“… neither party can assert privilege as against the other in respect of communications coming into existence at the time when joint interest subsisted; hence, each party to the relationship can obtain disclosure of the other’s (otherwise privileged) documents so far as they concern the joint purpose or interest.”
“The origins of joint interest privilege can be seen from nineteenth century decisions of which Gouraud v. Edison Gower Bell Telephone Co. of Europe Ltd. (1888) 57 LJ Ch is an example. Shareholders in the defendant company challenged a claim to privilege advanced on behalf of the defendant on the basis that when the directors obtained the advice in question, they did so on behalf of the company as a whole. They could not, therefore, assert privilege in the advice as against the shareholders. Chitty J held that the shareholders were entitled to discovery of the documents in question by analogy with the practice that applied in partnership cases (and those concerning trustees and beneficiaries) where advice had been obtained for the benefit of the partnership or trust estate. The rationale of such cases is that there is no distinction between the interests of the partnership and the individual partners and the trust and its beneficiaries. … .”
“There are a number of cases in which a right to obtain access has been held to exist by reason of the nature of the existing relationship between A and B. The classic examples are where A and B are partners. The list includes (a) partners; (b) joint venturers or those who are party to something like a joint venture, e.g. because they have an entitlement to a share in the fruits of a development, or at least a claim to that effect; (c) beneficiaries and trustees; (d) shareholders and companies in relation to the property of the company; (e) parents and subsidiaries; (f) insured/reinsured and insurer/reinsurer (g) beneficiaries under a will and executors; (h) principal and agent.”
“…it is significant that ‘joint privilege’ has been recognised in contexts other than trusts. The fact that it applies as between shareholder and company is especially important. As Mr Taube accepted in submissions, the fact that a company engaged in litigation with a shareholder must disclose documents which, as against third parties, would attract LPP cannot be explained as merely a reflection of a right which a shareholder would have anyway. Absent litigation, a shareholder’s rights to access any company documents, let alone those within the scope of LPP, are extremely limited … . That strongly suggests that the ‘joint privilege’ which has long been held to exist between shareholder and company should not be regarded as an aspect of company law. It is more plausibly seen as one emanation of a wider principle of procedure to the effect that ‘privilege cannot be claimed in circumstances where the parties to the relationship have a joint interest in the subject matter of the communication at the time that it comes into existence’ (to use the formulation in Thanki, ‘The Law of Privilege’ – see paragraph 26 above). … .”
“He says … Mr. Cox … is also a ratepayer of the city of Bristol, and being a ratepayer he has contributed towards paying for [the privileged documents], and having done that the case comes within the authorities of those cases where trustees have taken counsel’s opinion at the expense of the trust estate and the cestuis que trust are entitled to see it. He says that the corporation are trustees for Mr. Cox, that they have got these [privileged documents] practically at the expense of Mr. Cox, and Mr. Cox is therefore entitled to see them. I think that if this was an action by Mr. Cox as a ratepayer against the corporation of the city of Bristol with regard to some matter or other which related to the raising of the rates, or to the expenditure of the rates, it may be quite possible, and it is very probable, that Mr. Cox would have a right to see them, but this is an action by the mayor, alderman, and burgesses of the city of Bristol, not as against Mr. Cox in any way whatever as a ratepayer, but as a corporation really defending the interests of the ratepayers themselves against the Defendant, who they say is injuring those interests. That is a totally different case altogether, and I am of opinion that that argument cannot prevail …”
“[Pearson J] founds that statement, as I understand him, on the general principle that obtains in partnership actions, and also in actions by a cestui que trust against a trustee – namely, that a party cannot resist production of documents which have been obtained by means of payment from the moneys belonging to the party applying for their production”
“I think that that is the general principle, and one which, to my mind, applies as between a shareholder and the directors who manage his property, when the documents are paid for out of his property. I hold that the principle applies between a shareholder and the managing directors of a company”
“The principle was that if people had a common interest in property, an opinion having regard to that property, paid for out of the common fund, i.e., company’s money or trust fund, was the common property of the shareholders, or cestui que trust. But where the parties were sundered by litigation such an opinion obtained by one of them was privileged.”
“Where a company obtained advice in the common interest and paid for it out of the common fund, undoubtedly the shareholder would have a right to see it. But that did not apply where the interests of the company and the shareholder were adverse.”
“In the present case Miss Roberts for the Defendants, while accepting, as she was bound to, that the rule as to disclosure found in the Woodhouse & Co case was applicable to small private companies with limited share holdings, argued that it should not be applied to companies such as the first defendants, a plc with substantial numbers of shares on issue, quoted on a stock market. She pointed out that all the authorities cited in the ReHydrosan Ltd case were about small private companies with limited issues of shares. To apply the Woodhouse & Co rule to companies such as the first defendant would be impractical and an unjustifiable extension.”
