Aabar Holdings SARL v Glencore PLC & Ors [2024] EWHC 3046 (Comm)

Background:

Glencore PLC (Glencore) is a global natural resources company and the parent company of the Glencore Group. Recently, Glencore has been party to continuing litigation from various claimants who allege that misconduct by Glencore’s subsidiaries in multiple African and South American nations led to the inclusion of inaccurate information or omissions in reports and Glencore’s IPO prospectus. These reports resulted in the claimants incurring losses on their investments. Many of these claims are brought under ss.90 and 90A of the Financial Services and Markets Act 2000 (FSMA), as Aabar Holdings S.à.r.l. (Aabar) did in the present case. The FSMA provides a statutory regime for shareholders to sue companies that publish misrepresentative information.

Prior to the first CMC in May 2024, several claimant shareholders and Glencore disagreed on whether Glencore could, and to what extent it could, assert its privilege against these shareholders under the Shareholder Rule. At a hearing in October, Aabar, a private company incorporated in Luxembourg and owned by the Government of the Emirate of Abu Dhabi, was the sole claimant to appear before the Court. Aabar had never held shares in Glencore but sought to rely on the Shareholder Rule by arguing that it had succeeded to the rights of another company that had been the ultimate beneficial owner of the relevant shares. Aabar alleged that Glencore had published misleading financial reports and that the publication of these reports was dishonestly delayed.

Relevant law:

The Shareholder Rule established that a “…company cannot assert privilege against its own shareholder, save in relation to documents that came into existence for the purpose of hostile litigation against that shareholder” [15]. This rule had existed for 135 years and had been approved in various cases before the Court of Appeal and the Supreme Court.

The only reported appellate decision where the Shareholder Rule was considered directly was Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559, in which Phillimore LJ described it as having been “well settled”. This was recently criticised by Michael Green J in Various Claimants v G4S Plc [2023] EWHC 2863 (Ch), who stated that Woodhouse “is a curiously insubstantial case upon which to found this apparent doctrine of no privilege between shareholder and company” [19].

The Shareholder Rule had its foundations in two 19th-century decisions, namely Mayor and Corporation of Bristol v Cox (1884) 26 Ch D 678 and Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888) 57 LJ Ch 498—foundations described as “shaky” by Michael Green J in Various Claimants v G4S Plc [2023] EWHC 2863 (Ch) at [42]. This view likely stems from Salomon v Salomon & Co Ltd [1897] AC 22, in which the Court established that a company has a separate legal personality from its shareholders. The significance of Salomon can be seen in Hollander on Documentary Evidence (15th Ed.) at §5-05d, which observes that “once the separation between company and shareholders had been established, the law should have changed course. But it did not.” Rather, the Shareholder Rule survived and was approved in various cases

Proceedings:

Picken J denied that the Shareholder Rule is founded on the principle that a shareholder has a proprietary interest in a company’s assets [33]. This position became untenable following the decision in Salomon ([56]). Picken J then examined whether the Shareholder Rule could exist through a joint interest privilege, which was Aabar’s primary argument.

Despite the inclusion of over 20 authorities that favoured the existence of the Shareholder Rule, Picken J did not find any “binding authority which decides that the Shareholder Rule can be justified on the basis of joint interest privilege.” Instead, the authorities “…amount[ed] to little more than passing (and anyway obiter) comment in cases where the Shareholder Rule was not in issue… and without independent analysis of the underlying basis for the Shareholder Rule” [93]. As a result of these cases, the Shareholder Rule had escaped judicial scrutiny and had been accepted as binding.

Picken J also observed that even if joint interest privilege existed as a concept, there were strong reasons for it not to apply to the relationship between companies and shareholders. These reasons were as follows:

1. The 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…” ([94]). This is not a freestanding concept that can be extended beyond these situations.
2. “The authorities … provide no support for joint interest privilege being the basis for the existence of the Shareholder Rule” [107].
3. The alignment of a shareholder’s interests with the company’s is not a “sufficient justification for overriding a company’s fundamental right to privilege since, if it were, then a company would be unable to assert privilege in a variety of other situations and against numerous other parties” [108].
4. There is nothing in the relationship between a company and a shareholder that justifies the denial of a company’s right to assert its privilege in relation to legal advice [109].
5. Shareholders do not generally have any rights to access the company’s documents [111]. Lord Reed’s explanation in Marex Financial Ltd v Sevilleja [2020] UKSC 31 at [31] was cited: “A share is not a proportionate part of a company’s assets … Nor does it confer on the shareholder any legal or equitable interest in the company’s assets … a share is a right of participation in the company on the terms of the articles of association.”
6. Large public companies such as Glencore have an ever-changing and fluid membership that can number in the thousands or hundreds of thousands. In practical terms, “how, in such circumstances, there can really be said to be a joint interest is difficult to fathom” [114].
7. Picken J also believed that extending joint interest privilege might undermine “the public policy rationale for legal professional privilege” [116]. The extension could discourage directors from seeking legal advice for fear that the advice could be seen by third parties.

Picken J concluded that the Shareholder Rule was “…unjustifiable and should no longer be applied” [117].

Commentary:

In conclusion, the Commercial Court has extended the situations in which a company can withhold privileged documents from its shareholders. This is a significant move that is likely to impact areas where document disclosure is crucial, such as unfair prejudice claims under Section 994 of the Companies Act 2006 or in derivative actions. The decision’s significance is underscored by the statement in G4S that the Shareholder Rule was “…so well established that it is now probably for the Supreme Court to overturn it” ([29]).

On 17th January 2025, Glencore applied for permission to appeal this decision to the Supreme Court. It remains uncertain whether the Supreme Court will uphold Picken J’s decision.

The Supreme Court may consider case law from other jurisdictions. The decision of Picken J contradicts recent rulings in the Cayman Islands and Bermuda. However, it aligns English law with the US and Canada, where the Shareholder Rule has been rejected.

If permission to appeal is granted, the Supreme Court’s ruling will clarify the existence and scope of the Shareholder Rule, a doctrine with longstanding yet increasingly contested authority.

Written by Nicholas Gillyon