On 14 September 2010, the ECJ dismissed an appeal by Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd made against a decision of the General Court not to allow e-mails exchanged between a client and an in-house lawyer to be covered by legal professional privilege. The ECJ held that legal professional privilege may not be invoked by undertakings in relation to communications with in-house counsel when it comes to competition investigations by the European Commission. The decision affirmed the two-part test laid out in AM&S Europe v Commission in 1982, whereby legal advice can only be privileged (1) where it is connected to 'the client's rights of defence' and (2) where it emanates from 'independent lawyers', that is to say 'lawyers who are not bound to the client by a relationship of employment'.

In the court's opinion, the economic dependence and close contractual and commercial ties with the employer mean that in-house lawyers do not have comparable independence to that of external advisers. This is irrespective of any obligation of the in-house lawyer to comply with professional rules or standards of independence. The court held that the legal system in Europe and the regulation of anti-competitive practices has not evolved sufficiently to require a change in the law. This was particularly in light of the lack of consensus between Member States on whether privilege extends to in-house advisers. The ECJ further found that the General Court's judgment did not breach the principles of equal treatment, legal certainty, national autonomy and conferred powers and the appeal was dismissed on all grounds. The judgment was made notwithstanding several detailed submissions on behalf of in-house lawyers in the EU.

In-house lawyers are often closely involved with competition compliance, and the judgment makes it more difficult for undertakings to rely on them in respect of competition issues. There is a particular difficulty as many Member States, including the UK, do extend legal professional privilege to lawyers directly employed by their client. It should be noted that where a case is investigated in the UK by the Office of Fair Trading (OFT) on its own behalf, the OFT's powers of investigation provide that UK privilege rules apply to communications from in-house lawyers. However, where the OFT receives communications of in-house lawyers or of lawyers qualified outside the EU from a national competition authority in another Member State and those communications are not privileged under the laws of the other Member State, the OFT may use such communications in its investigation in the UK. Similarly, if the OFT is assisting the EU in an investigation, the EU privilege rules will apply. The court did not address the issue of in-house legal advisers in jurisdictions outside the EU, which will be important for US undertakings and for undertakings in the EU facing simultaneous investigations in the US and the EU and caution should be exercised in this regard.

Even though this outcome is not unexpected, given that it follows Advocate General Kokott's opinion given to the ECJ in April, it may be disappointing. The ECJ has not recognised that there has been any increase of importance of in-house lawyers nor their close involvement in competition compliance. As a result, caution must be exercised in written communications within an undertaking when discussing matters that could be relevant to a EU competition investigation.