“I am unable to accept that submission. Nothing in the Woodhouse & Co case or the subsequent authorities down to and including ReHydrosan Ltd supports the proposition that the rule is to be differently applied depending on the size and importance of the company concerned. As the authorities show the rule is based on principles of trust law, an analogy being drawn between the position of directors as fiduciaries and trustees. As the authorities show, directors though not properly described as trustees of the assets of the company within their charge, none the less owe fiduciary duties to the shareholders which prevent them from applying those assets save for the purpose of the company. Directors are subject to the same duty to shareholders regardless of the size of the company concerned.”
“It is well established by authority that a shareholder in the company is entitled to disclosure of all documents obtained by the company in the course of the company’s administration, including advice by solicitors to the company about its affairs, but not where the advice relates to hostile proceedings between the company and its shareholders: see Re Hydrosan Ltd[1991] BCLC 418 and CAS (Nominees) Ltd & others v. Nottingham Forest Plc & others[2001] 1 All ER 954 . The essential distinction is between advice to the company in connection with the administration of its affairs on behalf of all of its shareholders, and advice to the company in defence of an action, actual, threatened or in contemplation, by a shareholder against the company.”
“Here, … the company is a nominal although essential defendant. It has no independent position in relation to the issue of remuneration which lies between the petitioners on the one hand and the shareholder respondents on the other alone. The fact that the so-called independent directors have a view on the matter is neither here nor there. The advice sought and obtained was in connection with what, if any, action the company should take in response to the petition in the interests of all of its shareholders.”
“… I consider that the authorities establish that where a solicitor accepts a joint retainer from parties with potentially conflicting interests one client cannot insist as against the other that legal professional privilege attaches to any of what passes between the solicitor and that client during the currency and in the course of the retainer: Baugh v Cradocke (1832) 1 Mood & R 182; Perry v Smith (1842) M&W 681; Shore v Bedford (1843) 5 Man & Gex 271; Ross v Gibbs (1869) LR 8 Eq 522 and Re Koenigsberg[1989] 3 All ER 289 . (I note that there is no question here of a separate and exclusive retainer of Slaughter and May by some only of the joint clients). I agree with this statement of the law in Thanki ‘The Law of Privilege’ para 6.12:- ‘… in order for joint privilege to arise the joint interest must exist at the time that the communication comes into existence. If the parties subsequently fall out and sue one another, neither of them can claim privilege as against the other in respect of any documents that are caught by the joint privilege, as the original joint interest is not destroyed by a subsequent disagreement between the parties …’ I consider that the authorities also establish that privilege cannot be asserted as between partners in relation to any documents concerning the partnership's affairs: Re Pickering(1883) 25 Ch D 247 . Slaughter and May's advice was undoubtedly sought and tendered in relation to the partnership's affairs and forms part of the books and records of the partnership.”
“I hold that although no limited partner can claim legal professional privilege as a ground for withholding material from General or the Second and Third Claimants, yet each may assert confidence and claim privilege against anyone else (save only the direct shareholder in General).”
“The right to confidentiality and privilege is a joint right of all the individual clients of Slaughter and May. No one partner can waive it: Phipson on Evidence 17th ed. para 24-01. This general principle is reinforced in the case of the Second and Third Claimants by the specific obligation they entered into in the Deed not to disclose to anyone or use to the detriment of any of the other partners (other than in connection with claims by the Second and Third Claimants against such partners) any confidential information concerning the affairs of the partnership. The one exception to the principle is that General may disclose the material to its direct shareholder. That is because the shareholder is entitled to see all documents obtained by a company in the course of the administration of its affairs (including legal advice obtained by the company on behalf of all shareholders, though not legal advice obtained by a company in response to an actual or contemplated claim by the shareholder against the company) in which it has a common interest: see Woodhouse & Co Ltd v Woodhouse(1914) 30 TLR 559 , Re Hydrosan Ltd[1991] BCLC 418 , CAS Nominees Ltd v Nottingham Forest FCplc[2002] BCLC 613 and Arrow Trading v Edwardian Group.”
“I answer that question in the negative, on grounds of policy rather than principle. Bringing within the ring of privilege the shareholder of the company which was the actual client of the solicitor on the ground of common interest is well settled rule. But I see no reason to extend the entrenchment upon the basic rule of privilege all the way up the chain of holding companies notwithstanding the steady dilution of that common interest.”
“So far it seems to me that the authorities are all consistent. There is a general rule that no privilege can be asserted by the company against its shareholders. The general rule is subject to an exception where the advice taken by the company is in relation to litigation - that litigation being actual, threatened or in contemplation.”
