European Union: EU Court Defines Scope Of Legal Privilege In Antitrust Probes - In-House Counsel Documents Not Protected

Summary

The European Court of First Instance (CFI) has handed down its much awaited ruling in the Akzo case¹, which is of particular importance for in-house lawyers and antitrust practitioners as it clarifies the scope of legal professional privilege in the context of a Commission antitrust investigation. The judgment confirms the Commission’s view that documents created by inhouse counsel, whether or not they are members of a bar, are in principle not subject to legal privilege and can be viewed and read by Commission officials in an investigation under EC law. The CFI’s judgment also provides a valuable clarification of the procedure which the Commission must follow when dealing with documents found during an investigation and for which privilege is claimed but disputed by the Commission.

Privilege: The Essentials

The CFI confirmed its ruling in the AM & S² case:

• Requests for advice to, and advice from, external counsel qualified to practice in an EEA country are privileged if made for the purposes, and in the interests, of the company’s rights of defense. This protection extends to such communications after the Commission has initiated proceedings which may lead to a decision under Articles 81 or 82 EC and also to such communications which pre-date the initiation of proceedings, providing that they relate to the same subject matter.
• Internal communications reporting privileged advice of external counsel are also privileged, but probably not any commentary on such advice by in-house counsel or other employees of the company.

Requests for advice to, and advice from, in-house counsel are not privileged.

The Facts

The case resulted from a dawn raid carried out by Commission officials, assisted by representatives of the UK Office of Fair Trading (OFT), in the Manchester premises of an Akzo subsidiary. During the inspection, a dispute arose between the Commission officials and company representatives as to the privileged nature of a number of documents. The documents in question were briefly examined by the official leading the investigation team, who classified them in two different groups:

• The Set A documents, which consisted of a type-written memorandum from the general manager of the subsidiary, in whose premises the investigation was taking place, to his superiors, and of a copy of this memorandum with hand-written notes giving the name of Akzo’s external competition lawyer. The memorandum contained information gathered by the company for the purpose of obtaining external legal assistance in relation to a competition law compliance program. The Commission’s team was uncertain about the status of the Set A documents, took copies of them and placed the copies in a sealed envelope.
• The Set B documents, which consisted of hand-written notes made by the subsidiary’s general manager, in preparation of the Set A memorandum, and of two emails exchanged between the general manager and Akzo’s in-house lawyer who was a member of the Netherlands bar association. The Commission officials did not consider that these documents were privileged and consequently made copies of them and placed the copies in a file with all the other documents obtained during the raid.

Akzo contested the Commission’s handling of both sets of documents claiming that both were covered by legal privilege and asked for the copies to be returned or destroyed. The Commission rejected Akzo’s request by way of a formal decision. This decision, together with the Commission’s decision authorizing the dawn raid, were the object of the CFI’s ruling.

Scope Of Legal Privilege

The CFI considered whether each set of documents was covered by privilege and concluded that:

• The Set A documents were not privileged. As a general rule, the CFI considers that documents are privileged if they originate from an independent lawyer and are drafted for the purpose of exercising the client’s right of defense. Additionally, internal notes reporting the content of communications with external counsel or preparatory documents which are meant to be sent to external counsel can also be covered by legal privilege. Finally, preparatory documents which are not meant to be sent to external counsel may also enjoy legal privilege if they have been created with the purpose of seeking legal advice from an external lawyer in the exercise of a company’s right of defense. According to the CFI, the scope of the latter category of documents must be interpreted narrowly. The CFI concluded that the fact that a document is drawn up within the framework of a competition compliance program is not sufficient to confer privilege on it. According to the CFI, compliance programs often include information which goes beyond the exercise of the rights of defense. The CFI concluded that the Set A documents were not drafted for the purpose of exercising Akzo’s rights of defense, and were therefore not privileged.
• The Set B documents were also not considered to be covered by privilege. The handwritten notes made in preparation of the Set A memorandum were evidently not privileged since the memorandum itself was not privileged. Finally, with regard to the e-mails exchanged with the in-house counsel, the CFI re-confirmed its position in the AM & S case that communications with in-house counsel do not enjoy legal privilege. The CFI also concluded that the concept of legal privilege under EC competition law is distinct from similar concepts in the different legal systems of the EU Member States. Therefore, the legal privilege enjoyed by an in-house counsel under national law cannot be used as a shield in a Commission antitrust investigation, but could possibly be relied on in an investigation by a national competition authority under Member State competition laws. It is questionable, however, whether in-house counsel privilege, when recognized by national law, can be relied upon in an investigation by national authorities of a breach of EC law. This question is particularly relevant following the modernization of EC competition law with the adoption of Regulation 1/2003 under which national competition authorities have full power to investigate and enforce Articles 81 and 82 of the EC Treaty.

Procedure

While endorsing the Commission’s assessment of the non-privileged nature of the disputed documents, the CFI criticized the Commission’s handling of these documents during the investigation. In its ruling, quoting from AM & S, the CFI lays down the procedure that the Commission must follow when the privileged character of materials found during an investigation is disputed. This procedure consists of the following three steps:

1. When legal privilege is disputed, the investigated company must provide the Commission with evidence that demonstrates that the conditions for privilege are met (e.g. who drafted the document and to whom was it addressed, the purpose for which the document was drafted, etc.), but is not obliged to disclose the information contained in the document.
2. If the Commission is not satisfied with this explanation, it must order the production of those documents by way of a formal decision.
3. Finally, the investigated company has the right to challenge this decision before the CFI. The Commission is only entitled to read the disputed document once the deadline for bringing an action before the CFI has expired. The company can, however, make an application for interim measures preventing the Commission from reading the document until judgment in the main action is rendered by the CFI.

The CFI also stated that, during this process, the investigated company can refuse Commission officials a cursory review of the disputed materials if it considers that such a review could reveal the content of the documents for which privilege is claimed. Such refusal must, however, be reasoned. If the officials are not convinced by these explanations, they can proceed to place the disputed documents in a sealed envelope which they can take back to Brussels. The placing of the documents in an envelope does not, however, release the Commission from its obligation to issue a decision requesting the documents. In the light of these principles, the CFI concluded that the Commission had acted in breach of the mandatory procedure by making a cursory review of the documents against the wishes of Akzo, and by reading the Set B documents before the adoption of a formal decision.