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Freshfields Risk & Compliance

| 4 minutes read

The beginning of the end of the ‘shareholder’ principle in Sharp v Blank?

High Court casts doubts on principle that a company cannot assert privilege against its shareholders in litigation

The ‘shareholder principle’, recognised in Sharp v Blank [2015] EWHC 2681 (Ch), provides that a company cannot assert privilege against its own shareholders, except where the privileged documents in question were created for the dominant purpose of litigation against the shareholders themselves. The principle only arises in the context of litigation between the shareholder and the company and, outside of that particular context, the principle does not override the company’s articles of association (which often expressly limit the rights of shareholders to obtain the company’s documents).  

But the High Court has now observed that the shareholder principle has a “somewhat shaky foundation” given the modern view of company law.  It was suggested that the principle is ripe for reconsideration by a higher court. In the meantime, the Court’s decision – in identifying certain boundaries for the application of the principle – will limit the ability of most investors to rely on it in claims brought under s.90A Financial Services and Markets Act 2000 (FSMA).


The question arose in the context of a claim under s.90A FSMA, in which the claimant ‘shareholders’ applied for disclosure of the defendant company’s privileged documents.

The Judge accepted that the rule in Sharp v Blank was well-recognised, including in Court of Appeal authority, and that he was accordingly not in a position to decide that it should be “got rid of ”. However, the Judge expressed his doubts as to the justification of the principle and noted that the rule has received remarkably little analysis in case law to date, such that its boundaries are poorly defined.  Against that background, the Judge accepted that the rule should be narrowly confined and that he should not order disclosure unless he was bound by authority to do so. 

Non-registered shareholders

In particular, the Judge found that non-registered shareholders are not entitled to benefit from the shareholder principle. Rather, it is only the registered members of the company with legal ownership of their shares who are ‘shareholders’ under the Sharp v Blank rule, and not investors who hold their shares in uncertificated form through the CREST system.  While such investors may have a beneficial interest in securities for the purposes of s.90A FSMA, they are not shareholders in the relevant sense.

In reaching this conclusion the Court considered: 

  • the foundation of the principle, which is often said to be by analogy to a trustee and beneficiary relationship (since a trustee cannot assert privilege over advice which has been indirectly paid for by the beneficiaries).   This was found to be a “shaky ” view of the world that had long since been overtaken by cases asserting the separation of the company and its shareholders (the company holds its property for itself and the shareholders have no direct interest in it); and
  • the related underlying rationale in Woodhouse and Co (Limited) v Woodhouse [1914] 30 TLR 559, that a shareholder has a right to see advice that it paid for out of the common fund of the company.  This was found to be a “dubious ” basis for the principle since the reality is that there is no common fund to which shareholders are entitled.

Without prejudice privilege

While the Court confirmed that the shareholder principle extends to at least legal advice privilege and litigation privilege, the Court also found that it did not extend to without prejudice privilege (i.e. communications between the company and third parties exchanged in an effort to settle a dispute against those third parties).  This is in light of the complication of the third party being involved, whose right to privilege must be respected. 

When does the entitlement to the privileged documents arise

The Court considered at what point the interest to the privileged material arises, and concluded that the relevant claimant must have been a shareholder at the time that the documents in question were created.  While the right is not lost if a shareholder subsequently ceases to be a shareholder, the right cannot be brought into being simply by acquiring a share in the company after the event.

Implications for s.90A FSMA claims

As explained above, the Judge confined the principle to registered members of the company only and observed that it would otherwise nearly always be the case that the company defendant could never assert privilege in s.90A FSMA proceedings which would have had “wide-reaching effects for all similar cases”.  The implication of this ruling is that most claimants in s.90A FSMA claims may not be able to rely on the Sharp v Blank rule, given that the vast majority of shares in listed companies are held not directly, but indirectly through the CREST system.

The Court also confirmed that recipients of privileged material have a “positive duty not to breach that privilege further and not to allow those documents to go to any sort of wider audience ”.  This has significant practical implications for s.90A FSMA claims where each of the investors who bring claims have different interests, at different times, throughout the claim period – but are represented by the same law firm. 

The Court was clear that any claimants – and their lawyers – who received privileged documents to which they may be entitled, were bound to prevent those documents from being used for the benefit of any other claimants who are not entitled to see the privileged information.  The Judge was doubtful that this could be achieved in practice in this context, noting that “it would require considerable contortions on [the] lawyers’ (and the judge’s) part not to take into account some of the material” and that a “confidentiality club does not solve this intractable problem”. 

Indeed, ultimately the application in this case was refused on case management grounds, which suggests that claimant ‘shareholders’ will need to provide coherent proposals for how the practical difficulties posed by the principle will be effectively managed. 

In light of this decision, it seems likely that the rule in Sharp v Blank will be challenged in future s.90A FSMA claims – and increasingly likely that the rule will ultimately be “got rid of” altogether.


Freshfields partners Matthew Bruce and Ali Kirby-Harris, and senior associate Christina Franzese, act for the respondent company in this case, instructing Laurie Rabinowitz KC, Simon Colton KC, Emma Jones, and Harry Stratton of One Essex Court. 


class actions, litigation