15 September 2010

ECJ decides status of legal advice given by in-house Counsel

The European Court of Justice (ECJ) has delivered its judgment on the appeal in the long-running case of Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (Case C-550/07). The Court has adopted the opinion of Advocate General Kokott published in April and ruled that in-house lawyers remain outside the scope of legal professional privilege under EU law. The decision has disappointed many groups in jurisdictions such as England and Wales who see the role of in-house lawyers as beneficial to compliance and respect for the law.

The ruling applies to any proceedings involving enforcement activity by EU institutions. The decision does not affect assertions of privilege in private law proceedings in England and Wales, nor any enforcement activity by the UK authorities.

The case centred around the status of two emails seized, with other documents from offices in Manchester in 2003, by the European Commission during its investigation of possible anti-competitive practices.

The companies asserted that the emails are protected by legal professional privilege as they were exchanged between a general manager and Akzo Nobel’s co-ordinator for competition law, an in-house lawyer registered as an Advocaat of The Netherlands Bar. In 2007 the Court of First Instance ruled against them and the companies’ appeal to the ECJ has been supported by several Law Societies and Bar Associations.

The ECJ acknowledged that legal professional privilege was a fundamental right, as recognised in the case of AM & S v Commission (Case 155/79 [1982] ECR 1575), but one that is subject to two cumulative conditions drawn from a combination of the laws of all the Member States at the time that case was decided:

  • first, that the communication with the lawyer must have a connection with the exercise of the client’s rights of defence; and
  • second, it must be a communication with an independent lawyer, that is to say with a lawyer who is ‘not bound to the client by a relationship of employment’.

The ECJ rejected the argument that the second condition should not be interpreted literally. The enrolment of an in-house lawyer in a Bar or Law Society and the consequent observance by the employed lawyer of professional rules of conduct and discipline was not, in the Court’s view, sufficient to render that lawyer as independent as external counsel. Nor were the specific guarantees of independence contained in the actual contract of employment of Akzo’s in-house lawyer considered sufficient.

The fundamental quality of independence required of a lawyer by the second condition in AM & S was to be determined not only positively by reference to professional ethical obligations but also negatively by the absence of an employment relationship between the lawyer and his client. The status of employee by its very nature does not allow a lawyer to ignore the commercial strategies pursued by the employer and does affect the lawyer’s ability to exercise professional independence.

The alternative arguments put forward by the companies and the supporting Bar and Law Societies also failed. The ECJ rejected the argument that the status of in-house lawyers has changed sufficiently since the AM & S decision to justify a change in EU law. Agreeing with the Attorney General, they saw no discernible general trend among the twenty seven Member States toward equal treatment of in-house lawyers, with only a minority of States (such as the UK) extending legal professional privilege to internal or group communications with in-house lawyers. Arguments relating to equality of treatment and certainty were also dismissed.

The effect of this ruling is to confirm that the powers of the European Commission to seize documents will continue to be more extensive than the national authorities’ powers in jurisdictions such as England and Wales. Protection that a local court would recognise will simply not be available against the Commission when exercising its investigative powers.

In-house lawyers, in any EU Member State, will have to take into account that their legal advice to their employer might not be protected by legal professional privilege in proceedings involving EU institutions. The position of external lawyers seconded in-house must also be in doubt as the ECJ ruling suggests that any employment relationship will affect independence. Secondment arrangements vary enormously, but often a secondee is absorbed into the host organisation and treated as having much the same duties and loyalties as an employee, albeit on a temporary basis. In such a case, where their independence might be called into question, they too might be caught by the Akzo principle.


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