Judicial cross border litigation and/or international arbitration proceedings reveal two distinct systems: common law systems allow a comprehensive collection and disclosure of all existing documents leading to admissible evidence, while civil law systems—particularly in France—restrict disclosure of evidence to documents that are admissible at trial and produced by the parties themselves. Notably, limitations on United States (US) discovery rules are imposed through the French blocking statute, which intends to protect sovereignty of France as well as its economic and security interests.
A French in-house counsel may be required to advise a company—which may or may not be the subsidiary of a US company—which has been requested to communicate documents and information within the context of a US investigation in a civil or a commercial matter. The in-house counsel will need to clarify the possible choices and risks the company faces when dealing with discovery in France: (i) cooperate with US authorities and be subject to sanctions in France relating to the French blocking statute and/or the data privacy law, or (ii) invoke the French protecting tools to refuse compliance with the US authorities' request, leading to sanctions within the foreign proceedings.
We discuss below the various challenges faced by a French in-house counsel when having to respond to a request for communication of documents and information addressed to the company he works for in the context of US litigation in civil or commercial matters (e.g. intellectual property infringement, etc.).
The French blocking statute1
The French blocking statute makes the exportation of information requested for legal proceedings abroad a criminal act. Article 1 bis prohibits "any individual to request, to investigate, or to communicate in writing, orally or by any other means, documents or information relating to economic, commercial, industrial, financial, or technical matters leading to the establishment of proof with a view to foreign administrative or judicial proceedings or as part of such proceedings". Article 1 bis applies "subject to treaties or international agreements and laws and regulations".
The very act of exporting certain categories of documents, or responding to discovery requests, is a criminal offense, sanctioned by up to 6 months of imprisonment and/or a fine of €18,0002.
The French Supreme Court recently confirmed prosecution for violating the French blocking statute. In a litigation between the California Insurance Commissioner and the French insurance company (MAAF) and relating to the conditions of acquisition of the American life insurance company Executive Life, the Federal Court of California issued civil international Letters of Request requesting MAAF to communicate documents relating to the litigation, according to the Hague Evidence Convention. A French attorney, acting on behalf of the US counsel of the Commissioner, contacted a former MAAF board member to determine under what conditions the board approved the purchase of Executive Life. The French Supreme Court ruled that the required information on the circumstances under which the MAAF board took its decisions on the acquisition of Executive Life was information relating to economic, commercial, or financial matters and led to the establishment of proof in a foreign judicial procedure3. The French attorney was therefore sentenced to a fine of €10,000 pursuant to the French blocking statute.
This decision confirmed that parties caught in France communicating information relating to economic, commercial, or financial matters may be prosecuted under the French blocking statute and that the Hague Evidence Convention is the exclusive means of securing information in France for use in foreign civil or commercial litigation. However, this type of isolated decision is often ignored by the companies which renounce protections offered by the French blocking statute. In addition, a legislative proposal currently being examined4 intends to reduce the scope of the French blocking statute to the type of information protected under business confidentiality rules.5
The Hague Evidence Convention6
The Hague Evidence Convention, to which both France and the US are Parties, provides the conditions under which the request for communication of documents should be addressed. According to the Convention, authorities may collect evidence in the requested state by several means, i.e. a Letter of Request sent by a court in the requesting state7, through a diplomatic or consular agent8, or through a designated person (expert, lawyer) acting as a commissioner to collect evidence.
Article 23 of the Convention, however, reduces its scope in discovery, by providing that "a Contracting State may at the time of signature, ratification or accession, declare that it will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries". As France invoked the Article 23 exception9, the competent judge would be allowed to deliver Letters of Request only when the requested documents are enumerated in a limited manner in the Letter of Request and have a direct and precise link with the object of the procedure10.
As a result, the French authorities are very reluctant to participate in US discovery processes since they (i) forbid and penalize the production of documents in response to discovery requests, and (ii) refuse to allow the Hague Evidence Convention to be used to this end, except under narrowly enumerated conditions. In this regard, an in-house counsel would have legal grounds for advising his/her company to refuse to communicate documents to a US discovery.
The US position regarding the French protecting tools
According to the US Supreme Court, however, the Hague Evidence Convention does not prevent the communication of documents. In a case relating to the liability of the French company Aérospatiale (an airplane manufacturer) following the crash of one of its airplanes in the State of Iowa, Aerospatiale's counsels refused to produce documents within a US discovery procedure, citing the Hague Evidence Convention protocols for obtaining evidence abroad. The majority of the US Supreme Court, however, rejected this argument, holding that such Convention does not deprive the District Court of its jurisdiction to order, under the Federal Rules of Civil Procedure, a foreign national party to produce evidence physically located within a signatory nation (in this case France), the Hague Convention being considered only one option for obtaining evidence abroad11.
