Reed Smith Client Alerts

Key takeaways

  • While the shareholder principle is an established principle of English law, a court of first instance in England has considered that the principle has a “somewhat shaky foundation in the light of the current ways of viewing the position of shareholders and their company”. Given the court’s criticism of the foundation of the principle, there is a good possibility that the principle will be challenged in the future and ultimately overturned.
  • There is a risk that multiple shareholders who bring claims under section 90A of the Financial Services and Markets Act 2000 (FSMA) and are represented by the same law firm will not be able to benefit from the shareholder principle if they hold their shares at different times throughout the relevant period.
  • Shareholders intending to rely on the shareholder principle should seek the company’s documents at the first case management conference (CMC), at which shareholders should also put forward a comprehensive regime for how the practical difficulties posed by the shareholder principle will be managed throughout the litigation. 


1. The English High Court has considered in Various Claimants v G4S PLC [2023] EWHC 2863 (Ch) the application of the shareholder principle, recognised in Sharp v. Blank [2015] EWHC 2681. The question arose for consideration following an application made by the claimants under Practice Direction 57 AD, heard at a CMC held on 8 November 2023, a little under three months before the start of trial, seeking disclosure of certain documents withheld by the defendant on the grounds of privilege. It was accepted by the claimants for the purpose of the application that privileged material that was prepared for the purpose of the proceedings was covered by litigation privilege and should not be disclosed.

2. In Sharp v. Blank, the English High Court established the shareholder principle, which provides that, in the context of litigation, a company cannot assert privilege against its shareholders. In explaining the rule, Mr Justice Nugee explained that the foundation of the principle was the same as the foundation of the similar general rule that 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”. In the context of companies, Mr Justice Nugee explained that, as with a trustee, a company taking advice on the running of its 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”. It was held that the principle does not apply outside of the context of litigation, nor does it apply to documents created for the dominant purpose of the litigation against the shareholders. (Sharp v. Blank)