Irish High Court abolishes shareholder rule on legal advice privilege

The court ruled (91-page/ 679kb PDF) that a company could assert legal advice privilege against its own shareholders, meaning that advice belonged to the company rather than its stakeholders, and rejecting a claim that under Irish law shareholders were entitled to inspect legal advice under a ‘shareholder rule’.

The decision comes in the wake of the UK Privy Council’s ruling in a case last year involving Jardine Strategic Ltd, bringing the two jurisdictions into closer alignment.

Zara West, a corporate disputes expert with Pinsent Masons in Dublin, said the court’s ruling would provide important clarity on the ability of companies to assert legal advice privilege against their own shareholders.

“The court rejected the proposition that shareholders enjoy a special status-based entitlement to inspect a company's privileged legal advice and held that there is no common or joint interest arising merely because a person holds shares in the company,” she explained.

“The court's reasoning is firmly rooted in the principle that a company is a ‘legal entity separate and distinct’ from its shareholders. The judgment recognises that, while shareholders have a significant commercial interest in a company's affairs, this does not translate into a legal entitlement to access legal advice obtained by the company.

“The decision also reflects the reality that the interests of a company, individual shareholders and different groups of shareholders may not always align.”

Employee recognition software firm Globoforce, trading as Workhuman, had claimed privilege following a dispute over discovery in proceedings concerning a proposed acquisition, where shareholders and directors of shareholder entities had sought access to the company’s legal advice.

The shareholders argued that - as a matter of Irish law – they were entitled to inspect the advice obtained by Workhuman under the so-called ‘shareholder rule’, as the relationship between company and shareholder meant there was a common interest in legal advice obtained by the company.

However, the judge confirmed that there is no status-based shareholder rule, and no common or joint interest arising by virtue of holding shares in a company, after a detailed review of how both Irish and English law operates in the wake of the Jardine Strategic decision a year ago.

The court described the logic of the Privy Council ruling as “compelling” and followed that reasoning with regard to Ireland’s approach, with the judge emphasising that a company is a legal entity separate and distinct from its shareholders.

The judge also emphasised that shareholders are not the joint or beneficial owners of a company's assets - including legal advice obtained by the company – as shareholders benefit from those assets only through the rights attaching to their shares.

The court concluded that shareholders do not have a right to override legal advice privilege purely on the basis of holding shares alone unless that restriction is waived by the company itself.

Neil Keenan, a corporate governance expert with Pinsent Masons, predicted the High Court decision would have significant ramifications for companies going forward.

“This ruling will be of particular interest to corporates, boards, investors and in-house legal teams as it provides greater certainty around the scope of legal advice privilege in the context of shareholder disputes, governance issues and corporate transactions,” he said.

“It also confirms that a company may maintain privilege in its legal advice unless that privilege has been waived or another recognised exception applies.”