On September 14, 2010, the European Court of Justice (ECJ) ruled that the legal professional privilege (LPP) does not apply to internal company communications between corporate executives and in-house lawyers—regardless of whether the in-house lawyers are enrolled in a Bar or Law Society that imposes professional ethical obligations shared by attorneys working in external law firms. The ECJ adopted the view that in-house attorneys, as employees, cannot be viewed the same way as external counsel because the employment relationship, by its very nature, does not allow in-house attorneys to exercise the same level of professional independence. The ECJ expressly suggests that in order to protect privilege, companies wishing to examine their conduct and to define legal strategies with regard to competition law should rely upon outside counsel not employed by the company.

This decision is a result of Akzo Nobel’s appeal of a September 17, 2007 ruling of the European Court of First Instance in Akzo Nobel Chemicals Ltd. v. Commission. In that case, the court followed a 1982 precedent (Case 155/79 AM&S Europe v. Commission [1982] ECR 1575), which articulated a dual condition to protect as confidential communications between lawyers and clients: (1) that the exchange with the lawyer must be connected to “the client’s rights of defence,” and (2) that the exchange must emanate from “independent lawyers.” The ECJ’s recent decision (Case C-550/07 P) relied on that same precedent and held that communications which may be protected by LPP “must be exchanged with an independent lawyer, that is to say one who is not bound to his client by a relationship of employment.” The ECJ was persuaded that as a result of the employment relationship, “an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.”

The case, which arose out of a European Commission competition (antitrust) investigation, draws a sharp distinction between the broad scope of the attorney-client privilege (ACP) enjoyed by clients in the United States and the narrower LPP that exists in many other jurisdictions outside of the United States. In light of this ruling, corporations with global operations cannot rely on the assumption that communications with their in-house attorneys are “privileged” and shielded from disclosure/discovery. This may create practical and legal constraints with regard to how company executives seek legal guidance, especially in jurisdictions that have narrower protections against disclosure of attorney communications. The lesson from this decision is that, particularly in sensitive matters, the early involvement of outside counsel may be critical in preserving the privilege—especially in the context of a European Commission proceeding.

The complete ECJ ruling may be read by clicking here.