Historically, the Courts recognised a principle known as the “shareholder rule”, which gave shareholders an entitlement to see their company’s legal advice, except where the advice related to hostile litigation against the shareholder. The rule was based in part on the idea that a company’s shareholders had paid, albeit indirectly, for its legal advice. The Courts also drew an analogy to the trustee-beneficiary relationship, in which beneficiaries are normally entitled to legal advice obtained by trustees for their benefit provided the beneficiaries’ interests did not become hostile to the interests of the trustees, a result recently confirmed by the New Zealand Supreme Court in Lambie Trustee v Addleman [2021] NZSC 54, [2021] 1 NZLR 307. 

The shareholder rule has faced increasing criticism. The analogy with trusts is imperfect, as unlike a trust, a company has its own legal personality. Late last year, in Aabar Holdings SARL v Glencore PLC [2024] EWHC 3046 (Comm), the English High Court firmly rejected the shareholder rule, ruling that legal advice privilege belongs to the company alone. The unsuccessful party sought permission to appeal the finding directly to the Supreme Court, but this was refused. 

The Privy Council has now ruled authoritatively against the shareholder rule at appellate level in Jardine Strategic Holdings Ltd v Oasis Investments II Master Fund Ltd No 2 [2025] UKPC 34. In that case, the Privy Council confirmed that shareholders have no entitlement to access a company’s privileged legal advice, bringing much-needed clarity to this long-contentious area of law.

The decision in Jardine gives company directors comfort that they may seek legal advice without fear of being compelled to disclose it to shareholders, offering important reassurance in an environment of increasing shareholder activism, where shareholders seeking change may seek to portray their interests as being aligned with those of the company.

The rise of shareholder claims

Shareholder litigation is increasing. Around the world, activist shareholders are increasingly bringing actions against companies and their directors, seeking a variety of remedies. These include, for example, efforts to compel companies to take steps to reduce their climate change emissions. Activist investors are acquiring small stakes in companies to push for environmental accountability. A high-profile example is ClientEarth v Shell plc, where an environmental law charity sought to bring a derivative action against Shell’s directors, alleging that they had failed to adequately manage climate-related risks and that this breached their duty to act in the company’s best interests.

In Australia, shareholder class actions have become a defining trend. Despite a brief dip in filings last year, the trend remains in evidence: continuous disclosure shareholder class actions were launched against Mineral Resources and its managing director in April 2025, and there are ongoing proceedings against Medibank Private Limited, FleetPartners, and Blue Sky Alternative Investments. New Zealand is now seeing similar actions, as a class action has recently been filed against software company FNZ and seventeen of its current and former directors, with shareholders seeking over USD 1 billion in damages [1]. 

In this climate of rising shareholder scrutiny and activism, company directors will be reassured to know that the Courts are moving to protect the sanctity of privilege in companies’ legal advice. 

Key takeaway

While there is no recent authority directly on point in New Zealand, and decisions of the Privy Council are no longer binding in New Zealand, these decisions will carry significant weight with the New Zealand Courts. They should therefore provide helpful clarity to company directors and help companies fend off demands from shareholders to share in legal advice obtained by the company. 
 

Footnote
[1] Disclosure: MinterEllisonRuddWatts is acting for several defendants in this class action.