Court of Justice Denies Legal Privilege Protection for In-House Lawyers

September 14, 2010

Earlier today, the Court of Justice of the European Union (the “Court of Justice”) confirmed that in the field of competition law, internal company communications with in-house lawyers are not covered by legal professional privilege[1]. The Court of Justice hereby upholds the General Court’s dismissal of Dutch chemicals group Akzo Nobel’s appeal against the European Commission (the "Commission") in relation to legal professional privilege[2].

Current law

Under EU case law, communications between a company and its external counsel entitled to practice as a lawyer in an EU Member State are covered by legal privilege. The privilege covers “all written communications exchanged after the initiation of the administrative procedure…It must also be possible to extend it to earlier written communications which have a relationship to the subject-matter of that procedure”[3].

In today’s decision, the European court rejected any extension of legal professional privilege to cover communications between a company and its in-house lawyers and did not otherwise modify the scope of legal professional privilege in the EU. This means that the Commission can call for production of such communications during its investigations even when they would be considered privileged under national law.

Background of the case

The beginning of this long running dispute took place on 10 February 2003 when Commission officials, assisted by representatives of the UK's Office of Fair Trading, raided the offices of Akzo Nobel and its Akcros subsidiary in the United Kingdom, seeking evidence of anti-competitive practices. During the on-site investigation, Commission officials took copies of a considerable number of documents, including two e-mail exchanges between the general director of Akcros and a member of Akzo Nobel’s in-house legal department, who was admitted as a lawyer to the Netherlands bar. Akzo claimed that these documents were protected by legal professional privilege and ultimately brought actions challenging the Commission’s decision before the General Court. These actions were dismissed by the General Court’s judgment of 17 September 2007. Akzo and its UK subsidiary further appealed against that judgment to the Court of Justice which today confirmed that communications between in-house counsel and their internal clients are not protected by legal professional privilege.

As dissatisfying as this judgment may be for in-house lawyers in Europe and around the world, the ultimate outcome was expected by many, especially in view of the Opinion issued by the Advocate General Juliane Kokott on 29 April 2010 which endorsed the findings of the General Court. The Advocate General recommended that the Court of Justice dismiss Akzo Nobel's appeal, mainly on the basis that in-house lawyers being in an employment relationship with their client, are not sufficiently independent from their employer to justify the extension of legal professional privilege to communications between them.

The Court of Justice judgment

Echoing the Advocate General’s opinion and not departing from its AM&S judgment of 1982[4], the Court of Justice indicated that the protection of communications between lawyers and their clients under EU law applies solely to communications between a client and an external lawyer, and accordingly it sees no reason to extend such scope to internal exchanges of opinions and information between the management of an undertaking and an in-house lawyer employed by that undertaking, even when he or she is a member of a Bar or Law Society.

The Court of Justice based its judgment on two main arguments.

Lack of independence of in-house lawyers

It was found that in-house lawyers are insufficiently independent from their employer for their in-house advice and other communications to be protected by legal professional privilege in Commission investigations. In line with its AM&S judgment, the Court of Justice confirmed that it is immaterial that in-house counsel are enrolled with a national Bar or Law Society which imposes professional and ethical duties of independence upon them. This is because the concept of the independence of lawyers is determined not only positively – by reference to professional ethical obligations - but also negatively - by reference to the absence of an employment relationship.

No extension of the scope of legal privilege in the European Union

The Court of Justice also rebuts Akzo’s arguments to the effect that there is a need to extend the scope of legal professional privilege under European Union law. Whereas legal professional privilege for an external lawyer is legally recognized in all 27 Member States, there is still a large majority of Member States which exclude correspondence with in-house lawyers from protection under legal professional privilege. There is no predominant trend in the national legal systems of the 27 Member States towards extending legal professional privilege to in-house lawyers admitted to a Bar or Law Society.

Going forward

There is little doubt that the Court of Justice's decision not to extend legal privilege protection to communications with in-house lawyers will be met with overall dissatisfaction by the legal community. This is true for those jurisdictions such as the UK and the US where the legal privilege protection applies equally to a client's communications with its in-house lawyers as it does to communications with external lawyers in competition investigations.

Further to this judgment, in-house lawyers around the world must keep in mind that their communications with their business teams and managements will not be considered as legally privileged by the Commission. In-house counsel will therefore need to exercise a certain level of caution when communicating internally with the business, especially when dealing with potentially sensitive matters such as during compliance audits.

[1] Case C-550/07P Akzo Nobel Chemicals Ltd v Commission, judgment of 14 September 2010.

[2] Cases T-125/03 and T-253/03 Akzo Nobel Chemicals Ltd and Ackros Chemicals Ltd v Commission, judgment of 17 September 2007.

[3] Case 155/79 AM & S v. Commission, of judgment of 18 May 1982, para. 23.

[4] Case 155/79 AM&S Europe Ltd v Commission, judgment of 18 May 1982.