In EU competition proceedings, attorney-client privilege attaches only to communications between a client and an outside lawyer admitted to practice in one of the Member States of the EU. Last week, the Court of Justice of the European Union (“CoJ”) rejected calls for an extension of the attorney-client privilege to in-house lawyers when they advise a company’s management in EU antitrust matters (See C-550/07 Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others). The dispute arose in the course of a “dawn raid” carried out by inspectors of the Directorate General for Competition of the European Commission (“DG Competition”) at the premises of two entities of the Akzo group in February 2003. The inspectors took copies of two e-mails exchanged between the general manager of a subsidiary and an in-house lawyer in the Akzo group, who was a member of the Netherlands Bar.
Akzo challenged the legality of DG Competition’s inspection before the General Court of the EU, arguing that the two e-mails in dispute were protected by attorney-client privilege. The General Court’s judgment of 17 September 2007 rejected Akzo’s arguments.
The appeal before the CoJ
On appeal before the CoJ, Akzo argued that communications between an in-house counsel and his employer should enjoy privilege if the counsel is bound by professional ethical obligations applicable to a lawyer admitted to a Bar or Law Society in the EU. Akzo contended that by refusing to extend the privilege to in-house lawyers, DG Competition violated the general EU principle of equal treatment: communications with inhouse and external lawyers were subject to different treatment without objective justification. Furthermore, it argued that the modernisation of EU competition law under Regulation (EC) No 1/2003 has increased the need for internal legal advice and compliance; previous case law – the 1982 AM & S Europe judgment which had restricted privilege to external lawyers – no longer reflected developments in the EU; since AM & S Europe, a number of EU Member States have opted to extend attorney-client privilege to in-house lawyers. Finally, Akzo contended that the existing limitation of the privilege to external lawyers is not only a breach of the rights of defence but also of the general principle of legal certainty, since the application of the privilege will depend on who conducts the investigation (DG Competition or a national competition authority).
The CoJ sitting in Grand Chamber dismissed Akzo’s appeal on all grounds. It ruled that the independence of an in-house lawyer cannot be determined simply by reference to membership of a Bar or Law Society with a set of rules on professional ethics and discipline. In the CoJ’s view, the existence of an employment relationship may compromise the independence of an inhouse lawyer and give rise to conflicts between his professional obligations and the business aims of his client, the employer. The CoJ was unimpressed by the specific circumstances of the case, i.e., the fact that the rules of the Netherlands Bar binding on Akzo’s in-house lawyer include guarantees of impartiality when providing legal advice. In addition, the CoJ indicated that the principle of equal treatment was not violated: the economic dependence resulting from an employment relationship meant that an in-house lawyer’s communications with management may be treated differently from an external lawyer’s communications.
The CoJ dismissed the argument that the increasing need for internal advice to comply with modernised competition law justifies extending the privilege to in-house lawyers. It held that the purpose of the 2003 modernisation regulation is to reinforce DG Competition’s powers of inspection. The Regulation does not seek to accord the same treatment to in-house and external lawyers. Furthermore, although some EU Member States have extended privilege to in-house lawyers’ communications, the CoJ could not conclude that the legal traditions of the Member States had sufficiently changed in that respect. Responding to the alleged breach of the company’s rights of defence, the CoJ reiterated that in-house lawyers do not enjoy the same level of professional independence as that of an external lawyer. Finally, the COJ rejected the argument that undertaking would not have legal certainty if application of privilege depends on whether the investigation is performed by DG Competition or the national competition authority. The principle of legal certainty is not breached, because undertakings can always determine their rights and obligations vis-à-vis the investigating authority in question.
The Akzo case raised critical questions about the scope of DG Competition’s investigative powers in antitrust proceedings. The refusal to extend attorney-client privilege to in-house lawyers represents a missed opportunity to instigate a top-down reform of privilege across the EU and to encourage convergence of EU competition law with US rules on attorney-client privilege. When privilege is asserted, the inspectors may only take a “cursory” look at the contested document in order to ascertain the existence of the attorney-client privilege. However, if even a cursory look is liable to reveal privileged information, the inspectors may request a copy of the contested document but shall place it in a sealed envelope without looking at it, pending the resolution of the dispute.
Another aspect of particular interest was raised, but remained unanswered on inadmissibility grounds: whether privilege should extend to communications of in-house lawyers who are members of a Bar or Law Society outside of the EU, for example an in-house lawyer admitted to a U.S. Bar and employed in a company in the EU. In her opinion to the CoJ, Advocate General Kokott had argued that, even if the attorney-client privilege were extended to communications of in-house lawyers who are members of a Bar or Law Society in the EU, it should not be extended to in-house lawyers who are members of a third-country Bar or Law Society. First, there is no adequate basis for mutual recognition of the qualifications and professional ethical obligations to which such third-country lawyers are subject in the exercise of their profession. And second, in a number of instances it would even be impossible to determine whether the third country has a sufficiently established rule-of-law tradition guaranteeing the independence of lawyers.
The Akzo case is also important in that it highlights once more the need for businesses to pay attention to diverging attorney-client privilege rules. For instance, an in-house counsel of a multinational group located in the US may seek assistance on competition issues presenting a nexus with the EU. However, he should not assume that privilege attaches to communications with his EU-based in-house colleague. While such communications would be protected against discovery by the Antitrust Division of the US Department of Justice, this would not be the case under EU competition rules. Therefore, the US counsel may need to consider involving an outside counsel admitted to practice in the EU at an early stage of the compliance or advisory work.