Facts

In 2003, European Commission officials, assisted by representatives of the Office of Fair Trade carried out an investigation at the premises of Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd (together, the "appellants") in Manchester aimed at seeking evidence of possible anti-competitive practices. During the investigation, Commission officials took copies of various documents, including, among others, two emails exchanged between Akcros Chemicals' general manager and Mr S, a member of the Netherlands Bar employed in the legal department of Akzo.

Decision of the General Court

The General Court held[1], among others, that the correspondence exchanged between a lawyer bound by a relationship of employment and a manager of a company belonging to that group is not covered by legal professional privilege, in relation to investigations under EU Competition Law led by the Commission . In its decision, the General Court relied on the judgment of the European Court of Justice (the "ECJ") in AM&S Europe v Commission[2] in which the ECJ held that legal professional privilege applied to written communications between lawyers and clients only if the following conditions were met:-

  • such communications are made for the purposes and in the interests of the client's rights of defence; and
  • they emanate from independent lawyers, that is, lawyers who are not bound to the client by a relationship of employment.

The ECJ expressly excluded communications with in-house lawyers, as legal advisers bound to their clients by a relationship of employment, from protection under legal professional privilege.

Appeal

The appellants appealed against the decision of the General Court, claiming that the court incorrectly interpreted the second condition for legal professional privilege which concerns the professional status of the lawyer with whom communications are exchanged, in particular on the following grounds:-

  • the rules of professional ethics and discipline applicable in the case at hand made the employment relationship fully compatible with the concept of an independent lawyer; and
  • the contract between Mr S and his employer provided that "the company was to respect the lawyer's freedom to perform his functions independently and to refrain from any act which might affect that task" and authorised Mr S to comply with all the professional obligations imposed by the Netherlands Bar.

Decision of the ECJ

The ECJ[3] dismissed the appeal in all respects, holding that:-

  • the requirement of independence established in AM&S Europe v Commission means the absence of any employment relationship between the lawyer and his client so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers;
  • while the rules of professional organisation in Dutch law may strengthen the position of an in-house lawyer within the company, it remains that they are not able to ensure a degree of independence comparable to that of an external lawyer; and
  • notwithstanding the professional regime applicable in the case at hand, an in-house lawyer cannot, whatever guarantees he has in the exercise of his profession, be treated in the same way as an external lawyer because he occupies the position of an employee which does not allow him to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence.

Although the ECJ recognises that the protection of communications with in-house lawyers under legal professional privilege among Member States was now relatively more common than at the time of the decision in AM&S Europe v Commission, the Court rejected the appellants' argument that AM&S Europe v Commission therefore needed to be reinterpreted.

The ECJ further rejects the argument that the modernisation of the procedural rules on cartels and the establishment of compliance programmes to ensure correct application of EU competition law require that exchanges within an undertaking or group with in-house lawyers may take place in a confidential environment, thus requiring lawyers in independent practice and in-house lawyers to be treated in the same way with respect to legal professional privilege.

Practical implications for in-house lawyers

The ECJ confirmed the narrow scope of legal professional privilege which applies in the context of EU competition law investigations led by the Commission (whether conducted by the Commission itself or assisted by national competition authorities) and excludes communications with in-house lawyers.

However, national laws of privilege which apply in the context of investigations led by national competition authorities (whether conducted on behalf of the Commission or by national authorities under their own competition rules) are unaffected. Under English law, for instance, communications with in-house lawyers are privileged provided they are acting in their capacity as lawyers and not executives.

When a company is under competition investigation, it is therefore important to establish right at the start what type of investigation is taking place.