European Court of Justice confirms that privilege does not apply to in-house lawyers under EU competition law

The European Court of Justice (ECJ) has today handed down judgment in the Akzo privilege case, confirming that legal professional privilege does not apply to protect communications between parties and their in-house lawyers from disclosure during competition investigations by the European Commission (Akzo Nobel Chemicals Limited and Akcros Chemicals Limited v Commission of the European Communities).

Although the decision will not come as a surprise, following as it does the Advocate General's opinion published on 29 April 2010, in-house lawyers and the organisations which employ them will no doubt be disappointed by the court's ruling.

The decision does not affect the scope of privilege as a matter of English law, under which in-house lawyers continue to enjoy the same protection as external lawyers so long as they are acting in their capacity as a lawyer and not an executive.

Decision

The decision turns on whether or not an in-house lawyer is sufficiently "independent" from his or her employer so as to benefit from legal professional privilege under EU law.

In its 1982 judgment in AM&S Europe v Commission of the European Communities [1983] QB 878, the ECJ held that communications between lawyers and their clients should be protected at Community level, so long as the communications were (i) connected to "the client's rights of defence" and (ii) with "independent" lawyers, which was deemed to exclude "lawyers bound to the client by a relationship of employment".

In the present case Akzo argued that the criterion of independence cannot be interpreted so as to exclude in-house lawyers, and that an in-house lawyer enrolled at a Bar or Law Society is just as independent as an external lawyer, in light of his or her obligations of professional conduct and discipline.

The ECJ disagreed. It held, following the judgment in AM&S: "the requirement of independence 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."

The judgment states that an in-house lawyer cannot be treated in the same way as an external lawyer "because he occupies the position of an employee which, by its very nature, does not allow him to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence". This lack of independence follows, in the court's view, both from the in-house lawyer's economic dependence on his employer and the close ties with his employer.

The ECJ also rejected an argument that competition law has evolved considerably since the AM&S ruling, both at member state level and at EU level, thereby requiring the principles set out in that decision to be reconsidered. Although the court accepted that the role of in-house lawyers has evolved since AM&S, it said there is nevertheless no clear trend at member state level towards protection for communications with in-house lawyers which would justify a departure from the principles established in AM&S. Further, it held that the new modernised enforcement regime of Regulation 1/2003 does not require in-house and external lawyers to be treated in the same way where legal professional privilege is concerned.

The judgment is contrary to the submission of various parties who intervened in the case including the British, Irish and Dutch governments, the Council of Bars and Law Societies of Europe and the International Bar Association (IBA).

Comment

This decision will be disappointing for in-house lawyers and the organisations which employ them. Although the decision was foreshadowed by the opinion of the Advocate General, it had been hoped that the ECJ might give proper recognition to the professional and ethical obligations that in-house lawyers share with their counterparts in private practice.

It must however be remembered that this decision affects legal professional privilege only in the context of EU competition law investigations led by the European Commission. The national laws of privilege which apply in respect of litigation conducted before member states' courts are unaffected.

With regard to EU competition investigations, there are two possibilities:

• Where the investigation is conducted by the European Commission, even if assisted by national competition authorities (such as the OFT), the EU rules of privilege will apply (and, following Akzo, communications with in-house lawyers will not be privileged).
• Where the investigation is conducted by the national competition authorities on behalf of the European Commission, the national rules of privilege will apply.

This highlights the need for companies under investigation to establish at the start of a dawn raid what type of investigation is taking place.

Akzo was advised by Christof Swaak of Stibbe, our Dutch alliance firm. Jacques Buhart and Isabelle Michou of our Paris office represented the IBA.