“It is worth going back to the various phrases which run through the authorities that I have referred to which all consistently refer to the advice which is subject not to the general rule, but to the exception, as being advice in relation to the particular litigation in question. So starting with the earliest case, Woodhouse, Lush J. said that the effect of the contention would be to make it absolutely impossible ‘for a company in litigation for shareholders to obtain confidential advice’ and referred later to ‘if the opinions were obtained by the company to enable it to carry on the litigation’. In Dennis Simonds J. referred to a shareholder not being entitled to seek counsel's opinion taken by the company ‘in respect of the matter in dispute between them’ and, later, on the fact of that case said that the directors ‘did not seek the report because some action was threatened against them’ and, later still, says the report ‘was not a document obtained by the defendants for the purpose of defending themselves against hostile litigation’. Then Blackburne J. in Arrow Trading, referred to ‘where the advice relates to hostile proceedings between the company and shareholders’, and then to advice to the company ‘in defence of an action actual, threatened or in contemplation’. Those citations are all, it seems to me, consistent statements to the effect that the foundation of the exception is the fact that not only the interests of the parties have diverged, but that litigation, actual, threatened or in contemplation, has caused the company to take advice in defence of, in connection with, or relevant to, that actual, threatened or contemplated litigation.”
“The foundation, as I understand it, of the general rule is the same as the foundation of the similar general rule that applies in the case of trustees and beneficiaries. Just as a trustee who takes advice as to his duties in relation to the running of a trust, and pays for it out of the trust assets cannot assert privilege against the beneficiaries who have, indirectly, paid for that advice, so too a company taking advice on the running of the company’s affairs and paying for it out of the company’s assets cannot assert a privilege against the shareholders who, similarly, have indirectly paid for it.”
“The decision in Woodhouse does not, I think, give any support to the notion that the determining question of whether the general rule or the exception applies is whether the interests of the company and the interests of its shareholders are wholly aligned or not. Like all other judgments, statements of principle must be read on the basis of the facts in each case and on the facts of that case there had been actual litigation, and it is quite clear from the way in which Phillimore L.J. approached the judgment that the opinions were written in connection with the actual litigation either after it had been brought or in preparation for it. It is not surprising that in those circumstances he referred to the parties having been sundered by litigation, or that Lush J. referred to the parties’ interests as adverse. The foundation of the exception is still, it seems to me, the existence of actual or threatened litigation, and the taking of advice in connection with the actual or threatened litigation.”
“In my judgment, for the reasons I have sought to express it is only advice of the latter type, advice which was obtained by the company to enable it to carry on with litigation, advice which was in connection with that dispute, advice in defence of the contemplated litigation, which falls within the exception to the general rule, and that is privileged against the shareholders.”
“It is difficult to discern how the principle arose, but it has clearly been recognised in a number of cases, the latest of which is Sharp v Blank. It would be bold and perhaps churlish of me to suggest that these are all misplaced. I do have a great deal of sympathy with the points made by Mr Rabinowitz [on behalf of G4S] as to the logic and basis of the principle. Mr Rabinowitz referred to a critique of it in Hollander’s Documentary Evidence (14th ed) where it is explained that the principle emerged before the seminal case of Salomon v A Salomon & Co Ltd[1897] AC 22 and other cases, which assert the separation of the company and its shareholders. … Shareholders have no actual interest in the assets of a company. Nor can they gain access to documents, including privileged documents, save in the course of litigation between them and the company. That is what produces the anomalies and why it is suggested that the foundations of the principle, which was originally brought about in the context of partnership law, but also by analogy with the relationship between trustee and beneficiary, seem so shaky now as between shareholder and company. That is clearly not a relationship of trustee and beneficiary. Even directors have been held not to be trustees of company property.”
“Woodhouse was actually concerned with the exception to the principle, as was Sharp v Blank, the Court of Appeal finding that the legal opinions were obtained in the context of proceedings that had already been contemplated and begun against the shareholder. Mr Rabinowitz therefore submitted that the principle was not the ratio as the exception was applied. But while that is so there is no escaping the fact that the Court of Appeal was considering an exception and had therefore accepted that there was such a principle from which there was an exception.”
“This basis might also be open to attack now as there is no ‘common fund’, as such, to which shareholders are entitled and, as I have said, the analogy with trustees and beneficiaries is not a particularly strong one. But, as I also said, it has been recognised - for example in a case such as Re Hydrosan Limited[1991] BCC 19 by Mr Justice Harman and in Sharp v Blank itself, and many other authorities - and even in Hollander on Documentary Evidence, where it is said that the rule is so well established that it is now probably for the Supreme Court to overturn it.”
“I, therefore, as a lowly first instance judge, and even though I have my doubts as to the justification now for such a principle, cannot say, particularly after the short argument I have had at this CMC, that the principle does not exist or should be got rid of. I think that would require a higher court to say that.”
