On 17 September 2007 the Court of First Instance (CFI) gave its judgment in Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v EC of the European Communities. The CFI has re-confirmed that communications between in-house lawyers and their clients will not be regarded as legally privileged for the purposes of European Commission (EC) competition investigations. This means that the disparity between the treatment of in-house privilege under UK law and EC law will continue.
The CFI has also clarified the procedure that should be adopted by EC officials conducting an on-site investigation, in the event that the company being investigated seeks to withhold a document on the basis of legal privilege.
In February 2003, officials from the EC and the UK’s Office of Fair Trading carried out an inspection of the business premises of Akzo Nobel Chemicals Ltd (Akzo) in connection with possible anti-competitive practices.
During the inspection, a dispute arose regarding the treatment of certain documents. Akzo’s representatives considered these documents to be protected by legal privilege. After a brief examination of the documents, EC officials determined: (1) that it could not be resolved whether a particular group of documents were protected by legal privilege (copies of these documents were taken and placed in a sealed envelope); and (2) that a separate group of documents were not legally privileged (copies of these were added to the EC’s investigation without being placed in a sealed envelope).
Akzo brought an appeal before the CFI seeking a review of the EC’s handling of the privilege issue.
The EC’s investigation procedure
- The CFI’s judgment clarified the procedure for dealing with privilege issues during an on-site investigation by EC officials:
- where a company considers that a document is privileged, it should demonstrate this to the EC investigating officials (e.g. by naming the author and recipient of the communication or referring to the context in which the document was written);
- where the EC officials are not satisfied by the explanation given, a copy of the document should be placed in a sealed envelope. The CFI’s view was that even a cursory look at a document by the officials could irreparably harm a company’s rights of defence;
- EC officials will not be entitled to read the contents of the disputed document until the EC has adopted a formal decision rejecting the company’s claim of legal privilege. That decision can be appealed by the company to the CFI.
The CFI’s judgment confirms that communications between a company and an in-house lawyer cannot be withheld from the EC on the basis of legal privilege during competition investigations.
The CFI found that in-house lawyers could not be regarded as sufficiently “independent” from their employers, even where an in-house lawyer is admitted to the Bar or Law Society in his or her jurisdiction. The CFI stated that “ … in-house lawyers and outside lawyers are clearly in very different situations, owing, in particular, to the functional, structural and hierarchical integration of inhouse lawyers within the companies that employ them.”
The CFI also found that the treatment of in-house lawyers across different Member States is not sufficiently uniform to justify a change in the rules. It rejected arguments that the current case law hinders companies’ compliance with the competition rules or is at odds with the rules on equal treatment or free movement of services.
In relation to legal privilege more generally, the CFI also confirmed that:
- an internal document which is not communicated to an external lawyer may nevertheless be privileged if it is created exclusively for the purposes of seeking external legal advice; and
- an internal document may be privileged if it reports back the text or contents of legal advice given by an external lawyer. However, a document which is discussed with an external lawyer, or prepared in the context of a competition law compliance programme, will not necessarily be protected by legal privilege.
The issue of in-house privilege in EC investigations has been the subject of considerable debate since a 1982 ruling of the European Court of Justice that legal privilege would apply only to independent lawyers and not those which are bound to their client by a relationship of employment (Case 155/79 AM & S Europe Ltd v EC  ECR 1575).
Organisations such as the European Company Lawyers Association have since argued that the distinction between in-house and “external” lawyers is not justified and have engaged in lobbying efforts to change the rules on legal privilege laid down by the AM & S case. They have made the case that a blanket refusal to grant legal privilege to any in-house lawyer communication in the context of EC competition investigations obstructs the advice that can be given by in-house lawyers to their clients on competition law issues and requires increased reliance on external lawyers.
The CFI has not been swayed by these arguments. Its judgment means that there will continue to be a disparity between the position in the EU and in certain Member States such as the UK, where in-house lawyer privilege is recognised. Following the CFI’s judgment, prudence will continue to be required vis-à-vis the creation of internal documents that may later be used as evidence in an EC-led competition investigation.
On the other hand, the CFI’s judgment serves as a useful clarification of the parameters of the EC’s powers during an onsite investigation. Companies and their representatives should not be “bullied” into allowing EC officials even an initial glance at a document where it is considered that a document may be protected by legal privilege and material is given to the EC to support this.