On September 14, 2010, the European Court of Justice (“ECJ”) ruled that the legal professional privilege does not cover internal company communications with in-house counsel.1 The court declared that the privilege is limited to communications with “independent lawyers” who are not bound to their client by an employment relationship. The ECJ’s decision was handed down in response to an appeal by Akzo Nobel Chemicals Ltd. (“Akzo”) and Akcros Chemicals Ltd. (“Akcros”) in connection with a 2003 European Commission (“Commission”) anti-competition probe. During the Commission’s search of the companies’ U.K. offices, investigators seized, among others, copies of two emails between Akcros’ general manager and Akzo’s coordinator for competition law.2 In 2007, the Court of First Instance of the European Communities (now the “General Court”) upheld the Commission’s decision to reject Akzo and Akcros’ claims of privilege for these emails.

Akzo and Akcros argued on appeal that the General Court had misinterpreted the 1982 ECJ ruling in AM & S Europe v. Commission, which held that the confidentiality of written communications between attorneys and their clients applied only to those with “independent lawyers.” According to Akzo and Akcros, this limitation did not compel the General Court’s conclusion that in-house lawyers necessarily lacked independence. They argued instead that “[a]n in-house lawyer enrolled at a Bar or Law Society is, simply on account of his obligations of professional conduct and discipline, just as independent as an external lawyer.”

The ECJ disagreed, relying in large part on the explicit language of its AM & S Europe decision, which defined an independent lawyer as “one who is not bound to his client by a relationship of employment.” The ECJ added that neither Bar membership, nor the ethical obligations it entails, confers a level of independence to an in-house lawyer comparable to that enjoyed by an external attorney. It reasoned that as an employee, the in-house lawyer occupies a position that “does not allow him to ignore the commercial strategies pursued by his employer . . . thereby affect[ing] his ability to exercise professional independence.” The ECJ was not persuaded that certain provisions of national law that “strengthen the position of an in-house lawyer” could ensure a level of independence on par with that of an outside attorney. The ECJ also noted that inhouse attorneys “may be required to carry out other [non-legal] tasks . . . which may have an effect on the commercial policy of the [company].”

The ECJ also rejected the suggestion that the General Court ignored “the evolution of the national legal systems” within the European Union, or the development of the law of the European Union itself. The court explained that, among EU member states, there was “no predominant trend towards protection” of company communications with in-house counsel. It also held that recent regulatory changes affecting EU competition law did not require in-house attorneys to be treated in the same manner as their external counterparts. In particular, it rejected the argument that internal communications merit protection in light of the heightened importance of in-house legal advice and implementation of compliance programs under revised EU regulations. Lastly, the ECJ rejected the argument of Akzo and Akcros that the General Court’s interpretation of AM & S Europe violated several legal rights and principles, including the “principle of equal treatment,” the “rights of the defence,” and the concepts of “national procedural autonomy” and “conferred powers.”

The ECJ’s ruling will have a significant impact on the manner in which executives interact with the in-house legal department. Companies will have to seriously consider the repercussions of the ECJ’s ruling when seeking the advice of, or initiating an internal investigation or review by, in-house legal staff. In the former situation, outside counsel will always have to be consulted and provide advice jointly with in-house counsel. Investigations will have to be consulted by outside counsel with the assistance of in-house attorneys. Presumably, this will satisfy the court’s ruling and protect the attorney-client privilege.