“as I have already said, the principle itself, while well-recognised in the authorities, has a somewhat shaky foundation in the light of the current ways of viewing the position of shareholders and their company, and whether they are akin to beneficiaries under a trust. It is clear that a company is totally separate from its shareholders and holds its property for itself. Shareholders have no direct interest in the company's property. Therefore, the common fund basis is now dubious.”
“The principle was established in the 19th century before cases such as Salomon and Macaura drew a clear distinction between a company and its shareholders and held that shareholders have no interest in the property of the company. Arguably, once the separation between company and shareholders had been established, the law should have changed course. But it did not. The alternative view is that it can be justified as a form of joint interest privilege rather than because of the interest of the shareholder in the property of the company. … .”
“Woodhouse does not, I think, give any support to the notion that the determining question of whether the general rule or the exception applies is whether the interests of the company and the interests of its shareholders are wholly aligned or not.”
“It is also necessary to say something about the issue of legal professional privilege. At first instance, it was submitted on behalf of the Commissioner that legal professional privilege was a further policy consideration for not imposing a duty of care in these circumstances. It was submitted that if such a duty of care existed an employer would in effect be compelled to waive privilege in circumstances where he would otherwise be entitled to assert privilege, because the correctness or reasonableness of his conduct of the underlying litigation could not be properly examined without relevant legal advice being properly exposed to judicial scrutiny. The response on behalf of the officers was that the relationship between the parties gave rise to a joint or common interest with the result that the Commissioner would, in any event, be unable to rely on legal professional privilege against the officers to the extent that common interest privilege applied.”
“The judgments below have established that the legal advisers who defended the claim brought by BA were instructed on behalf of the Commissioner only and that neither those lawyers nor the Commissioner undertook responsibility to the officers for the conduct of the litigation. The officers attended conferences with counsel in the capacity of witnesses not clients. The officers do not seek to appeal those conclusions. Accordingly, there can be no question of legal professional privilege belonging jointly to the Commissioner and the officers. However, the officers rely on common interest privilege and seek to employ it as a sword in asserting an entitlement to disclosure of material in the possession of the Commissioner which is privileged against disclosure to others. Whether the officers have such an entitlement will depend on whether such a claim is consistent with the underlying relationship of the Commissioner and the officers. (See Phipson on Evidence, 19th ed (2017), para 24-11.) In my view it is not.”
“If one sets to one side the decided cases which turn on contractual access rights, the cases show that something more than a shared interest in the outcome of litigation is required before common interest privilege can be used as a sword in the manner proposed here. For example, in Dennis & Sons Ltd v West Norfolk Farmers Manure and Chemical Co-operative Co Ltd[1943] Ch 220 Simonds J held that shareholders were entitled to disclosure of an accountants’ report concerning the rights and duties of the board commissioned by the directors, notwithstanding that by the time the report was received the shareholders had commenced proceedings against the company in relation to the conduct of the company’s affairs. The report had been commissioned by the directors on behalf of all the shareholders and not for the purpose of defending themselves against hostile litigation. The judge observed (at p 222) that the general rule applied equally as between a company and its shareholders and as between a trustee and his beneficiaries. A claim to privilege between the company and its shareholders would have been inconsistent with the nature of the relationship.”
“Both as a matter of principle and authority … it is not enough that the person seeking disclosure of confidential documents can show that he has an interest in the subject matter which would be sufficient to give rise to common interest privilege if the documents had been disclosed to him; he must be able to establish a right to obtain access to them by reason of a common interest in their subject matter which existed at the time the advice was sought or the documents were obtained.”
“In the present case the Commissioner and the officers are likely to have had a shared interest in successfully defending the claim brought by BA against the Commissioner, at least initially. It may well be that, had privileged documents been disclosed in confidence by the Commissioner to the officers at that stage, that shared interest would have enabled the officers to defeat an application for disclosure by a third party on grounds of common interest privilege. However, before the officers could compel disclosure of privileged material in the hands of the Commissioner, considerably more would be required. Although the relationship between the Commissioner and the officers is closely analogous to that of employer and employees, there is nothing in the present situation which resembles the relationship between a company and its shareholders, or between a trustee and his beneficiaries, or between parties to a joint venture agreement. Here the relationship between the Commissioner and the officers does not require or justify such an entitlement of access to legally privileged material.”
“Similarly, in CIA Barca de Panama SA v George Wimpey & Co Ltd[1980] 1 Lloyd’s Rep 598 , Barca and Wimpey each held half the shares in a joint venture company, DLW, which had claims against Aramco. Wimpey settled the claims without authority from Barca. In the resulting proceedings brought by Barca against Wimpey the Court of Appeal held that Barca was entitled to disclosure of privileged documents of Wimpey generated in the original litigation as the Aramco claims had been made by Wimpey on behalf of itself and Barca (per Stephenson LJ at p 614).”
