Legal professional privilege and the Shareholder Rule: Where are we now?
Legal professional privilege is a cornerstone of the common law, protecting confidential communications between a client and their legal adviser. Its purpose is to promote full and frank disclosure, enabling lawyers to give candid advice without fear that the advice will later be exposed to adversaries.
Tension has long existed where privilege intersects with collective or relational legal structures, such as trusts and companies. In those contexts, courts have grappled with whether privilege can be asserted against parties said to share a “joint interest” in the advice, including beneficiaries of a trust or shareholders of a company.
This article revisits the joint interest exception through the lens of Lambie Trustee Ltd v Addleman and the Privy Council’s decision in Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd (No 2), and considers the implications for privilege claims in the corporate context.
The joint interest exception
The “joint interest exception” is not a free‑standing exception to legal professional privilege. It reflects the principle that privilege cannot be asserted against a person who was jointly interested in the subject matter of the advice at the time it was obtained. In such cases, the advice is treated as having been obtained for the benefit of all parties sharing that interest.
Whether a joint interest exists depends on substance rather than status. The inquiry is fact‑specific and turns on whether the advice was obtained for the common benefit of the parties seeking access to it.
Lambie Trustee Ltd v Addleman: The New Zealand position
In Lambie Trustee Ltd v Addleman, the Supreme Court considered whether a trustee could assert privilege against beneficiaries seeking access to legal advice paid for out of trust funds. The Court confirmed that, as a general proposition, trustees cannot assert privilege against beneficiaries in respect of advice obtained for the purpose of administering the trust.
However, the Court emphasised that a joint interest is not immutable. The foundation for disclosure is the assumption that the trustee sought advice for the benefit of the trust and its beneficiaries. Where that assumption no longer holds - most commonly because the trustee’s interests have become adverse to those of the beneficiaries - the joint interest may come to an end, and privilege may be maintained.
The Court also confirmed that the joint interest exception may apply even to advice that would otherwise attract litigation privilege, provided the party seeking disclosure does not have an interest in conflict with the client’s position in the litigation.
Although Lambie was decided in the trust context, the Supreme Court made brief observations about companies and shareholders. It noted that shareholders have no general right to access company documents, including privileged material. Any attempt by a shareholder to obtain a company’s privileged advice typically arises in the context of litigation, where the company resists discovery on privilege grounds. The Court did not endorse a general shareholder entitlement to privileged advice.
Litigation and the end of joint interest
It is sometimes suggested that the commencement or contemplation of litigation automatically triggers the joint interest exception. That overstates the position. Litigation does not cause a joint interest to arise; rather, it is often the context in which previously aligned interests fracture.
The correct inquiry is whether, at the time the advice was obtained, the parties’ interests were sufficiently aligned such that the advice was sought for their joint benefit. Once interests become sufficiently adverse - often in the course of hostile litigation - the basis for any joint interest may fall away. From that point, privilege can ordinarily be maintained.
Jardine Strategic Ltd v Oasis Investments: Re‑examining the Shareholder Rule
In Jardine Strategic Ltd v Oasis Investments II Master Fund Ltd (No 2), the Privy Council undertook a comprehensive review of the so‑called “Shareholder Rule”, under which shareholders were said, in certain circumstances, to be entitled to access a company’s privileged legal advice.
The Board rejected the two principal justifications historically advanced for the rule. First, it held that the analogy between shareholders and trust beneficiaries is flawed: a company is a separate legal person, and legal advice obtained by the company is obtained for the company alone, not for shareholders collectively. Secondly, it rejected the idea that shareholders’ economic interest in the company’s assets gives rise to a proprietary entitlement to privileged communications.
The Privy Council rejected the Shareholder Rule as lacking a coherent principled foundation, creating uncertainty in its application, and being inconsistent with the purpose of legal professional privilege. In doing so, it likened the rule to the emperor wearing no clothes and declared it to be “altogether unclothed”.
Implications for New Zealand
New Zealand courts are not bound by decisions of the Privy Council, but such decisions remain highly persuasive, particularly where they address fundamental common law principles.
Following Lambie, there is no settled New Zealand authority establishing an automatic or status‑based shareholder entitlement to a company’s privileged legal advice. Instead, the Supreme Court’s reasoning supports an orthodox, principle‑based approach, focused on whether advice was obtained for the benefit of parties with a genuine joint interest, and whether that joint interest has since ceased.
If the Shareholder Rule were to be considered directly in New Zealand, courts may be attracted to the clarity of the approach adopted in Jardine, which rejects categorical shareholder access and preserves privilege unless a true joint interest can be demonstrated on the facts.
For New Zealand companies, the direction of travel is clear: privilege remains a robust protection, and attempts to erode it through broad shareholder access arguments face increasingly strong headwinds.