covered by legal professional privilege, which covers confidential communications between a party and their lawyers.
Pursuant to the ’shareholder rule’, a company cannot assert privilege against its own shareholders. This principle is not absolute, and a company is entitled to refuse to disclose documents created for the purpose of litigation against that shareholder.
In the recent – and possibly landmark – case of Aabar Holdings SARL v Glencore Plc, the High Court concluded that the shareholder rule does not exist in English law. The original rationale for the rule was based on a proprietary interest, namely that the company was seen as managing the property of the shareholders and accordingly this was related to the position in partnership and trust disputes. The Court concluded that this reasoning could no longer be justified, particularly in the light of earlier case law confirming that a company is a separate legal entity distinct from its shareholders.
This decision is likely to be appealed, but for the time being companies of all sizes will likely welcome the judgment. The new rationale increases the chances that, for instance, legal advice received by a company need not be disclosed to its shareholders, in litigation or otherwise.
Commercial disputes are document-heavy and the position on which documents must be disclosed, and which can be withheld, may not always be clear-cut. Privilege can be inadvertently waived unless you have a good understanding of the current disclosure rules. It is therefore important at the outset to understand the documentary landscape of your case.
At Buckles, our Commercial Dispute Resolution and Property Litigation teams advise individuals, family-run and owner managed businesses, shareholders, large corporates and international clients in relation to commercial disputes. It is always best to seek advice early to increase your chances of a successful outcome, whether that is via court proceedings, arbitration, mediation or another form of negotiated settlement.
For further assistance, please contact our team or Alex Payne, Head of Property Litigation.
