Germany: German Regional Court Approves Seizure By German Federal Cartel Office Of Audit Documents Prepared By External Counsel

By decision of 21 June 2012, the Regional Court of Bonn ("the Court") upheld a decision by the Local Court of Bonn approving the seizure by the German Federal Cartel Office ("FCO") of internal audit documents that had been prepared by external counsel at the premises of the appellant.

The appellant, a distributor of mattresses and slatted frames, is a German subsidiary of a European company ("the parent company") active in the production and distribution of polyurethane foam, a commodity used in the production of mattresses. The European Commission investigated alleged horizontal anti-competitive activities in the European polyurethane foam sector and issued in July 2010 a search warrant against a UK affiliate of the appellant. Both the appellant and its UK affiliate pertain to the same group of companies headed by the parent company. During the days immediately following the search at its UK subsidiary, the parent company retained external counsel for advice. The Power of Attorney (the "PoA") read as follows: "[...] for the purpose of acting in the name of [the parent company] and on its behalf for the purpose of carrying out all acts related to the [parent company's] defen[c]e in connection with the investigation by the European Commission under Article 101 TFEU into certain practices in the polyurethane foam sector".

External counsel were requested by the parent company to conduct an internal investigation of all the group's business activities of interest with regard to the Commission's investigation. In September and December 2010, external counsel interviewed a representative of the appellant on the matter and documented the results in two internal audit documents ("the audit memos") that were provided to the appellant. In October 2010, the appellant was brought before a Regional Court by a German company for alleged vertical cartel law infringements. In July 2011, the FCO initiated an investigation against the appellant on account of alleged resale price maintenance regarding mattresses and slatted frames. On the occasion of a search at the appellant's premises, the FCO seized, amongst other documents, documents in relation to the civil proceedings before the Regional Court and the audit memos.

The appellant claimed that the audit memos constitute correspondence between lawyer and client and were thus protected from seizure. The appellant based itself on German criminal procedural law as well as on the legal privilege principle in EU law.

According to the Court, the Local Court of Bonn was right in approving the seizure of the audit memos. Pursuant to Section 97(1)(1) of the German Code of Criminal Procedure ("StPO"), written correspondence between the accused and persons who may refuse to testify shall not be subject to seizure. It is a common view that Section 97(1)(1) StPO intends to protect by way of an exemption from seizure only the mutual trust between the accused and a person engaged by him who may refuse to testify, and does not have the same scope as the right of a lawyer or defence counsel to refuse to testify. "Persons who may refuse to testify" include defence counsel and lawyers of the accused concerning information that was entrusted to them or became known to them in this capacity. In fact, according to the law, the exemption of seizure applies only to correspondence in the possession of the lawyer or defence counsel. However, the German Federal Constitutional Court has long confirmed that correspondence between the accused and his defence counsel or lawyer – as well as personal notes of the accused – must also be protected if in possession of the accused, as long as those documents are either related to the defence or were prepared on the occasion or for the purpose thereof. However, the fundamental preconditions for such documents to be exempted from seizure are (i) that an investigation has been initiated against the accused and (ii) the existence of a defence relationship between the accused and his defence counsel or lawyer.

In light of this case-law, the Court held that the audit memos were not exempted from seizure. According to the PoA, the client of the retained external counsel was not the appellant but the parent company. Therefore, according to the Court, no defence relationship existed between the appellant and the external counsel. Furthermore, the Court noted that the audit memos had been created months before the FCO investigation against the appellant was initiated. The fact that an investigation by the Commission against the parent company had already been initiated at the time of the creation of the memos was considered to be irrelevant for the following three reasons: (i) the accused was not identical in the Commission's and the FCO's investigation, (ii) the Commission's proceedings concerned the market of polyurethane foam that had been defined to be EU-wide whilst the FCO's proceedings concerned the market for mattresses in Germany, and (iii) the Commission investigated horizontal activities whereas the FCO investigated vertical activities.

According to the Court, the exemption from seizure of the audit memos could also not be derived from the legal privilege principle in EU law which serves to protect communication between a client and an independent lawyer. Legal privilege depends on two conditions: (i) the correspondence concerned relates to the client's interest and right to defence, and (ii) the correspondence emanates either from an independent lawyer, not an in-house lawyer, or the client itself in the context of advice regarding the client's defence. In this respect, the Court reiterated that the parent company, not the appellant, was the client of the external counsel and the appellant could thus not rely on the legal privilege principle.

Finally, as regards the documents in relation to the civil proceedings before the Regional Court that had been seized by the FCO, these consisted of correspondence between the appellant and its lawyers that were prepared in relation to said civil proceedings. Hence, such documents did not constitute correspondence between the accused and his defence counsel or lawyer or personal notes of the accused that were prepared on the occasion or for the appellant's defence in the FCO investigation. They were therefore not exempted from seizure either.

This decision demonstrates once again the very strict and formal approach taken by German Courts with respect to legal privilege. With regard to the protection of documents from seizure by the German competition authority, groups of companies are well advised to consider in advance the peculiarities of German law and retain defence counsel for each German legal entity separately.

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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