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EU Top Court Says No Attorney-Client Privilege For In-House Counsel

Posted  September 29, 2010

The Court of Justice, the highest court in the European Union (‘EU’), has ruled that communications between corporations and their in-house counsel are not protected by the Legal Professional Privilege (‘LPP’), the European version of the attorney-client privilege.

The Court’s decision in Case C-550/07 P, Akzo Nobel Chemicals and Akcros Chemicals v. Commission, means that in-house counsel will not be able to assert the attorney-client privilege in  investigations by the European Commission.  The competition authorities of individual EU Member States will still apply their national rules on LPP, which may recognize communications with in-house counsel as privileged.

The case arose from the European Commission’s Directorate General for Competition’s dawn raid of Dutch chemicals group Akzo Nobel NV in February 2003.  The officials were investigating alleged price-fixing among producers of heat stabilizers, an additive used in the manufacturing of certain plastics.

Among the documents seized in the raid were two emails between a company general manager and an in-house lawyer admitted to the Netherlands Bar.  Akzo claimed that these documents were covered by LPP.  In May 2003, the Commission adopted a decision rejecting this claim.

After an unsuccessful appeal to the General Court, Akzo appealed to the Court of Justice in November 2007.

Akzo argued that the General Court had incorrectly interpreted the decision of the Court of Justice in Case 155/79 AM&S Europe v. Commission [1982] ECR 1575.  In AM&S, the Court of Justice held that one of the conditions for LPP to attach to an exchange between a client and a lawyer is that the lawyer must be “independent,” that is to say “not bound to the client by a relationship of employment.”  The General Court, Akzo claimed, had interpreted this language too literally.  The condition that a lawyer must be independent could not exclude in-house lawyers.  An in-house lawyer enrolled at a Bar or Law Society was subject to rules of professional ethics and discipline that made that lawyer as independent as an external lawyer.

The Court of Justice rejected this argument.  The requirement that written communications be exchanged with an independent lawyer in order to be protected by LPP was “based on a conception of the lawyer’s role as collaborating in the administration of justice and as being required to provide, in full independence and in the overriding interests of that cause, such legal assistance as the client needs.”  This, according to the Court, necessitates the absence of any employment relationship between the lawyer and his client.

In addition, the Court noted, in-house lawyers may be required by their employers to perform other tasks which may have an effect on the corporation’s commercial policy.  In this case, the Akzo lawyer was the company’s competition law coordinator.  The Court stated that such functions reinforce the ties between the lawyer and his employer to such an extent that he does not enjoy a level of professional independence comparable to that of an external lawyer.

Akzo submitted that denying LPP to communications with in-house counsel violated the principle of equal treatment, a general principle of EU law enshrined in the Charter of Fundamental Rights of the EU.  The principle requires that comparable situations must not be treated differently unless such treatment is objectively justified.   In-house lawyers enrolled with a Bar or Law Society should be treated no differently from external lawyers because both follow the same rules of professional ethics and discipline, which guarantee their independence.

The Court disagreed and reiterated that in-house lawyers are in a fundamentally different position because of the economic dependence and personal identification of an in-house lawyer with the corporation that employs him or her.  In-house lawyers and external lawyers’ respective circumstances were not comparable.  Therefore, the Court of Justice affirmed the General Court’s holding that there was no breach of the principle of equal treatment.

The decision of the Court of Justice is undoubtedly motivated by the desire to ensure effective enforcement of competition law, particularly in connection with cartel activity.  The tremendous harm hardcore cartels cause to consumers is well documented and the detection of such conduct is notoriously difficult.  But while there is a legitimate concern that cartel participants may use LPP to conceal documents from antitrust/competition agencies, many will wonder whether the end justifies the means conferred on the European Commission by the Court.

Corporations that do business in the European Union should reflect on how to ensure that they can continue to receive candid legal advice from counsel, particularly on competition law matters.  They should also be aware of the other significant restriction on LPP in connection with investigations conducted by the European Commission, namely the fact that only communications with outside counsel admitted to practice in one of the EU’s 27 Member States are protected by the privilege.  Communications with U.S. outside counsel will not be regarded as privileged by the European Commission and may be seized and reviewed by the Commission.

Tagged in: International Competition Issues,