Jonathon Milne
Conyers Dill & Pearman, Cayman Islands
jonathon.milne@conyers.com

Alecia Johns
Conyers Dill & Pearman, Cayman Islands
alecia.johns@conyers.com

Introduction

In a landmark judgment handed down on 24 July 2025 in Jardine Strategic Limited v Oasis Investments II Master Fund Ltd,^[1] the Privy Council abolished a long-established common law exception to legal advice privilege known as the ‘Shareholder Rule’. The Shareholder Rule provided that a company could not withhold documents from its current or former shareholders in the course of litigation between those shareholders and the company on the ground of legal advice privilege.

Prior to the recent abolition of the Shareholder Rule, previous decisions of the Cayman Islands Court re-affirmed shareholders’ rights to legal advice obtained by the company. In the March 2023 decision of 58.com,^[2] it was declared that dissenting shareholders in merger appraisal proceedings were entitled to access legal advice obtained by the company on the issue of fair value of the company’s shares, provided that such advice was not protected by litigation privilege. That decision, while considered a boon to dissenting shareholders, gave rise to considerable uncertainty and concern among companies as to whether legal advice obtained during the merger process may be required to be disclosed, if appraisal proceedings ensued.

This article examines the implications of the Privy Council’s abolition of the Shareholder Rule in the context of Cayman Islands merger appraisal proceedings, and in respect of adversarial proceedings between fiduciaries and investors in other contexts.

Background to the Privy Council’s decision in Jardine

The Board’s decision in Jardine arose on appeal from the Court of Appeal of Bermuda. In 2021, there was an amalgamation of two Bermudan companies: (1) Jardine Strategic Holdings Ltd (‘Jardine Strategic’) and (2) JMH Bermuda Ltd, which resulted in the formation of Jardine Strategic Limited (the ‘Company’). The result of the amalgamation was that all shares in Jardine Strategic were cancelled; pursuant to the Bermuda Companies Act 1981, the Company was required to pay fair value for those cancelled shares to all shareholders who voted against the amalgamation. The dissenting shareholders disputed the offered price of US$33 per share and therefore applied, pursuant to section 106 of the Bermuda Companies Act, for the court to determine the fair value of the shares (referred to as appraisal proceedings).^[3]

In the context of the appraisal proceedings, the dissenting shareholders sought disclosure of various documents from Jardine Strategic and its successor, the Company, including legal advice which they received that was relevant to the fair value of the shares. The Company resisted on the basis that such advice was protected by legal advice privilege. However, both the lower court and the Bermuda Court of Appeal ordered disclosure of certain privileged documents on the basis of an acceptance that the Shareholder Rule applied as an exception to legal advice privilege. The Company thereafter appealed to the Privy Council.

Shareholder Rule deemed ‘emperor with no clothes’

The Privy Council ruled unanimously that the Shareholder Rule was without justification and was akin to the ‘emperor wearing no clothes’.^[4] The Board traced the origins of the rule back to an 1888 decision in Gourad v Edison,^[5] which justified the rule on the basis that shareholders held a proprietary interest in the company’s money from which the legal advice was paid for. However, this proprietary justification was held to be no longer sound given the now well-established principle of separate legal personality as entrenched in Salomon v Salomon,^[6] pursuant to which a company is both the legal and beneficial owner of its property.

The Privy Council also debunked an alternative justification which was commonly advanced for the rule – that of common interest or joint interest privilege. It was previously asserted that shareholders generally have a joint interest in any legal advice which the company takes about its general administration because the company is generally deemed to be obtaining that advice on the shareholders’ behalf, whose interests are generally aligned with that of the company.^[7] The Privy Council roundly rejected this argument as an oversimplification, given that the interest of shareholders amongst themselves were often not always aligned and that it was artificial to treat shareholders as one homogenous block. There were also interests of other stakeholders (apart from the shareholders) which the directors of a company needed to take into account.

Ultimately, the Board’s view was that the Shareholder Rule was without foundation and unfairly operated to impede companies from obtaining candid legal advice in confidence. The need for certainty and clarity as to whether legal advice was privileged was held to be paramount.

Implications for Cayman Islands merger appraisal proceedings

The abolition of the Shareholder Rule represents an about-turn in dissenting shareholders’ disclosure rights in merger appraisal proceedings. Following the Cayman Court’s decision in 58.com, it was widely considered that dissenting shareholders would now be able to access legal advice pertaining to the merger transaction and of relevance to fair value (provided that such advice was not protected by litigation privilege). However, this ruling gave rise to concern and uncertainty among companies (and their advisers) as to whether pre-merger legal advice was privileged. Further, as a result of the exception for litigation privilege (which continued to apply against dissenting shareholders), this led to contentious disputes about when litigation was genuinely deemed to be in reasonable contemplation – a point in time which is generally imprecise and therefore rife for greater uncertainty on whether privilege attracts.

Ultimately, while the abolition of the Shareholder Rule may be considered less favourable for dissenting shareholders, the disclosure regime in Cayman merger appraisal proceedings remains robust. It is well established that the greater onus for disclosure lies on the company to produce all documents relevant to its own internal assessment of fair value.^[8] Further, in the absence of full disclosure, the court remains willing to draw adverse inferences against the company in this respect.^[9] Dissenting shareholders have also increasingly had resort to US 1782 discovery proceedings^[10] as a means of obtaining additional disclosure in aid of appraisal proceedings from relevant third parties who reside in the US, such as financial advisers, members of the buyer group or special committee members. The Cayman Islands Court has been increasingly receptive to facilitating such applications and have taken them into account when making case management directions.

The disclosure landscape for dissenting shareholders therefore remains robust, notwithstanding the abolition of the Shareholder Rule. This new development will ensure that companies can comfortably take comprehensive legal advice at all stages of the merger process without fear that such advice may be accessible by dissenting shareholders in appraisal proceedings.

Willers v Joyce direction

Significantly, the Privy Council made a Willers v Joyce^[11] direction which holds that the decision in Jardine should be regarded by courts in England and Wales as abrogating the Shareholder Rule for the purpose of litigation in those courts. The decision is therefore of general application as a matter of English common law and relates to all shareholder-related litigation (not merely merger appraisal proceedings).

Watch this space

It will be interesting to see how fiduciaries, legal entities, investors and other stakeholders apply this ruling in other contexts. For example, there is an argument that a general partner, acting on behalf of an exempted limited partnership, may assert privilege against limited partners using the same rationale. With the Shareholder Rule abolished in a company context, there may be an expansion of the circumstances in which others seek to rely on legal advice privilege to avoid disclosure, based on similar arguments.

Conclusion

The Privy Council’s judgment proceeded from the starting point that legal professional privilege is a fundamental human right and a necessary corollary of the right of any person to obtain skilled legal advice. Against that foundation, the Privy Council was rightly slow to countenance any exception to privilege which was not grounded on solid legal footing.

The decision offers welcomed clarity on the parameters of legal advice privilege, removing a rule which potentially operated to discourage companies from seeking legal advice with candour given uncertainty as to whether such advice may be disclosable in the context of adversarial proceedings against current or former shareholders.