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High Court calls into question the rule in Sharp v Blank

Credit: ricochet64 / Shutterstock.com

The High Court has, for the first time, expressed doubt about the rule, recognised in Sharp v Blank ([2015] EWHC 2681 (Ch)), that a company cannot claim privilege as against its shareholders, save where the documents came into existence for the dominant purpose of actual or threatened proceedings between the company and its shareholders (the rule in Sharp v Blank). 

The rule arose for consideration at a case management conference (CMC) held on 8 November 2023 in three sets of related actions brought under section 90A of the Financial Services and Markets Act (FSMA): Various Claimants v G4S Ltd (formerly G4S plc) [2023] EWHC 2863 (Ch). The actions are proceeding in the Financial List and a first-stage trial is due to commence on 29 January 2024.

Shortly before the CMC, the Claimants, a group of institutional investors, issued an application under Practice Direction 57AD seeking to inspect various documents withheld by the Defendant, G4S Ltd, on the grounds of legal professional and without prejudice privilege. 

At the CMC, Mr Justice Michael Green considered the basis for the rule in Sharp v Blank and its application to the FSMA claims. 

Michael Green J noted that the rule had a “somewhat shaky foundation” in light of the settled view that a company is separate from its shareholders and holds property for itself, and that part of the basis for the rule was “now dubious” (at [25]-[30], [42(1)]).

Michael Green J also recognised that, if the claimants were correct, it would nearly always mean that the defendant company to a claim under section 90A could not assert privilege against those with a statutory right to brings those claims (at [36]). 

The following further points are of particular interest in the judgment of Michael Green J:

  • the judge was of the view that, unless bound by precedent, it was safer not to override the important right to privilege (at [38]);
  • given the shaky foundation of the Sharp v Blank rule, the judge considered that the rule should not be broadened beyond the existing authorities so as to apply to non-registered shareholders, such as claimants holding dematerialised interests in shares through the CREST system (at [42]);
  • the judge found that direct registered shareholders had to have that status at the time the relevant documents came into existence in order to fall within the scope of the rule (at [47]);
  • the judge held that the rule does not extend to without prejudice privilege, there being no authority to indicate it had been so extended (at [49]);
  • in multi-claimant litigation of this sort, where only some of the claimants were entitled to see some of the company’s privileged material for some periods of time, an “intractable problem” arose insofar as those claimants wished to deploy the material at trial, not least because they (and their lawyers) were duty bound to preserve the privileged status of the material, and this problem was exacerbated in the present case by the lateness of the application and the proximity to trial (at [51]-[55]);
  • permitting inspection of privileged material for a small number of Claimants would be impossible to manage, and potentially highly disruptive to the imminent trial, and the judge did not consider it possible for there to be a fair trial in those circumstances.

Accordingly, the judge dismissed the Claimants’ application. 

Laurence Rabinowitz KC, Simon Colton KC, Emma Jones and Harry Stratton act for the Defendant, G4S Ltd, instructed by Freshfields Bruckhaus Deringer LLP.  A copy of the judgment can be found below.