Nearly three decades ago, the European Union’s highest court adopted a two-part test for “legal professional privilege” protecting lawyer-client communications: (1) the communication must involve legal advice given for the purpose of the client’s rights of defence, and (2) the advice must emanate from an “independent lawyer.”1 Under the AM&S Europe test, communications between in-house counsel and company employees were found not to be protected by the privilege. The Applicants in the recent case of Akzo Nobel Chemicals Ltd, joined by a host of European bar associations, the Netherlands and the United Kingdom as intervenors, asked the Court of Justice (ECJ) to relax or overrule the existing test and to extend the legal professional privilege to in-house counsel. In its decision released September 14, 2010, the ECJ squarely rejected their appeal and confirmed the existing rule.2

The case involved a dawn raid by the European Commission on the Manchester, U.K. offices of Akzo as part of its investigation into potentially anti-competitive practices, during which e-mail communications between Akzo’s general manager and an in-house lawyer admitted to the Netherlands Bar were seized. The Commission and the court of first instance rejected Akzo’s claim of legal professional privilege over the e-mails, on the grounds that they did not involve an “independent” lawyer. On appeal, the ECJ categorically rejected the argument that in-house lawyers admitted to the bar of a member state (and thus bound by professional codes of conduct) were sufficiently independent to support the application of the privilege, finding that in-house lawyers were “in a fundamentally different position from external lawyers” and that their employment relationship with the company “by its very nature” does not allow the lawyer “to ignore the commercial strategies pursued by” the employer and “thereby affects [the lawyer’s] ability to exercise professional independence”.

The ECJ also rejected the Applicants’ argument that the “modernization” of the EU’s procedural rules on investigations into cartels in the years since AM&S Europe required a change in the privilege rule, because these changes had “increased the need for in-house legal advice” including the establishment of company compliance programs to prevent infringements of competition law, which in turn require a “confidential environment” for communications between employees and in-house lawyers. The court refused to make that connection, emphasizing instead that the regulatory changes aimed to reinforce the extent of the Commission’s powers of inspection and to safeguard their effectiveness, “in particular as regards documents which may be the subject of” dawn raids.

The ECJ likewise gave short shrift to the Applicants’ argument that the extension of legal professional privilege to communications involving in-house counsel in the national laws of certain member states (including the U.K. where the documents in question had been seized) required the rule on privilege in Commission investigations to defer to the laws of the country in which the raid takes place, to prevent companies from being subject to inconsistent rules. The ECJ ruled that, on the contrary, the principle of “legal certainty” favoured the application of a single EU rule regardless of the location of the raid, and that companies should be able to “determine their rights and obligations vis-à-vis the competent authorities” in light of the powers of the investigating authorities and the laws applicable to those bodies.

The message from Akzo is clear: communications involving in-house lawyers are not privileged for the purposes of EU competition investigations and proceedings, regardless of the member state’s privilege rules. In an era of active competition-law enforcement by the Commission and record-breaking fines for violations, companies with a presence in Europe need to be concerned not just with making sure that their employees get the right legal advice on competition law to avoid infringements, but also with how and from whom they obtain that advice.