Canada: In-House Counsel’s Legal Advice Is Not Privileged Under European Union Law

Last Updated: September 28 2010
Article by David Outerbridge

The European Court of Justice has issued a major decision on the limits of privilege in the European Union (EU). On September 14, 2010, the EU's highest court ruled in Akzo Nobel Chemicals Ltd. v. Commission (Case C-550/07 P) that legal professional privilege (which includes solicitor–client privilege) does not apply to communications between a company and its in-house counsel. This ruling highlights important strategic considerations for parties conducting business in the EU.

The Privilege Claim

The case arose from a search of Akzo's offices in the United Kingdom by the European Commission, which was seeking evidence of alleged violations of EU competition laws. The Commission seized documents containing communications between Akzo's in-house counsel and other employees concerning Akzo's competition compliance program. The in-house lawyer was a member of the Bar of the Netherlands. Akzo claimed that the documents were protected by legal professional privilege, a claim that the Commission rejected. Akzo appealed to the EU courts.

Under the laws of both the U.K. (Akzo's location) and the Netherlands (of whose Bar the in-house lawyer was a member), legal professional privilege protects the legal advice given by in-house counsel. However, the European Commission is governed by supra-national EU law. The issue before the European Court of Justice was whether, under EU law, the advice of in-house counsel is protected by legal professional privilege.

The Decision

The Court held that legal professional privilege does not attach to legal advice given to a company by its in-house counsel, even where privilege would attach to the company's communications with external counsel. The Court based the distinction on what it described as in-house counsel's lack of "professional independence" from the employer company.

The Court held that legal professional privilege is available only when legal advice is given by an "independent lawyer." Although the Court acknowledged that in-house counsel in many EU states are subject to professional ethical obligations that prevent them from conducting themselves improperly, it found that the in-house lawyer's employment relationship deprives the lawyer of the necessary independence: "[A]n in-house lawyer cannot, whatever guarantees he has in the exercise of his profession, 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."

The Court's ruling reaffirmed principles of EU privilege law set out in the 1982 decision in AM & S Europe v. Commission. In 1982, only a handful of European states recognized legal professional privilege for communications with in-house counsel. Since then, however, a number of EU states have enacted legislation specifically extending privilege to in-house counsel. Akzo and several interveners argued that, under the principle of equal treatment that governs EU law, the Court should have overturned the earlier decision in AM & S Europe and extended the privilege. The Court rejected this argument, citing what it described as a lack of "clear majority support in the laws of the Member States."

Implications of the Decision

The Akzo decision is directly contrary to Canadian and U.S. privilege law, under which in-house counsel are regarded as being in every respect in the same position as external counsel, and under which the precise nature of the lawyer–client relationship is largely irrelevant to the determination of whether privilege attaches. North American companies doing business in Europe, and which may be involved in proceedings in EU courts, need to be aware that communications that are privileged on this side of the Atlantic may not be privileged under EU law.

The narrow scope of privilege protection in the EU as affirmed in Akzo makes it more challenging for inhouse counsel to perform their legal advisory role efficiently. In Europe, a number of companies have adopted somewhat unusual practices to protect privilege. Some in-house counsel avoid setting out their legal advice in writing or retain external counsel to provide key written advice that they might otherwise have delivered themselves. In the Akzo proceedings, the European Court of First Instance explicitly acknowledged that these kinds of practices might be strategically advisable.

In-house counsel for businesses that are active in European markets should take note of Akzo and consider whether to take precautions to protect the confidentiality of the legal advice that they provide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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