Sharp & Ors v Blank & Ors

A company generally cannot assert legal professional privilege against its shareholders for legal advice obtained in administering the company’s affairs and paid for from corporate assets. The exception is confined to advice obtained for actual, threatened or contemplated litigation between the company and its shareholders, including advice to conduct or defend that litigation. Mere divergence of interests, shareholder dissent or contemplation of litigation does not make all later legal advice privileged. Each communication must be connected with the particular dispute. The rule is distinct from common-interest privilege. A company therefore cannot claim blanket privilege over all legal advice from the point at which litigation may have been contemplated.

At the first case management conference in group litigation arising from Lloyds’ acquisition of HBOS and related transactions, the claimants sought disclosure of legal advice and communications involving Lloyds Banking Group plc. The proposed order concerned advice relating to the acquisition, the UK Government’s Recapitalisation Scheme, and the relevant circular and prospectus. The defendants relied on the exception to the general company–shareholder rule, contending that litigation was reasonably contemplated once the transaction was announced or pursued. The central issue was whether that possibility justified blanket privilege, or only protected advice connected with actual, threatened or contemplated litigation.

Issue determined. The court rejected the defendants’ claim to assert blanket privilege against the shareholders. The sixth defendant could still assert privilege over particular advice if the facts established that the advice fell within the litigation exception.

1. The starting point was the general rule stated in Dennis & Sons v West Norfolk Farmers’ Manure & Chemical Co-operative Co. Ltd. [1943] Ch 220: a company cannot withhold from its shareholders legal advice obtained for the administration of the company’s affairs and paid for from company assets. The same rationale applies between trustees and beneficiaries.
2. The exception is limited to advice relating to actual, threatened or contemplated litigation between the company and shareholders. It includes advice obtained to enable the company to conduct or defend the litigation, or advice otherwise connected with the particular dispute. This approach was supported by Woodhouse & Co. Ltd v Woodhouse [1914] 30 TLR 559 and Arrow Trading and Investments & Anr v Edwardian Group Limited & Ors [2004] EWHC 13/9 (Ch).
3. The rule was not an example of common-interest privilege. Buttes Gas & Oil Co. v Hammer (No.3) [1981] QB 223 concerned a distinct privilege arising in anticipated litigation between persons sharing the same interests.
4. The court declined to treat divergence of interests, shareholder dissent, an announcement of a transaction or the calling of an extraordinary general meeting as automatically establishing reasonable contemplation of litigation. The court was doubtful that Re Hydrosan Ltd [1991] BCLC 418 could be elevated into a general rule that litigation was contemplated once a company committed to a course of action. The circumstances of that case included an existing dispute and a previous petition.
5. Even if litigation was reasonably contemplated, only advice sufficiently connected with that litigation would be privileged. Advice concerning unrelated ordinary administration remained subject to the general rule. The defendants were therefore not entitled to claim privilege over all legal advice within the proposed categories.

not stated in the judgment.