September.15.2010
On 14 September 2010, the Court of Justice of the European Union (ECJ) delivered a landmark judgment in Case C‑550/07P Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission, a case which sought to re-examine the scope of the legal professional privilege (LPP) for corporate in-house counsel and documents prepared by company managers for communicating with external counsel.
In summary, the ECJ upheld the ruling of the European Union's General Court (ex Court of First Instance) and reconfirmed under EU jurisprudence that internal company communications with in-house lawyers are not covered by LPP. The ECJ found that the General Court had correctly applied the long-standing principles established in AM&S: in order for a communication to benefit from LPP it must be connected to the client's rights of defence and emanate from independent external counsel1. The judgment, however, does not overrule the finding of the General Court that internal documents may still be protected by the LPP so long as those documents were drawn up for the purpose of seeking external legal advice in exercise of the rights of defence.
While the ruling is important and confirms the limitations of in-house counsel in relation to LPP, it is important to note that the EU's rules on LPP are relevant only in relation to EU proceedings, such as European Commission antitrust investigations. EU Member States with national legislation conferring LPP on communications of in-house counsel are unaffected by the ruling and will not be required to narrow the scope of LPP.
Although the law has not changed, companies conducting business in the EU should consider whether internal communications are adequately protected by LPP under Akzo and whether a formal request for such information from the European Commission, or a request in the context of a "dawn raid", could be successfully resisted in court. This is particularly relevant in relation to antitrust investigations. Materials which may be of interest to the Commission, for example communications and documents produced by business people in the context of a compliance programme, require particular consideration and procedures should be put in place to ensure that such documents are protected by LPP.
Commission Investigation. In the course of an investigation and dawn raid by the Commission at Akzo Nobel Chemicals Ltd. (Akzo) and its subsidiary in the United Kingdom, representatives of Akzo asserted LPP with respect to five documents which were treated in two different ways. "Set A" included two versions of a memorandum from a general manager to one of his superiors outlining possible issues in his business unit under the company's competition compliance programme (the latter with handwritten notes referring to contact with an external lawyer). "Set B" included the general manager's handwritten notes used to prepare the memorandum in Set A, as well as e-mail between the general manager and Akzo's in-house coordinator for competition law, a lawyer employed by Akzo who was admitted to the Netherlands Bar.
The Commission investigative staff demanded a cursory review of these five documents to decide whether LPP applied. Faced with obstruction of investigation charges made by Commission officials, the company surrendered the material. The Commission officials reserved a decision with respect to Set A and took those documents in a sealed envelope, while rejecting outright any claim of LPP of Set B and making those documents part of the investigative file. Later, the Commission rejected LPP for Set A as well. Akzo subsequently commenced proceedings at the General Court.
Judgment of the General Court. In its judgment of 17 September 2007, the General Court clarified the procedural and substantive issues related to the protections provided by LPP in the context of a party's exercise of its right to defence and the investigative powers of the Commission2. Similar to the protections afforded by the attorney/client privilege in the US, LPP protects communications between a lawyer and his client for the purpose of obtaining legal advice in the exercise of a client's rights of defence. Significantly, however, the General Court rejected arguments to extend LPP to communications between a company and its in-house lawyers, even if licensed by a national bar or law society. Instead, referring to, inter alia, the absence of a majority rule among the Member States of the EU and citing the prior ruling of the ECJ in AM&S, the General Court clarified that LPP only protects communications with lawyers who "structurally, hierarchically and functionally" are a third party in relation to the company receiving their advice.
In claiming LPP for a document, companies need to demonstrate that the document is privileged; for example by providing information on the identity of the author and the recipient, their respective duties and responsibilities and the context in which the document was produced. Simply claiming LPP without such supporting information is not sufficient to prevent the Commission from reading that document. Often the Commission, by way of a cursory review, will be able to confirm if a document is privileged. A company is entitled, however, to refuse the Commission a cursory review where it is impossible for the Commission to view the document without accessing privileged information. Where privilege is disputed, the document may be placed in a sealed envelope, the content of which the Commission cannot access before adopting a formal decision allowing disclosure of the information. The company may then appeal this decision to the European courts.
Akzo subsequently appealed the ruling of the General Court insofar as it rejected the claim of LPP for communications with its in-house lawyers.
Opinion of Advocate General Kokott. On 29 April 2010, Advocate General (AG) Kokott delivered an opinion on the appeal brought by Akzo. In the opinion, she recommended that the ECJ dismiss the appeal in its entirety. AG Kokott endorsed the view that in Commission investigations, salaried in-house lawyers are not sufficiently independent from their employers even if they are members of a national bar or law society, and therefore are less able to deal effectively with any conflicts of interest to justify any extension of LPP.
Effects of the ECJ judgment. In its judgment, the ECJ confirmed that the legal situation related to LPP has not changed since its judgment in AM&S, where it held that LPP only protects communications between independent external counsel and its client which are made for the purpose of allowing the client to exercise his rights of defence. The ECJ stated at paragraph 44 of its judgment:
"the requirement of independence means the absence of any employment relationship between the lawyer and his client, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers."
Following the opinion of AG Kokott, the ECJ continued at paragraph 47:
"an 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."
Thus, as a result of an in-house lawyer's economic dependence and close ties with an employer, a level of professional independence comparable to that of an external lawyer with a client is not achievable, and any internal communications from an in-house lawyer will not receive the protection afforded by LPP in proceedings under the jurisdiction of the EU.
1 Case 155/79 AM&S v Commission [1982] ECR 1575.
2 Joined Cases T-125/03 & T-253/03 Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v Commission.