Long-running battle ends in denial of legal privilege for in-house lawyers

The Court of Justice of the European Union (the “Court”) on 14 September 2010 handed down a landmark judgment in an appeal brought by Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd. The Court dismissed the appeal in its entirety, denying the application of legal professional privilege (“LPP”) to communications between company representatives and their inhouse lawyers in the context of EU competition investigations. The judgment of the Court comes as no surprise since it follows the opinion of Advocate General Kokott and the judgment of the General Court. It draws a distinction between in-house lawyers, who are deemed not to be sufficiently independent from clients to benefit from LPP, and external lawyers, whose communications with clients remain protected by privilege. The effect of this is that any communications between salaried in-house lawyers and their employers will not be regarded as de facto protected by LPP, and may be subject to full review by the European Commission. This is exactly what happened in the present case, which concerned e-mails and notes seized by the Commission in the context of a cartel investigation. The e-mails were exchanged between the General Manager of Akcros, and a member of the Dutch bar, employed as the competition co-ordinator for Akzo Nobel.  

Nonetheless, the judgment will be disappointing for businesses and lawyers alike, since it essentially curtails the ability of in-house legal counsel to offer confidential competition law advice to his or her employer. The judgment may be seen as following a “lowest common denominator” approach towards the question of LPP, by not reflecting in EU law the principle of LPP for inhouse lawyers that is recognised in a number of Member States. The judgment can be also criticised for failing to give sufficient regard to the modernisation of EU competition law, which confers greater responsibility on undertakings to assess the lawfulness of their conduct.  

Independence of lawyers

The Court considered that LPP should not extend to in-house lawyers, because they lack a sufficient level of “independence” from the company that they represent. They therefore fail to fulfil the two cumulative conditions for legal privilege, first set down by the Court in the case of AM & S Europe v Commission. These conditions require that: (1) the advice is requested and given for the purposes of the client’s rights of defence, and (2) that the advice must emanate from “independent lawyers, that is to say, lawyers who are not bound to the client by a relationship of employment.”

The Court missed the opportunity to revisit the notion of “independence” in this context. According to the Court, independence is determined not only positively by reference to professional ethical obligations, but also negatively, by the absence of any employment relationship between the lawyer and his client. According to the Court, this, together with the influence of the employer’s commercial objectives, affected the ability of in-house lawyers “to exercise professional independence”. This was found to be the case even where they were bound by professional and ethical duties as members of Bars and Law Societies of Member States.  

The Court refused to accept the parties’ arguments that in the Member State in question (the Netherlands) there is no legal distinction between in-house and external lawyers, both of whom remain registered as members of the bar, and both of whom are bound by the same ethical obligations and professional responsibilities.  

Whilst the Court’s conclusion certainly provides a clear cut test in that it construes “independence” by reference to economic and contractual dependence (i.e. an employment contract will automatically affect a lawyer’s independence), it ignores the professional and ethical rules that apply to many in-house lawyers.  

A changing role for in-house lawyers in EU competition cases?

Akzo and Akcros had argued that the denial of LPP to internal lawyers would substantially hinder the ability of inhouse counsel to conduct their own compliance programmes with employees of the company. This point was not answered directly by the Court. However, it remains a very real issue for companies, which invest heavily in compliance programmes to ensure that their employees keep up-to-date with EU law. The judgment is a reminder that companies must carefully review their compliance programmes and ensure that all sensitive queries must now go through an external lawyer to ensure that legal privilege is upheld.  

The Court itself recognises that denying LPP to in-house lawyers will affect their ability to defend their client. However, the Court referred to restrictions laid down in some Member States that prevent in-house counsel from representing clients before the national courts and tribunals. The Court took the hard line that, before seeking advice, clients should be aware of each of these restrictions and conditions, of which the absence of LPP is but one.  

The judgment reinforces the need for companies to train their employees in the careful preparation and labelling of documents drawn up for the purpose of seeking legal advice. It is a further reminder that care should be taken with internal exchanges, and that these should be labelled as having been prepared exclusively for the purpose of seeking external EU competition advice, to improve the chances of success of any privilege claim.  

Challenging the decision

Both the European Company Lawyers Association and Ireland raised two further arguments in their interventions, namely the right to property of Akzo and Akcros, as well as their professional freedom. However the Court did not consider these arguments for reasons of admissibility.  

Following the entry into force of the Lisbon Treaty, the European Convention on Human Rights now has binding legal effect equal to the Treaties in EU law. It will be interesting to see whether Akzo will continue its struggle before the Courts in Strasbourg, although this would probably mean bringing an application against all 27 Member States, as the EU has not yet acceded to the European Convention.