“There can be no question that the rule is that, where the relation of trustee and cestui que trust is established, all cases submitted and opinions taken by the trustee to guide himself in the administration of his trust, and not for the purpose of his own defence in any litigation against himself, must be produced to the cestui que trust. They are taken for the purpose of administration of the trust, and for the benefit of the persons entitled to the trust estate, who will have to pay the expense thereby incurred.”
“The first case and opinion, the production of which is sought, were respectively stated and taken by the Defendants to guide them in the exercise of a power delegated to them by the trusts of the will, and which, if exercised, would affect the interests of the other cestuis que trust. The opinion was taken before proceedings were commenced or threatened, and in relation to the trust. Under these circumstances it appears to me that all the cestuis que trust have a right to see that case and opinion. It was contended that it was not taken for the benefit of all the cestuis que trust; but all the cestuis que trust have an interest in the due administration of the trust, and in that sense it was for the benefit of all, as it was for the guidance of the trustees in their execution of their trust. Besides, if a trustee properly takes the opinion of counsel to guide him in the execution of the trust, he has a right to be paid the expense of so doing out of the trust estate; and that alone would give any cestuis que trust a right to see the case and opinion. The other case and opinion, however, stands on a totally different footing. This was not to guide the trustees in the execution of their trust; but, after proceedings had been commenced against them, they took advice to know in what position they stood, and how they should defend themselves in the suit. It appears to me that the cestuis que trust have no right to see this case and opinion, unless they can make out that the trustees can charge the expense thereof on the trust funds. As to this there is no proof; the trustees may themselves have to bear the expense of this case and opinion, as having been stated and taken by them as litigant parties with the cestuis que trust. The trustees must be ordered to produce the first case and opinion; but not the second.”
“…we have in the end concluded that the question whether ‘joint privilege’ exists is correctly characterised as one of procedural law rather than trust law. It seems to us that, whilst "joint privilege" may have its origins in authorities concerned with trusts, it does not represent part of trust law. A principle of procedure and evidence has evolved.”
“In the first place, the Courts have distinguished disclosure in litigation from a beneficiary’s rights under trust law in a number of the more modern authorities. In O’Rourke v Darbishire, Lord Wrenbury said that a beneficiary’s ‘proprietary right’ to see trust documents ‘has nothing to do with discovery’. In Schmidt v Rosewood Trust Ltd, Lord Walker saw Lord Wrenbury’s observations as ‘a vivid expression of the basic distinction between the right of a beneficiary arising under the law of trusts (which most would regard as part of the law of property) and the right of a litigant to disclosure of his opponent’s documents (which is part of the law of procedure and evidence)’. In Breakspear v Ackland, Briggs J said that, where disclosure of a wish letter is sought from the Court in existing litigation to facilitate the determination of an issue to which it is alleged to be relevant, ‘different considerations’ arise which are ‘governed by the law and practice as to disclosure in civil proceedings’.”
“…it is significant that ‘joint privilege’ has been recognised in contexts other than trusts. The fact that it applies as between shareholder and company is especially important. As Mr Taube accepted in submissions, the fact that a company engaged in litigation with a shareholder must disclose documents which, as against third parties, would attract LPP cannot be explained as merely a reflection of a right which a shareholder would have anyway. Absent litigation, a shareholder’s rights to access any company documents, let alone those within the scope of LPP, are extremely limited … That strongly suggests that the ‘joint privilege’ which has long been held to exist between shareholder and company should not be regarded as an aspect of company law. It is more plausibly seen as one emanation of a wider principle of procedure to the effect that ‘privilege cannot be claimed in circumstances where the parties to the relationship have a joint interest in the subject matter of the communication at the time that it comes into existence’ (to use the formulation in Thanki, ‘The Law of Privilege’ – see paragraph 26 above). That view is also supported by Stephenson LJ's endorsement in CIA Barca de Panama SA v George Wimpey & Co Ltd of the passage from the then-current edition of Phipson on Evidence reading: ‘No privilege attaches to communications between solicitor and client as against persons having a joint interest with the client in the subject matter of the communication, e.g. as between partners; a company and its shareholders; trustee and cestui que trust ...’.”
“Mr Howard then turned back to Sharp v Blank, and the judgment of Nugee J. The judge was obviously aware of the Saloman[sic] principle, but recognised the reality of the situation, that although shareholders do not own the assets of the company, indirectly they are paying for the advice because it comes out of the assets of the company in which ultimately they are interested. Once the position is properly analysed it is clear that the principle of joint interest of shareholders in the advice obtained by a company is good law in England, and it is inconceivable that the Supreme Court would seek to reverse this, not least because it is not based on some fundamental misunderstanding of the position that started late in the 19th century; in modern law it is based upon an analysis of joint interest.”
“Hollander was looking at the position separately from the right which exists in the course of litigation. But we are concerned with the litigation position, so arguments based on the fact that Gouraud should not have survived Saloman[sic] do not arise. The Court is considering the right in a litigation context, which means that the right is based on joint interest privilege, and not on 19th century case law. And that means that there is no need to scrutinise many of the cases to which Mr Moore referred. … .”
