The Limits of Privilege: Joint Interest and Indirect Shareholders

Abstract

Under English law, direct shareholders are considered to have a joint interest in the privileged materials of their subsidiaries. However, for reasons of policy, this same right has been denied to indirect shareholders. This distinction, and so the current law on joint interest privilege, fails to take into account the complexity of contemporary corporate structures and the dynamics of modern shareholder litigation. Given the trend of increasing shareholder litigation, it is a matter of time until the common law is found wanting and the rights of an indirect shareholder to the inspection of the privileged material of its subsidiary are limited unfairly. It is this article’s contention that indirect shareholders should be given limited rights to inspection of the privileged materials of their subsidiaries and the denial of such rights should not be waived away by the blunt instrument of policy. Instead, it proposes a new model based on a rebuttable presumption that the materials of a company are privileged against indirect shareholders unless they can demonstrate ‘good cause’ in line with well-defined criteria. It is hoped this model will provide greater legal certainty to this area and ensure a more robust foundation for so important a legal right. Law of privilege, shareholder litigation, shareholder rights, indirect shareholders, joint interest, subsidiaries, ‘good cause’