European Court of Justice rules that no privilege attaches to communications with in-house counsel in European Commission’s competition investigations

On September 14, 2010, the European Court of Justice, Europe’s highest court, ruled that communications between a company and its in-house lawyers are not covered by legal professional privilege (i.e., solicitor-client privilege in Canada) when the company comes under investigation by the European Union competition authorities. Akzo Nobel Chemicals Ltd. v. Commission involved an appeal by Akzo challenging the Commission’s seizure and use of two e-mail messages between the company and its in-house counsel during a 2003 search at the company’s offices in the United Kingdom. The Commission was seeking evidence of possible anti-competitive practices. Akzo argued that e-mail communications between the company and its in-house lawyers were privileged, while the Commission asserted they were not. In 2007, the Court of First Instance held that the communications were not privileged; the European Court of Justice has now upheld this decision.

The court based its decision largely on in-house counsel’s lack of independence due to the employment relationship: "An in-house lawyer cannot […] 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."

This reasoning is consistent with the same court’s 1982 decision in AM & S Europe Ltd. v. Commission, in which the court set out two conditions for privilege to attach to written communications with lawyers: the exchange with the lawyer must be connected to "the client’s rights of defence," and the exchange must emanate from an "independent lawyer," where an independent lawyer is "one who is not bound to his client by a relationship of employment." The Court in Akzo considered these conditions, and found that "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 rejected Azko’s argument that an in-house lawyer enrolled at a Bar or Law Society — as was the case here — is, on account of his obligations of professional conduct, subject to a high expectation of discipline and ethics, and is therefore as independent as external counsel. In addition, the appellants argued that there had been significant recent developments in the legal landscape since 1982 — notably, several Member States had extended legal professional privilege to communications with in-house lawyers — and thus the judgment in AM & S should be revisited. The court also rejected this argument, noting that there was no clear move to recognize legal professional privilege for in-house counsel across the membership.

The judgment is perhaps not surprising in light of the Advocate General’s advisory opinion issued in April, which suggested that the court dismiss the appeal for similar reasons as were ultimately accepted by the court. (The Advocate General — in this case, Juliane Kokott — is one of eight appointed legal advisors to the European Court of Justice; Advocates General deliver opinions to the court on legal questions though their opinions are not binding on the court).

The court’s decision is the final ruling on this subject.

McCarthy Tétrault Notes

The reasoning in Akzo diverges from Canadian and US law under which solicitor-client privilege attaches to communications with all lawyers, in-house or external, for the purpose of seeking or providing legal advice, and has significant implications for dealings with companies operating in Europe and those involved in European Commission competition proceedings.

It would be prudent for in-house counsel in Europe to provide competition law advice only in a non-written or otherwise recordable manner. Companies may also wish to engage external counsel early on to ensure privilege is protected, and should even consider excluding in-house counsel from discussions. This ruling will be expensive and time-consuming for companies that will now have to rely more heavily on external lawyers.

The decision has been heavily criticized by competition lawyers, both domestically and in Europe, for failing to recognize the value and independent judgement of in-house counsel. It also runs contrary to the notion that in-house counsel should be the primary enforcer of and advisor on competition law compliance and, in that sense, may detract from the objective of encouraging compliance with those laws.

With respect to communications with non-European-qualified counsel, although not specifically addressed in the decision, the Advocate General opined that legal professional privilege should not be extended to communications with in-house lawyers who are members of a Bar or Law Society in a third country, on the basis of a lack of recognition of the qualifications and ethical obligations of those lawyers. Thus, Canadian in-house counsel, as well as non-European-qualified external counsel here, should be cautious when advising companies that are active in Europe, particularly when contemplating providing (or copying) written (e-mail) advice to employees of those companies in Europe.

Another reason that Canadian counsel (both in-house and external) should take note of this decision is that competition investigations are frequently international in nature and can involve sharing of information among antitrust authorities. This decision raises the spectre that European in-house communications obtained by the European Commission could be shared with foreign authorities.

While the decision in Akzo applies only to communications between companies and in-house counsel during European Commission competition investigations, there is also a concern that the reasoning could eventually be applied to further limit legal professional privilege under European Union law more generally.

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