“Suffice to say that I accept the arguments put forward by Mr Howard as to the ambit of joint interest privilege, and would hold that joint interest privilege applies in this case to the legal advice secured by the Company, relating to appraising the fair value of the shares, subject of course to the further arguments put forward by the Company in relation to the position of former shareholders, and those who subsequently became shareholders.”
“(b) the relevant rule has been recognised in England for over 130 years, albeit that the precise basis for and scope of the rule has evolved. The Bermuda common law rule is essentially the same as the English common law position; (c) the applicant will generally be required to demonstrate that the advice was received in circumstances which directly engaged the shareholder’s legal or commercial rights in a way which was reasonably discernible at the time. Any joint interest a shareholder succeeds in establishing will nonetheless still be potentially overridden if the company is able to show that litigation privilege attaches to the relevant legal advice; (d) where joint interest privilege is asserted in the context of adversarial civil proceedings, the applicant will have to establish not just that the relevant advice is subject to joint interest privilege, but also that the advice is relevant to the issues in controversy and that production is ‘necessary’. Where the claim is made by a shareholder pursuing a statutory remedy, the statutory regime will potentially be relevant to the existence of the asserted joint interest;”
“The Company’s submission that the distant historical origins of the rule are no longer sustainable was something of a ‘straw man’ argument. The notion that shareholders have a proprietary interest in a company’s assets, first posited before the now trite principles of separate corporate personality had been established in Saloman v Saloman[sic][1897] AC 22 , is no longer the basis for the modern common law rule.”
“Whether joint privilege exists, in such circumstances, is far from an ‘unruly horse’. The critical analysis will almost invariably be whether, having regard to the particular purpose for which the legal advice was obtained and the particular legal purpose in relation to which the applicant seeks to deploy it, the respective parties’ interest in the advice may fairly be said to be a joint or common one. The scope of the rule understood in this way is flexible and not a rigid status-based rule at all.”
“But the proposition that a joint interest arises automatically and without more from the status of shareholder is impossible to justify in principled terms in the face of the powerful arguments advanced by Mr Moore KC. Any such absolutist rule is in my judgment untenable for the following three main reasons: (a) it unreasonably restricts the freedom of companies to access the protection of legal professional privilege, save when litigation is in contemplation; (b) it implicitly ignores the separate legal personality of the company from its shareholders; and (c) it presumes that the company-shareholder commercial relationship translates into a commonality of interests whenever the company seeks legal advice, when the real commercial and legal relationship may be entirely different.”
“(a) the mere relationship of shareholder and company only potentially gives rise to a joint interest in any legal advice a company obtains which is not protected by litigation privilege. Contexts may, perhaps, arise in which it is self-evident that the fact that the applicant is a shareholder of the respondent company is enough to establish the claim; (b) a company seeking legal advice will be deemed to know that its shareholders possess the standing to assert a joint interest privilege in the advice by virtue of their status in relation to the company; (c) in what circumstances will a joint interest likely arise? The advice will generally have to have been obtained by the company in respect of a matter which engages the interests of one or more shareholders in a direct way which is reasonably discernible when the relevant legal advice is received; (d) advice in relation to the merits of any matters or transactions which potentially engage the rights of shareholders in some specific way will generally attract joint interest privilege. Advice relevant to the fair value of shares in the event of an amalgamation or merger would potentially qualify because of the rights conferred by section 106 of the Companies Act. So too would legal advice in relation to any transaction which a shareholder could potentially challenge as being in breach of the company’s constitution or the Companies Act; (e) advice in relation to how a company should defend proceedings which are not yet in contemplation, but are merely possible, or indeed in relation to a vast array of ‘administrative’ matters which have no direct impact on shareholder rights would not ordinarily be likely to attract joint interest privilege; and (f) what the company’s articles or bye-laws provide about access to information may often be relevant to the analysis of whether joint privilege exists although this is unlikely to be dispositive in relation to statutory claims, cases of fraud or claims analogous to fraud.”
“As to the issue of privilege, I decline to declare that the principle of joint interest privilege is, so far as it relates to companies and shareholders, inapplicable in Bermuda. Insofar as an entitlement to see privileged material was once based on the notion that the shareholder had some form of interest in the property of the company that foundation has collapsed. But the joint interest principle, applicable to defeat what would otherwise be a successful claim to legal advice privilege, has a firm foundation in the recognition by the courts that the shareholder and the company may have a joint interest in the subject matter of the relevant communications, in like manner as a joint interest in communications may arise in the case of other relationships: see those summarised at 6.09 of Thanki and by me at [139] of Wong.”
