UK: Limiting the Scope of Privilege for In-House Lawyers

Last Updated: 21 September 2010
Article by Paul Stone, Lynne Gregory and Elora Mukherjee

Introduction

The European Court of Justice (ECJ) has just published its much awaited judgment in Akzo Nobel Chemicals Limited and Akcros Chemicals Limited v European Commission. This judgment has confirmed the existing limitation on the ability of European in-house counsel to claim legal professional privilege in competition investigations by the European Commission. This decision is likely to cause consternation and controversy amongst in-house lawyers across Europe as it was hoped that the ECJ might take the opportunity to change the law in this area. This note considers the scope of the ruling as well as reviewing, by way of background, the basic principles of privilege under English law.

Basic Principles

The rationale for legal professional privilege is to enable lawyers to advise their clients in confidence. If a document is privileged, it does not need to be disclosed to the court or the opposing party in any litigation. Under English law, legal professional privilege can be divided into two categories:

1. Legal Advice Privilege

This covers confidential communications made between a lawyer and his client for the purpose of seeking or giving legal advice. Litigation need not have been threatened or contemplated at the time when the advice was sought or given.

2. Litigation Privilege

This privilege covers a wider category of communications, but only in circumstances where litigation is contemplated. If it is, the privilege covers not only communications between the litigant and his lawyer, but also communications between the lawyer and a third party, or between the litigant and a third party, provided that the dominant purpose of such communications is to give or obtain advice with regard to the litigation or to obtain or collect evidence or information for use in it.

Litigation privilege extends to any proceedings in which parties may be required to give disclosure including high court, county court, and employment tribunal cases, as well as arbitrations.

English case law has confirmed that privilege extends to employed solicitors and barristers, not just those in private practice. However, this is subject to an important exception in relation to European Commission investigations.

European Commission Investigations

There is one important area where in-house lawyers are in a significantly worse position than lawyers in private practice. This relates to the European Commission's power to require production of documents in the course of competition investigations. In AM&S Europe Ltd -v- Commission of the European Communities (1983) the ECJ held that AM&S could not withhold from the Commission privileged communications made with its in-house lawyers since such a privilege was not recognised under Community law.

In AM&S, the ECJ established a two-tier test for the purposes of determining whether written communications between lawyers and clients are subject to legal professional privilege during the course of competition investigations by the Commission:

  • the first tier required that the communication must be requested and given for the purposes of the client's rights of defence;
  • the second tier stated that the lawyer involved must be independent, that is, not bound to the client through an employment relationship.

The second tier of the test established in AM&S was heavily criticised at the time. The issue resurfaced two decades later in the case of Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd -v- European Commission. The matter related to a Commission investigation regarding possible anti-competitive practices by Akzo Nobel and Akros Chemicals in relation to heat stabilisers. The Commission, assisted by the UK OFT, carried out a dawn raid at the companies' premises in the UK. During the raid, the Commission seized and made copies of numerous documents. Akzo claimed legal privilege in relation to email exchanges between an Akzo executive and an in-house lawyer (a full member of the Dutch Bar). The email exchange consisted of a request for comments on a draft letter and response with changes to the wording of the letter.

The Commission refused to recognise privilege for the documents and Akzo appealed the decision to the European Court of First instance (CFI, now the General Court). Many commentators hoped that, as AM&S had been decided at a time when in-house legal departments were less common and less tightly regulated in many EU countries, the European courts might take the opportunity to reformulate the law.

However, the CFI rejected the arguments put forward by the companies that communications with in-house lawyers should attract privilege. The CFI upheld the ECJ decision in AM&S and stated that privilege could not extend to in-house lawyers because such lawyers were not "fully independent" of the client. The court stated that there is a wide variation across Europe in the way in which in-house counsel are regulated and that many are excluded from the protection of privilege.

Akzo Nobel and Akros appealed the CFI decision to the ECJ, and their appeal was supported by a number of European governments including the UK; the International Bar Association and other bodies representing lawyers.

The ECJ's Judgment

The ECJ issued its judgement on 14th September. The ECJ ruled that in-house lawyers, despite the fact they may be enrolled with a Bar or Law Society and the fact that they are subject to professional ethics codes, do not enjoy the same degree of independence from their employers as lawyers working in external law firms. The ECJ considered that, since inhouse lawyers occupy the position of employee, that position, by its very nature, does not allow them to ignore the commercial strategies pursued by their employers, and affects their ability to exercise professional independence. Moreover, the ECJ considered that in-house lawyers have complete economic dependence on their employers, in contrast to external lawyers who can withdraw their services and are not dependent on one source of income. Further, the ECJ noted that in-house lawyers may be required to carry out tasks such as competition law co-ordination, which may have an effect on the commercial policies of their employers, and that such functions cannot but reinforce the close ties between in-house lawyers and their employers.

The ECJ also rejected the notion that the role of in-house lawyers has evolved in recent years whereby more EU countries have accepted that they can claim privilege and have made them subject to the same ethics codes as external lawyers. The Court considered that no predominant trend towards extending privilege to in-house lawyers could be discerned in the legal systems of the various European Member States.

Furthermore, the ECJ rejected the argument that a refusal to apply the principle of legal privilege to correspondence exchanged with an in-house lawyer violates the principle of equal treatment on the basis that the professional independence of external lawyers and the economic dependence of in-house counsel meant they were not in a comparable situation.

The Court also rejected arguments that denying privilege to in-house lawyers breached the principle of legal certainty or companies' rights of defence. The Court held that the legal position of in-house counsel was clear where the Commission was conducting an investigation and that those instructing lawyers must accept the restrictions and conditions applicable to that profession.

Implications of the Judgment

The position therefore remains that in European Commission investigations, communications with in-house lawyers are not protected by privilege – regardless of the legal ethics they are subject to or the professional organisations to which they belong. Many companies rely on their in-house legal departments to ensure compliance with competition laws. The decision means the Commission can continue to raid these departmental files. To avoid the material being disclosed, in-house lawyers must either record as little as possible in writing or seek external legal advice whenever an EU competition law issue arises.

It should be stressed that this case related to the application of privilege solely in the context of competition investigations by the European Commission and should not be seen as creating any wider precedent to be applied in national courts. It is worth noting that in competition investigations which are conducted at national level by the OFT, the English law on legal professional privilege continues to apply, such that it continues to extend to communications made between clients and their in-house lawyers.

Conclusion

In-house lawyers in England can generally benefit from privilege in much the same way as external lawyers provided they are advising on legal rather than administrative matters. However, the decision in the Akzo Nobel case means companies would be advised to consider using external law firms for competition compliance issues that may be subject to investigation by the European Commission, or to discuss matters verbally.

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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