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When can a company assert legal advice privilege against its shareholders?

20 November 2015

A High Court judge recently confirmed the general principle that a company cannot assert legal advice privilege against its shareholders, subject to one exception:

The company can assert privilege against shareholders in relation to advice obtained once the company is a party to actual, threatened or contemplated litigation with its shareholders. Even then, however, the privilege applies only to advice taken specifically in connection with that litigation.


In 2014 a group of shareholders brought proceedings against Lloyds Banking Group PLC and five named individuals who were formerly directors of Lloyds (then known as 'Lloyds TSB').

The litigation concerned the acquisition of HBOS by Lloyds TSB (as it was then known) in September 2008. The chairman of Lloyds notified shareholders at the time of the acquisition that it would be a "very good deal for shareholders", but this did not come to pass and Lloyds had to be bailed out by the government in October 2008.

The claimants (of which there are now around 6,000) claimed that key information about the deal was hidden from them at the time and that, in reality, HBOS had been on the verge of collapse at the time of the acquisition. The claimants alleged that this constituted a breach of fiduciary and other duties on the part of the directors of Lloyds.  The disgruntled shareholders sought damages for losses suffered as a result of the dilution of their shareholdings following the bail-out.  According to press reports, the shareholders believed that they were owed roughly £1 per share.

At the first case management conference, the judge addressed the question of whether Lloyds could assert privilege against the shareholders in relation to legal advice that it had received in connection with the acquisition.


General principle

The judge began by confirming that there is a general principle whereby a company is not entitled to claim privilege against its own shareholders. There is also a well-established exception to this rule, which applies in the context of litigation between a company and its shareholders. As such, the key issue to be resolved at the case management conference was when the exception to the general rule applies and to what documents.

Lloyds sought to assert a blanket privilege over all advice received after 18 September 2008 (the date of the announcement of the merger with HBOS), on the basis that litigation had been in contemplation from this point and thus the interests between Lloyds and its shareholders had by then diverged.  Its argument centred on the notion that the general rule on privilege rests on there being a common interest between a company and its shareholders, which was not the case here.

The judge disagreed. While he accepted that there are references to common interest in the relevant case law, he distinguished between the general rule that a company may not assert privilege against its shareholders and the rule of common interest privilege. The latter is referred to in Buttes Gas & Oil Co v Hammer (No 3) ([1981] QB 223) by Lord Denning as:

"privilege in aid of anticipated litigation in which several persons have a common interest. It often happens in litigation that a plaintiff or defendant has other persons standing alongside him – who have the self-same interests as he – and who have consulted lawyers on the self-same points as he – but these others have not been made parties to the action."

The judge considered that this was a different principle to the one being explored in this case.  In this case, the rationale for the principle was more closely related to the rules on privilege between trustees and beneficiaries – that is, it was based on who paid for the legal advice.  The general rule is that a trustee cannot claim privilege against a beneficiary, as the beneficiary has indirectly paid for the legal advice in question. Similarly, a company that has paid for legal advice out of the company's assets cannot claim privilege against those who have indirectly paid for that advice (i.e. shareholders).


The judge went on to find that the exception to the general rule comes into play when the company finds itself party to actual, threatened or contemplated litigation with the shareholders; even then, privilege applies only to advice given in connection with that litigation.

The judge again likened the relationship between Lloyds and its shareholders to that of a trustee and a beneficiary.  He gave the example of a pension trustee and beneficiary involved in a dispute over a refund of surplus to an employer.  In that scenario, the trustee could assert privilege over advice received in relation to the particular dispute, but there would be no reason for the beneficiary to be prevented from access to advice received by the trustee that was unconnected with the dispute. On that basis, the blanket privilege over advice received after 18 September 2008 (as contended for by Lloyds) would be inappropriate; the shareholders ought still to be given access to advice unrelated to the dispute.

In any event, the judge found that litigation was not in contemplation as at 18 September2008.  He noted that while shareholders might at that time have been unhappy with the decision to merge, this was not the same as saying that litigation was reasonably in contemplation, which was not made out on the facts.


The key message for companies following this judgment is to be mindful of the fact that any legal advice obtained in the name of the company might fall to be disclosed to shareholders, unless it is expressly connected to litigation that is reasonably in contemplation. This is the case regardless of how poor the relationship between the company and its shareholders has become.