Aabar Holdings SARL v Glencore Plc: A landmark decision on privilege and shareholder rights

In the recent case of Aabar Holdings SARL v Glencore Plc [2024] EWHC 3046 (Comm), the High Court addressed several pivotal issues concerning the application of privilege in the context of shareholder rights. The judgment, handed down on 27 November 2024, provides significant insights into the so-called "Shareholder Rule" and its implications for legal advice, litigation, and without prejudice privilege.

Background

The dispute arose from claims by Aabar Holdings SARL (Aabar) against Glencore Plc (Glencore) in relation to alleged misconduct by subsidiaries in the Glencore Group. Aabar, a Luxembourg-based company ultimately owned by the Government of Abu Dhabi, alleged that it had suffered losses due to misstatements and omissions in Glencore's documents, which were linked to misconduct by Glencore's subsidiaries in various countries.

One of the issues in dispute concerned the Shareholder Rule – the principle that a company cannot assert privilege against its own shareholder, save in relation to documents that come into existence for the purpose of hostile litigation against the shareholder. The parties could not agree whether Glencore was entitled to assert privilege against the Claimant in these proceedings, or whether the Shareholder Rule applied.

The Court was therefore asked to determine the following issues:

• Existence of the Shareholder Rule in English law: Aabar argued that the Shareholder Rule should apply. Glencore challenged the existence of the Shareholder Rule, arguing that it is unprincipled and should no longer be applied.
• Application of the Shareholder Rule to different types of privilege: The court examined whether the Shareholder Rule, if it existed, applied to legal advice privilege, litigation privilege, and without prejudice privilege (or a combination thereof).
• Extension of the Shareholder Rule to Aabar: The court considered whether Aabar, which was not a registered shareholder of any shares in Glencore at the relevant time, but the successor to the rights of an ultimate beneficial owner of shares, held through intermediated securities, could invoke the Shareholder Rule. It also examined whether the rule applies to Aabar given that it no longer held any interest in Glencore shares.
• Application of the Shareholder Rule to Subsidiary Companies: The judgment explored whether the Shareholder Rule extended to privileged documents belonging to subsidiary companies within the Glencore Group.

Judgment and key findings

The Shareholder Rule

The court concluded that the Shareholder Rule does not exist in English law. The original rationale for the rule, based on a proprietary interest, no longer applies following the decision in Salomon v A Salomon & Co Ltd [1897] AC 22 which held that a company has a separate legal personality.

The court therefore went on to consider whether the Shareholder Rule exists because of a joint interest privilege as between a shareholder and a company. Mr Justice Picken was unpersuaded that joint interest privilege is a separate species of privilege.

Mr Justice Picken stated that “…joint interest privilege concept is merely an umbrella term that has been used to describe a variety of different situations in which one party is unable to assert privilege against another, not because of there being any such freestanding concept but on other, narrower and more conventional grounds.”[1]

Notwithstanding his findings against a freestanding concept of joint interest privilege, Mr Justice Picken held that even if it did exist, there is no support in the authorities for joint interest privilege being the basis for the existence of the Shareholder Rule. Further, he went on to explain multiple points against the justification of joint interest privilege in a shareholder/company situation. Including, for example, the fact that the shareholder’s legal and economic interest is comprised of its contractual rights against the company under the company’s articles of association. It is usual for a company’s articles of association to include a provision (like Glencore’s), excluding shareholders from a right to inspect the company’s documents. In his view, Mr Justice Picken felt it would therefore be wrong to create a joint interest in contravention with those contractually agreed provisions. The interests of different shareholders will also vary hugely, making it unrealistic to suggest that the interests of all shareholders and the company will be aligned.

Application to different types of privilege

Even if the Shareholder Rule existed, the parties agreed that it would apply to legal advice privilege and litigation privilege. However, there was a dispute about the application to without prejudice privilege.

The court emphasised that without prejudice privilege involves third-party interests and is based on an implied agreement to negotiate openly and to settle disputes. The relevant implied agreement is between the company and the third party, not the shareholders to the company who were not a party to any dispute with which the without prejudice communications were concerned.

Furthermore, it was held that the proposed extension of the Shareholder Rule to without prejudice privilege would deter parties from engaging in settlement negotiations which could not be right as a matter of public policy.

Extension to Aabar

Because Aabar was not a direct/registered shareholder in Glencore, the court was asked to decide whether the Shareholder Rule, if it existed, would extend to Aabar as the successor to the rights of an ultimate beneficial owner of shares in Glencore.

Mr Justice Picken held that the fact that Aabar was not a registered shareholder did not preclude the application of the rule. He was of the view that there should be no distinction between registered owners and intermediated securities holders. He also was of the view that the Shareholder Rule applies to communications during the period in which the shareholder had a shareholding. It made no difference if the shareholder subsequently ceased to be a shareholder.

Application to subsidiary companies

The court found that the Shareholder Rule, if it existed (and was justified based on joint interest privilege), would extend to privileged documents belonging to subsidiary companies within the corporate group. This conclusion was based on the principle that communications relevant to the administration of a subsidiary's affairs are also relevant to the affairs of its direct shareholder and, by extension, the ultimate holding company.

Conclusion

The judgment in Aabar Holdings SARL v Glencore Plc comes as a blow to shareholders seeking to rely on the Shareholder Rule to obtain access to company documents. The decision strengthens the ability of companies to protect their confidential legal advice from being disclosed to shareholders. This may have significant implications for shareholder activism. Shareholders will find it more challenging to access privileged company documents, which could limit their ability to scrutinise company actions and hold management accountable. The reduced transparency may hinder efforts to expose potential mismanagement or misconduct. Shareholders may therefore need to focus more on accessing public information, and other non-privileged sources of information to hold their management to account which will arguably be a less effective form of scrutiny.

However, given the departure from previous understandings of shareholder rights, the decision may well be appealed, and until higher courts provide that clarification, companies and shareholders may need to navigate these issues cautiously.