European Court Limits Attorney-Client Privilege for In-House Counsel

September 15, 2010 9:43 AM

In a blow to multinational businesses and their in-house counsel, the European Court of Justice on Tuesday held that communications between company management and in-house lawyers are not protected from disclosure or discovery in competition law cases or investigations by the European Commission.

"The ECJ ruling has serious ramifications as it denies in-house attorneys and multinational businesses in Europe and elsewhere the critical legal counsel on competition law matters that companies working in today's global legal marketplace require," said London solicitor J. Daniel Fitz, former chairman of the board of the Association of Corporate Counsel, which had intervened in the case.

The court ruled in an appeal brought by Akzo Nobel Chemicals and its subsidiary Akcros Chemicals. The two companies were being investigated for possible anti-competitive behavior. During the investigation, a dispute arose over copies of two e-mails exchanged between the managing director and Akzo Nobel's coordinator for competition law, a member of the Netherlands Bar and a member of Akzo Nobel's legal department. After analyzing those documents, the investigating officials of the European Commission decided that they were not covered by legal professional privilege. The companies lost an appeal in the lower court.

In examining the companies' subsequent appeal, the European Court of Justice applied its 1982 decision in AM&S Europe v. Commission, which set out two conditions for granting the privilege: First, the exchange with the lawyer must be connected to "the client's rights of defence" and, second, that the exchange must emanate from "independent lawyers," that is "lawyers who are not bound to the client by a relationship of employment."

The court rejected arguments that an 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.

"An in-house lawyer, despite his enrolment with a Bar or Law Society and the professional ethical obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client," the court wrote. "Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.

"It follows, both from the in-house lawyer's economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer."

The court also rejected arguments that the laws of other nations have increasingly granted legal privilege protection in the field of competition law.

"A comparative examination conducted by the General Court shows that a large number of Member States still exclude correspondence with in-house lawyers from protection under legal professional privilege," the court said. "Additionally, a considerable number of Member States do not allow in-house lawyers to be admitted to a Bar or Law Society and, accordingly, do not recognise them as having the same status as lawyers established in private practice.

"Therefore no predominant trend towards protection under legal professional privilege of communications within a company or group with in-house lawyers may be discerned in the legal systems of the 27 Member States of the European Union."

Susan Hackett, general counsel of the Association of Corporate Counsel, said in a statement, "We are dismayed that the ECJ did not seize the opportunity to recognize the independent judgment and value of the in-house profession. The court instead relies on conjecture from opinions in AM&S case of nearly thirty years ago, thereby ignoring the realities of modern in-house practice.

"In-house counsel are top legal practitioners who are just as capable as their outside counsel counterparts; the idea that professional independence stems from the type of office a lawyer works in, rather than from their moral and professional compass, evidences a deep misunderstanding of legal professionalism and lawyers."

The association emphasized that the ruling only applies to European Union competition law investigations by the European Commission.

(Source: The National Law Journal)

15 September, 2010