The European Court of Justice handed down its decision in Akzo Nobel Chemicals ("Akzo") and Akcros Chemicals ("Akcros") v Commission on Tuesday, concluding that in-house lawyers are not protected by legal professional privilege ("LPP") in the context of competition investigations by the European Commission.

The ECJ's decision in Akzo firmly re-establishes the principle of EU law that in-house lawyers do not have the required level of independence from their employment in order to obtain LPP protection. Having followed the opinion of the Advocate General on 29 April this year, the decision has not come as a surprise, but it will be an unwelcome end to this long running saga for in-house lawyers, who will now have to instruct external counsel to be sure that communications will be protected.

In brief, the background to the decision began in 2003 when the European Commission issued a decision requiring Akzo and Akcros to submit to an investigation into alleged anti-competitive practices, and "dawn-raided" their respective premises in order to gather evidence.

During the raids, there was a dispute between the companies and the Commission's officials as to whether certain documents, including emails exchanged between the general manager of a subsidiary and an in-house lawyer at the parent company, benefited from LPP. The Court of First Instance upheld the Commission's decision that LPP did not apply to these documents. This was based on the 1982 ECJ decision in AM&S v European Commission, which held that for LPP in communications to be protected at an EU level the communication must be with an independent lawyer, which excluded an in-house lawyer.

The ECJ's Decision

The ECJ followed the AM&S decision. It dismissed the argument by Akzo and Akcros (the "Appellants") that the term "independent lawyer" included in-house lawyers and held that such independence necessitated the "absence of any employment relationship Between lawyer and client." Accordingly, legal professional privilege does not cover exchanges within a company or group with in-house lawyers. The court explained that the in-house lawyer's status as employee means that he cannot ignore the commercial strategies pursued by his employer which affects his ability to exercise professional independence. The Court stated: "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 dismissed the Appellants' argument that this decision amounted to unequal treatment as between external and in-house lawyers and was a breach of the general principle of equality enshrined in European Law. This was, the Court explained, because in-house lawyers were not comparable to external lawyers as they are in a fundamentally different position in that they do not enjoy the same level of professional independence. Since the two categories of lawyer were not comparable, the principle of equal treatment did not require that they be treated in the same way.

The Court went on to reject the Appellants' contention that the national laws of member states of the EU have evolved in favour of a trend towards affording the protection of legal professional privilege to communications within a company or group and in-house lawyers, such as to justify this protection being extended at European level. It also disagreed that modernisation of EU competition law has resulted in in-house lawyers needing to be treated in the same way as external lawyers in respect of legal professional privilege.

Conclusion

Although expected, this final decision of the ECJ will represent a blow for in-house lawyers and their employers. It will also be disappointing for the various parties who intervened in the action, which included the British, Irish, and Dutch governments, the Council of Bars and Law Societies of Europe, the European Company Lawyers Association, and the International Bar Association. Some comfort should be drawn however from the fact that this decision is confined to EU competition law investigations. Where an investigation is by a national competition authority only or communications are made with in-house lawyers outside a competition law context, legal professional privilege will apply to protect communications made between a company or group and its in-house lawyers, subject to certain conditions being met.

This decision means it is now critical for in-house lawyers to identify what sort of investigation the company is subject to, before making assumptions as to the level of LPP available to protect their communications.

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