Are shareholders of a Cayman Islands company entitled to access privileged documents of the company?

Following the recent Privy Council decision in Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd [2025] UKPC 34 (Jardine), the following key takeaways should be observed:

1. Following the decision in Jardine, it may no longer be possible for shareholders of Cayman Islands companies to rely on the 'Shareholder Rule' which entitled shareholders to access privileged documents belonging to the company that came into existence before litigation commenced or was in contemplation.
   
   
2. For directors of Cayman Islands companies, Jardine now provides directors with comfort that they are able to obtain legal advice in confidence without the risk that such advice will be automatically disclosable to shareholders (save in the usual instances where privilege is lost).
   
   
3. The Privy Council's judgment in Jardine will be highly persuasive authority in the Cayman Islands, meaning directors and shareholders of Cayman companies must have regard to it (although Jardine does not affect contractual or statutory rights shareholders have under Cayman Islands law).

The 'Shareholder Rule'

The 'Shareholder Rule', which originates from the English decision of Chitty J in Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJ Ch 498, allowed shareholders in proceedings against the company of which they hold shares, to access privileged documents, including legal advice relating to the conduct of the company's business. Analogising shareholders to trust beneficiaries with a proprietary interest in company assets, the justification for this was that shareholders as owners of the company have a proprietary interest in advice paid for from the company's assets and therefore, have a right to see such advice. A recognised exception to this rule is litigation privilege, which applies where the advice and / or documents came into existence for the dominant purpose of actual, threatened or reasonably contemplated hostile litigation between the company and the shareholder in question.¹

The Shareholder Rule has long formed part of Cayman Islands law. As recently as 2023, in the decision of 58.com (unreported, FSD 275/2020 (MRHCJ), 22 March 2023) (58.com), the Cayman Court re-affirmed its application. In 58.com, the Court agreed with dissenting shareholders, who argued that following the Shareholder Rule, 58.com could not withhold legal advice which it had received relating to the fair value of shares, on the grounds of legal advice privilege. The Cayman Court has not revisited the Shareholder Rule since its decision in 58.com, meaning that to date, it remains good law in the Cayman Islands.

The Shareholder Rule persisted largely unchallenged until modern critiques, influenced by Salomon v Salomon (1897), which solidified separate corporate personality. Recent cases like Various Claimants v G4S Plc (2023) and Aabar Holdings SARL v Glencore Plc (2024) questioned its foundations, paving the way for the Privy Council's decision in Jardine.

Privy Council abrogates the Shareholder Rule in Bermuda and England and Wales

In the 2024 case of Oasis Investments II Master Fund Ltd and Others v Jardine Strategic Holdings Limited [2024] CA (Bda) 7 Civ (Jardine) dissenting shareholders sought an appraisal of the fair value of their shares, following the amalgamation of two companies within the Jardine Matheson corporate group.

As part of those proceedings the shareholders sought access to the legal advice Jardine Matheson received before setting the offer amount for the shares, relying on the Shareholder Rule as an exception to the legal advice privilege that would normally apply. The Supreme Court of Bermuda agreed at first instance, and its decision was upheld by the Bermuda Court of Appeal.

The case then went to the Judicial Committee of the Privy Council. The fundamental question before the Privy Council was whether the Shareholder Rule should continue to exist in some form. In reaching their decision the Privy Council considered the following:

1. The original proprietary interest justification, being that shareholders, as owners of the company, have a proprietary interest in advice paid for by the company, and therefore are entitled to see such advice;
   
   
2. The modern joint interest justification as seen in more recent case law, being that the relationship between a company and its shareholders was one of joint interest; and
   
   
3. The alternative, more nuanced formulation adopted by Kawaley JA in the Bermuda Court of Appeal, which could apply where a shareholder can demonstrate a sufficient joint interest in the obtaining and receiving of advice, on the particular facts of the case.

The Privy Council rejected all three justifications on the basis that:

1. The original proprietary interest justification for the Shareholder Rule, which was formulated before the House of Lords’ decision in Salomon v Salomon & Co Ltd [1897] AC 22 was now 'wholly inconsistent with the proper analysis of a registered company as a legal person separate from its members such that the members have no proprietary interest in the funds of the company used to pay for the advice' and 'has not for some time been supported either in reported cases or academic writings as a valid justification for the refusal to extend to companies a fundamental right to seek and receive legal advice in confidence';
   
   
2. Notwithstanding the inconsistency, the modern joint interest justification could not simply replace the original justification for the Shareholder Rule and, in any case, the Privy Council could not sensibly justify an automatic status-based denial of legal professional privilege between every company and all its shareholders recognising that 'Shareholders are simply not a homogeneous block with a single shared interest which may coincide with, or diverge from, the interests of the company.' The Privy Council went on to find that a status-based joint interest would 'discourage companies from taking candid legal advice in confidence' and 'wrongly assume a simple coincidence of interests contrary to the typical commercial reality'; and
   
   
3. Kawaley JA's alternative, more nuanced formulation suffered from unacceptable uncertainty in its application. Directors need to know with reasonable certainty whether confidence can be maintained in legal advice when deciding to seek it, and how could the directors, when they decide whether or not to seek legal advice, know what (if any) litigation with shareholders may later arise, and therefore what may be the legal and factual circumstances of the later proceedings.
   
   

In allowing the appeal, the Privy Council, held that 'The status-based automatic Shareholder Rule is therefore now, and in truth has always been, a rule without justification. Like the emperor wearing no clothes in the folktale, it is time to recognize and declare that the Rule is altogether unclothed.' Under a Willers v Joyce direction, the Privy Council further held that its decision should be regarded by the domestic Courts of England and Wales as abrogating the Shareholder Rule in England and Wales also.

What does this mean for Cayman and BVI Companies and their directors?

The Privy Council's judgment in Jardine, while not strictly binding, will be a highly persuasive authority in the Cayman Islands and the BVI. It is also notable that the Privy Council in Jardine, considered the decision in 58.com and the Court's explanation of the justification for the Shareholder Rule, and in doing so, respectfully disagreed with its conclusion.

Practical considerations

The abolition of the Shareholder Rule in Bermuda and England & Wales aligns legal professional privilege with the principle that companies have separate legal personality, but it also raises questions about shareholder protections.

The abolition of the Shareholder Rule means that directors can seek candid, confidential advice without fearing shareholder scrutiny, reducing hesitation in complex restructurings or valuations relying on legal professional privilege. The abolition of the shareholder rule will embolden the boards of companies to seek advice. This promotes efficient management and aligns with the separate legal personality of companies.

On the other hand, this may embolden boards to withhold critical information relying on legal professional privilege, giving rise to a risk that directors prioritise self-interest over shareholders when doing so. Disadvantages loom for minority shareholders, who may now rely more on public disclosures or indirect evidence, potentially widening power imbalances in activist-driven environments.