“Whether such a joint interest exists depends on the circumstances of each individual case. I would accept that the joint interest principle does not extend to give the shareholder an absolute right to access any company legal advice whatever, and would respectfully endorse the observations of Kawaley JA on the limits of the right.”
“Finally it is suggested that the category T documents are privileged. Mr Knox accepted in Para. 63(5) of his skeleton submissions that this point was not a ‘conclusive’ answer to the application. In reality it is not an answer at all. Just as shareholders are entitled to see material that is privileged in the hands of a company of which they are a shareholder, so in my judgment are members of LLPs. The general principle as it applies to shareholders was assumed in Woodhouse & Co v. Woodhouse(1914) 30 TLR 559 , was stated by Simonds J (as he then was) in Dennis & Sons Limited v. West Norfolk Farmers Manure and Chemical Cooperative Company Limited[1943] 1 Ch 220 at 222 and has been applied consistently ever since as was demonstrated by Evans-Lombe J in CAS (Nominees) Limited v. Nottingham Forest plc and others[2002] BCC 145 at [14]-[17]. There is no justification for treating the members of LLPs any differently from shareholders of limited companies in this context and none has been suggested. In those circumstances, I do not accept that privilege is material. Had the exception to the rule identified in Woodhouse & Co v. Woodhouse (ante) applied then that would have been an answer to the application but it does not apply.”
“The origins of joint interest privilege can be seen from nineteenth century decisions of which Gouraud v Edison Gower Bell Telephone Co. of Europe Ltd. (1888) 57 L.J. Ch is an example. Shareholders in the defendant company challenged a claim to privilege advanced on behalf of the defendant on the basis that when the directors obtained the advice in question, they did so on behalf of the company as a whole. They could not, therefore, assert privilege in the advice as against the shareholders. Chitty J held that the shareholders were entitled to discovery of the documents in question by analogy with the practice that applied in partnership cases (and those concerning trustees and beneficiaries) where advice had been obtained for the benefit of the partnership or trust estate. The rationale of such cases is that there is no distinction between the interests of the partnership and the individual partners and the trust and its beneficiaries. Rochefoucauld v Boustead (cited by Rix J in The Sagheera) was a case which involved a joint venture between two individuals. The first invited the second to consult a solicitor on their joint behalf. There were proceedings against both. The first waived privilege but the second was entitled to insist upon it.”
“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.”
“The logic of denying privilege in such circumstances is straightforward – if the advice was obtained for another, it would be nonsensical for the advice to be denied to that very person”
“… Where there is a joint interest relationship, the party obtaining legal advice will normally be subject to a duty not to obtain that advice in a negligent fashion. Thus, while trustees are not in breach of their duties only because they exercised their discretion on the wrong advice, the same cannot be said if ‘the process of taking and acting on the advice is itself open to challenge in some way’ [Pitt v Holt[2012] Ch. 132 at [124]]. That such a duty exists is unsurprising on two levels. First, … a joint interest relationship is typically a face of some other legal relationship (partners in a partnership, insurer-reinsurer etc) which creates corresponding legal duties. Second, the act of obtaining legal advice on behalf of another in itself involves assumption of responsibility and reliance with respect to the process by which the advice is obtained; it would be surprising if the party obtaining the advice is free to act in ways that damage the interest of the other party relying on that advice." Kiu continues at §78: “This duty, characteristic of joint interest relationships, cannot exist between directors and shareholders under English and Singapore law. Currently, such a duty not to obtain advice incompetently is owed by directors towards the company, as a facet of the common law duty of skill, care and diligence, … unless it can be said that a concurrent and identical duty is owed towards the shareholders. It is not possible to recognise such a concurrent duty, because there is no principled reason that can distinguish that act of obtaining advice from the variety of other activities directors perform on behalf of companies which does not generate corresponding duties towards shareholders. Consequently, the company-shareholder joint interest makes no sense: it would be self-contradictory to say that legal advice was obtained on behalf of shareholders such that they can inspect it, but no cause of action vests in shareholders if the advice turned out to be obtained incompetently.”
“… the company-shareholder joint interest privilege cannot be justified as a matter of principle or policy. From the perspective of principle, once the separate legal personality of a company is accepted, none of the justifications make sense. With respect to policy, allowing disclosure of privileged materials would deter frank discussion between directors and the company’s solicitors.”
“The policy underlying legal advice privilege would be undermined”
“(1) The subscribers of a company’s memorandum are deemed to have agreed to become members of the company, and on its registration become members and must be entered as such in its register of members. (2) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.”
“The Uncertificated Securities Regulations 2001 [2001 No. 3755] …, which have enabled and prescribed the basis for title to securities to be evidenced otherwise than by a certificate and transferred other than by written instrument through CREST as the ‘relevant system’ make clear that the legal owner is the person whose name appears on the CREST register (who must be a member of CREST). It is not the CREST member’s client or anyone else in the chain of intermediaries.”
