In a decision that has wide-sweeping implications for companies that are doing business in the EU or otherwise become a party to a legal or administrative proceeding governed by the EU, as well as to American persons engaged, directly or indirectly such as through ownership of a controlled subsidiary or company in the EU, the Grand Chamber of the EU Court affirmed the decision of the Court of First Review (trial court) holding that various claims of legal privilege made by Akso Nobel Chemicals and Akcros Chemicals for communications made to the companies' in-house companies were not privileged and thus were discoverable under by the European Commission. Article 14 of Council Regulation 17 (anti-competitive practices; violations) of 6 February 1962, First Regulation implementing Articles [81] and [82] of the Treaty. The case was appealed  by the companies from the adverse decision rendered by the General Court in favor of the EU Commission.  The opinion was issued on September 14, 2010.

This Article 14 permits the EU Commission, through its officials, to investigate undertakings and associations of undertakings including: (1) examine books and other business records; (2) take copies or extracts of such business records; (3) ask for oral explanations “on the spot”; and (4) enter the premises (without prior notice), i.e., so called “dawn raids”

Factual Background

In early 2003, Commission officials assisted by representatives of the Office of Fair Trading of Great Britain, conducted a “dawn raid” at Akso Nobel’s and Akcros Chemical’s facilities in Manchester, England. During the investigation the Commission officials took copies of documents including documents, e.g., e-mails, asserted by the appellants as privileged communications between attorney and client.  The Commission officials explained they had to briefly examine the documents in question and form their own opinion of privilege.  Following a long discussion, and after the Commission officials and the OFT officials had reminded the applicants’ representatives of the consequences of obstructing investigations, it was decided that the leader of the investigating team would briefly examine the documents in question, with a representative of the applicants at her side. This ultimately led to a dispute as to 5 documents, including e-mails from employees of the company to and between its in-house counsel. In general, the legal issue was whether these documents were privileged and not subject to discovery as lawyer-client communications. The lawyer in question for Akso was in house lawyer licenced as an Advocaat of the Netherlands Bar. The Commission officials disagreed and would render a final decision on 8 May 2003 rejecting the privilege claims as to the e-mails and certain documents.

The appellants initiated actions before the General Court in Spring of 2003 to require the Commission to return certain documents seized and to order their return. The General Court dismissed the action on both grounds. (Case T-253/03).

The appellants filed with the Grand Chamber to set aside the judgment of the General Court which rejected the claim of legal professional privilege with Akzo’s in-house lawyer; set aside the judgment and cause the relevant privileged documents to be returned. Various groups intervened and filed claims in support of Akzo including the European Company Lawyers Association and the Association of Corporate Council Association (ACCA)-European Chapter, the International Bar Association, as well as the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Netherlands.

The EU Commission contended that the relevant e-mails do not comply with the first condition for legal professional privilege in accordance with AM& S Europe v. Commission [1982] ECR 1575, whereby the legal advice (to be protected from discovery) must be requested and given for the purpose of the defence of the client’s rights. Neither e-mail, in the view of the Commission, met this foundational critierion. Moreover, the second condition of the AM&S Europe case would not be met since the in house lawyer is employed by the company and in-house counsel communications are not privileged under the decision of the EU Courts.

Recognizing that Akzo and Akcros both had a sufficient interest to appeal the case, they set forth various grounds for appeal and reversal of the holding of the Court below and of the Commission. The main attack made was the second requirement that in-house lawyers are excluded from legal professional privilege in the EU, even if such counsel is a member of the Bar of a EU country. The protection is only afforded under the AM&S Europe case to independent lawyers of member states of the EU.

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In opposition, the EU Commission contended that in AM & S Europe v Commission the Court placed lawyers in one of the following two categories: (i) employed salaried lawyers and (ii) lawyers who are not bound by a contract of employment. Only documents drafted by lawyers in the second category were regarded as being covered by legal professional privilege.

The Grand Chamber, in its analysis confirmed that the second condition of “indepence” is based on a conception of the lawyer’s role as collaborating in the administration of justice and as being required to provide, in full independence and in the overriding interests of that cause, such legal assistance as the client needs. The counterpart to that protection lies in the rules of professional ethics and discipline which are laid down and enforced in the general interest. Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.

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The Grand Chamber then stated that “It follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.” Thus, the first ground of appeal asserted by the appellants failed.

The second argument pertained to the violation of “equal treatment” and that the position of in-house lawyers who are members of a Bar association is no different from that of external lawyers. The principal of equal treatment is a general principle of the EU law, contained in Articles 20 and 21 of the Charter of Fundamental Rights of the European Union. This argument was also rejected. The appellate court stated that in-house lawyers are in a fundamentally different position from external lawyers and therefore the General Court properly held there was no breach of the principle of equal treatment.

Regulation No 1/2003, contrary to the appellants’ assertions, does not aim to require in-house and external lawyers to be treated in the same way as far as concerns legal professional privilege, but aims to reinforce the extent of the Commission’s powers of inspection, in particular as regards documents which may be the subject of such measures. The principle of legal certainty of EU law is further not violated by the decision of the court below. Therefore, the principle of legal certainty does not require that identical criteria be applied as regards legal professional privilege in those two types of procedure. Accordingly, the fact that, in the course of an investigation by the Commission, legal professional privilege is limited to exchanges with external lawyers in no way undermines the principle relied on by Akzo and Akcros. A final argument claimed by the appellants is that the findings of the General court as a whole, violate the principle of national procedural autonomy and the principle of the conferred powers.

This principle of national procedural autonomy governs situations in which the courts and administrations of the Member States are required to implement European Union law, but does not apply where the legal limits of the actions of the institutions themselves are at issue. The Court responded that the regulation in question here was to be applied at the EU level and not at the level of the home jurisdiction under its national law. Here, the rules of procedure with respect to competition law, as set out in Article 14 of Regulation No 17 and Article 20 of Regulation No 1/2003, are part of the provisions necessary for the functioning of the internal market whose adoption is part of the exclusive competence conferred on the Union by virtue of Article 3(1)(b). In essence, neither the principle of national procedural autonomy nor the principle of conferred powers may be invoked against the powers enjoyed by the Commission in the area in question.The third ground set forth in the appeal also  failed.

Implications of Akso Nobel Chemical and Acros Chemicals Decision.

What is clear from the long-awaited decision in Akso Nobel is that the EU Courts will not accept a claim of attorney-client privilege with respect to in-house counsel situated in EU jurisdictions. Only external lawyers from EU countries, not foreign countries will qualify.

This in turn will lead to problems in the U.S. tax proceedings, including trials, where information gathered with respect to a U.S. taxpayer on its international business activities and tax compliance issues can be discovered far more easily. Upon discovery (and production) the waiver of such information and the subject matter is in play even in a U.S. tax proceeding. Moreover, despite the Supreme Court’s decision in Upjohn that in house communications to a ground of employees with in-house counsel as to the subject matter of an internal investigation are privileged, the same case in the EU would yield the opposite result as evidenced in Akso Nobel, supra. Could this lead to even a greater step that when talking to an in house lawyer in Europe such discussions can not be expected to be protected from disclosure in a US tax or other proceeding since there is no expectation of privacy, as the argument would presuambly go?

It is clear that the narrow attorney client privilege in the EU threatens the fabric of the attorney-client privilege in the States. I am sure there is more discussion, commentary from bar groups and acadmics, as well as from the courts, to follow.