Shareholder Disputes: key trends from 2024 and predictions for 2025
Insight
Aabar Holdings v Glencore: a landmark ruling for shareholder disputes
In late 2024, a High Court ruling in Aabar Holdings v Glencore held that the "Shareholder Rule" – which previously prevented companies from asserting privilege against their shareholders – did not exist in English Law. The ruling will have wide-ranging impacts on shareholder litigation – and although the appeal is set to heard by the Supreme Court in 2025, indications are that the decision is likely to be upheld, so parties should be conscious of its implications.
In the short-term, we expect the Shareholder Rule to remain a “hot topic” as appeals from related cases reach the Supreme Court, and parties generally challenge and explore the boundaries of the decision.
The longer-term impact of the ruling will vary depending on the nature of the claim. Where there is a serious issue between shareholders, and the disclosure of documents is not the driving force behind the litigation, the Aabar decision is unlikely to affect whether litigants choose to substantive claims (although it does remove a strategic advantage for claimants).
However, we would expect a decline in those disputes where the purpose of the claim is to obtain access to company documents, perhaps in the hope of using these for publicity, or as a foothold to strengthen an otherwise uncertain claim. Similarly, if Aabar is upheld on appeal, we anticipate that there will be less satellite litigation over the disclosure of privileged company documents.
A smoother path for ex-shareholders?
A claim for unfair prejudice is only available to current shareholders of a company. Those who have had their shareholding forcibly removed (for example, because they have been designated as a “Bad Leaver”) are instantly at a disadvantage. Traditionally, before they are allowed to bring an unfair prejudice petition, the wronged party must bring separate legal proceedings to establish their position as a shareholder and to rectify the company’s shareholder register. The associated complication and cost of this additional litigation often inhibits the progress of a claim.
The judge in the recent case of Re Contingent & Future Technologies Limited took a different approach, using his general case management powers to allow a petitioner to run a claim for rectification of the shareholders register simultaneously with the unfair prejudice petition.
This was a first instance decision, but we predict further developments in this area as ex-shareholder petitioners seize on the judge’s pragmatic approach with a view to establishing an easier path to unfair prejudice remedies.
Shareholder activism: a more refined approach
In the wake of ClientEarth’s unsuccessful litigation against Shell’s board of directors in late 2023, we expect to see claims of a more sophisticated nature from shareholder activists as they take on board the court’s criticisms of their earlier approach.
ClientEarth’s claim was considered to be too vague, and lacking in adequate expert evidence to support their allegations that the directors were at fault in failing to adapt policies capable of transforming Shell into a net zero business. We anticipate that future litigants, particularly those raising issues in relation to ESG and climate change policies, will focus more on evidence-backed claims against specific policies, rather than broader arguments against a company’s approach or actions.
The funding of these claims is likely to prove a significant hurdle. The potential benefit of these cases are often unclear for litigation funders in comparison to claims seeking substantial damages; until we see more success on the ESG litigation front, it is unlikely that there will be growth in funder interest in the near future.
Economic uncertainty giving rise to shareholder disputes
The current economic backdrop has seen many private companies and investments under-performing. Following an M&A boom in 2021, several investments from that period will now have under-performed, and this in turn is generating litigation.
As is the nature with challenging economic times, we have and will continue to see an up-tick in founder exits, disputes, calling in of warranties, and price re-negotiations in the year ahead.
Governance issues
Governance disputes remain front of mind for many directors and shareholders, and in the year ahead we expect three core themes to emerge:
1. Liability for global subsidiaries and suppliers
Increasingly, victims of overseas incidents involving the subsidiaries and suppliers of English companies are bringing claims against the parent company in the English courts, seeking to establish liability at the highest level of the group or supply chain.
A good example is the group litigation brought in London’s High Court by around 700,000 victims of the 2015 Mariana dam disaster in Brazil, through which damages of up to £36 billion are sought from the English-incorporated parent of the Brazilian subsidiary which operated the dam. Similarly, Dyson is facing a claim in the English courts from factory workers alleging that it should be held responsible for unsafe working practices and human rights abuses by a company which formed part of its supply chain in Malaysia.
These claims require the boards of companies with an international presence to think carefully about the governance, management structure and policies not only the parent company itself, but also its supply chains and underlying subsidiaries. This is a highly active area and one which we expect to generate further substantial litigation in the long-term.
2. Greenwashing
Greenwashing is another active area, particularly in the context of environmental credentials claimed in order to attract investment. One notable example is the ongoing Boohoo litigation, in which investors are claiming to have been misled about the company’s ESG credentials, which in turn led to a depression in share value and a claim valued at £100m. We predict more investor greenwashing disputes, particularly as more companies come into the spotlight for misleading or overstated environmental or social claims.
3. The new corporate governance code
The new corporate governance code, rolled out last year, will bring increased focus on the board’s management of “material controls” within the business.
Classified as policies and systems which manage material risks to the company, such as solvency, price sensitivity issues, fraud or IT, the new code will require listed companies to confirm explicitly in annual reports that all material controls are operating effectively so as to give investors an accurate picture of the company’s stability and risk profile.
This requirement could prompt shareholder litigation should investors claim that information on issues, such as the risk of insolvency or fraud, or ESG credentials, was misleading. Furthermore, the definition of what constitutes a material control is far from clear-cut, creating space for differences in opinion and therefore disputes around alleged failures to put appropriate protections in place.
Merricks vs MasterCard: a spotlight on litigation funding
Whilst not a shareholder dispute, the fall-out over the Merricks v MasterCard settlement could have wider consequences that affect other areas of litigation in future. In particular, the dispute raises the question of which party is in control of funded litigation, and the extent to which a funder can interfere.
The issue has emerged at a time when litigation funding is already the subject of a review by the Civil Justice Council and amidst calls for greater regulation. It is certainly an issue to watch for 2025, with potentially significant implications in the realm of shareholder disputes and beyond.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2025
Dispute resolution trends and predictions
This insight is part of our wider report – "Dispute resolution trends & predictions" – which includes comprehensive analysis from our specialists together with valuable viewpoints from our clients.