The Hague Evidence Convention, together with the French blocking statute, therefore has limited impact on discovery disputes. US courts can request French parties to produce documents, despite the existence of the French protecting tools against US discovery.
The absence of attorney-client privilege for French in-house counsel communications
It must be noted that French in-house counsel may not rely on attorney-client privilege to exclude his/her communications from the scope of US discovery.
Although communications with in-house counsel in the US receive the same protection as communications with outside attorneys, attorney-client privilege does not apply to the communications of a French in-house counsel in France. This approach is in line with the European view of attorney-client privilege. In a recent case, the European Court of Justice held that only documents created in preparation for the defense of a corporate client by an independent lawyer—to the exclusion of an in-house counsel—could be shielded from European authorities12.
In this respect, US prosecutors and litigants may request the production of communications between a jurist and his client. As a French in-house counsel may not oppose the discovery of communications on the basis of attorney-client privilege, French in-house counsel communications may be subject to US discovery proceedings.
It should be noted that a reform of the qualification of the in-house counsels as "avocats en entreprise"—subject to a duty of professional secrecy—is under consideration. Their communications could therefore be protected as if subject to the US attorney-client privilege.
The risks for non-communication of the documents within US discovery proceedings
The French in-house counsel may advise the company facing a discovery request not to communicate documents to the US for legal and/or strategic reasons.
However, this may lead to negative consequences for the refusing party:
- Judgment contrary to the requests of the refusing party;
- Negative conclusions against the refusing party (i.e. dismissal of the case, negative and/or adverse inferences);
- Sentence to a financial indemnity following an action for damages;
- Risk of conviction of contempt of court leading to the imposition of a fine or to imprisonment;
- Worsening of the judicial situation of the foreign parent company: being investigated or brought into question for not having obtained more cooperation from its French subsidiary;
- Reversal of the burden of proof for a particular fact to the requested party;
- Imputation of costs to the refusing party for additional measures required to establish the facts due to the failure to comply with the request for production of documents;
- Damaging its commercial reputation, particularly in the context of future tenders, etc.
The consequences of the communication of documents despite the French protecting tools
The French in-house counsel advising the communication of documents to the US within a discovery request must warn the company of the risks incurred.
First, and as previously indicated, the communication of documents may violate the French blocking statute and constitute a criminal offense, sanctioned by up to 6 months of imprisonment and/or a fine €18,000.
In addition, the communication of documents may infringe the French Data Protection Rules. Under the French Data Protection Act13, any communication of documents within US discovery proceedings may constitute personal data processing. In February 2009, the Article 29 Data Protection Working Party of the European Union established guidelines to reconcile discovery and data privacy interests14. First, the data processing needs to be individually justified, i.e. compliance with a statute, justification by consent and/or justification by legitimate interests. In addition, the transfer of data needs to comply with the requirements of French law regarding the transfer of data outside the European Union, notably to the US, which does not provide an adequate level of protection. In this regard, the Working Party considered that the necessity for the establishment, the exercise or the defense of legal claims is not an exception which would apply in cases of discovery in the US as it is limited to the European Union.
It follows from the above that any communication of documents for discovery purposes is likely not in compliance with French data privacy rules. Yet, the processing of data and/or the transfer of data outside the European Union without complying with the applicable formalities is an offense sanctioned by both possible administrative sanctions and criminal sanctions (up to 5 years of imprisonment and/or a fine of €300,000, multiplied by 5 for a legal person)15.
In addition, the communication of some documents may violate employee privacy as, under French law, both the right to privacy16 and the secrecy of correspondence and electronic communications17 prevent access to the employee's personal documents and correspondence by the employer. Thus, the in-house counsel should advise the sole communication of non-personal documents and e-mails within the frame of a US discovery request. In any case, the in-house counsel must advise the company to ensure that the employees have been duly informed about the processing of their data, either individually or collectively18, before communicating personal data relating to employees in the US.
Finally, it should be noted that, under French law19, a French in-house counsel is qualified as an employee of the company, resulting in a relationship of subordination preventing the French in-house counsel from making his own decisions without the approval of the employer. In this respect, a French in-house counsel who would voluntary disclose documents within discovery proceedings initiated in the US would face not only the above mentioned consequences of the communication of documents of the French protecting tools, but also disciplinary sanctions by his/her employer.
The proposed amendment of the French blocking statute to limit its scope to business secrets and the proposed modification of the rules on attorney-client privilege for in-house counsel will both limit the number of delicate situations described above. But none of these proposed changes will fundamentally affect the dilemma which in-house counsels will continue to face when receiving US discovery requests in the future. The apparent conflict between US and French rules requires careful attention.