“The key feature of intermediated securities held in a custody chain is that the ultimate investor (meaning the person for whose account the securities are ultimately held) is given the benefit of a right without holding the right itself. … It has a ‘right to a right’. An investor in intermediated securities cannot enforce the rights attached to the shares (or other securities) against the issuer, although it is entitled to expect that those rights will be exercised in accordance with its wishes as expressed through the chain of interests.”
“… As will already be apparent, I readily accept that where there is a chain of intermediaries, the investor at the end of the chain does not have any direct proprietary interest in the underlying security, nor can it enforce any rights held in the chain of sub-trusts directly against the issuer.”
“… no person shall be recognised by the Company as holding any shares upon any trust, and the Company shall not be bound by or compelled in any way to recognise any equitable, contingent, future or partial interest in any share, or any interest in any fractional part of a share, or … any other right in respect of any shares, except an absolutely right to the entirety thereof in the holder.”
“Can the direct shareholder in turn share the material with its shareholders upon the same principle? I answer that question in the negative, on grounds of policy rather than principle. Bringing within the ring of privilege the shareholder of the company which was the actual client of the solicitor on the ground of common interest is well settled rule. But I see no reason to extend the entrenchment upon the basic rule of privilege all the way up the chain of holding companies notwithstanding the steady dilution of that common interest.”
“… the right to privilege should only be removed where it is necessary to do so and in strictly defined circumstances. The old authorities all concerned legal owners of shares and I do not think it is for me to broaden that category and thereby expand the relationships concerned … .”
“It is an essential part of the English law analysis of the ownership of dematerialised securities that the interests of the ultimate beneficial owner is an equitable interest, held under a series of trusts and sub-trusts between it, any intermediaries and the depository in which the legal title is vested … .”
“82. Put another way, there seems to me to be semantically no real doubt that the investor has an ‘interest’ in the securities; and similarly, there is legally no doubt that such interest is equitable/proprietary; those are the hallmarks of beneficial ownership, as Briggs J terms the interest of the investor; and their presence suffices to qualify as "any interest in securities" for the purpose of Schedule 10A. 83. It would, to my mind, be odd to deny that the ultimate investor has such an interest. No one but the investor can claim any right of ownership beneficially, nor is the property in the share available in the event of the bankruptcy of any intermediary to any of its creditors: only to the investor whose ‘property’ in reality it is. 84. In the result, I have concluded that the expression ‘any interest in securities’ can, by application of established distinctions between rights which are merely economic, contractual or personal, and rights which are in equity at least ‘proprietary’, be given sufficiently certain meaning to confine the class of potential claimants so as not to expose the issuer to indeterminate liability to an indeterminate class whilst also ensuring proper vindication consistently with the admitted objectives of both the domestic legislature and the Transparency Directive. 85. In my judgment, the expression denotes something more than a mere personal or contractual right; the expression ‘ultimate beneficial owner’ captures the position of the investor as the owner of ‘a right to a right’ held through a waterfall or chain of equitable relationships which is unaffected by the insolvency of his intermediary, and enables it ultimately, even if indirectly, to enjoy the benefit of the bundle of rights which the securities represent to the exclusion of others (unless the ultimate beneficial owner has transferred them away, for example to a chargee).”
“it is therefore a right that is an incidence to the legal ownership of shares. Other such rights are the right to receive dividends or a distribution on a solvent liquidation. The rights under the articles which govern the relationship between shareholders and the company are limited to registered shareholders and can only be enforced by them.”
“… the joint interest which existed between a company and its shareholders was the same whether those shareholders were the beneficial owners of the shares, or whether they were held through nominees, seems to me to be an obvious one. What matters is the interest, not the legal mechanics of how the shares were in fact held.”
“(a) In respect of privileged documents, a successor in title stands in the shoes of his or her predecessor: see Schneider v Leigh and Crescent Farm. Thus, if the predecessor in title is entitled to the disclosure of privileged documents, so too is the successor in title. (b) The right of a successor in title to disclosure of such documents, and to assert privilege in such documents as against third parties, is not a matter of the terms of a particular assignment or deed. It is a right that passes as a matter of law: see Surface Technology and Winterthur. (c) Of course, the scope of the rights of a successor in title will always depend on precisely what it is that has been passed on or assigned to him: see as far back as Minet, and the analysis in Surface Technology. Thus if a solicitor was jointly retained to deal with an IP claim and a fatal accidents claim, and the successor in title is an assignee of claims consequential upon the IP claim only, the successor in title is not entitled to see the privileged documents relating to the fatal accidents claim.”
“Whilst neither party can claim privilege as against the other in respect of any documents created pursuant to the joint retainer, as against any third party (other than a successor in title, who stands in the shoes of the original party), both parties can maintain a claim for privilege in respect of any such documents.”