In-house lawyers not covered by professional privilege

Internal communications by in-house lawyers are not protected by professional legal privilege, the European Court of Justice has confirmed.

The court this morning rejected arguments by Akzo and its subsidiary Akcros that two emails between the companies and their legal departments should be covered by professional privilege.

The European Commission seized copies of the emails and sought to use them as evidence in the course of investigations into possibly anti-competitive practices in the chemicals market.

Following its advocate general's opinion, the court found in Akzo and Akcros v Commission (Case C-550/07 P) that internal communications between in-house lawyers and the companies employing them did not meet fundamental requirements that the advice was provided by an independent lawyer collaborating to the administration of justice.

Legal professional privilege, the court said, was subject to these two cumulative conditions: that the exchange with the lawyer was connected to the client's rights of defence, and that the exchange came from independent lawyers 'not bound to the client by a relationship of employment'.

The requirement of independence, the court said, was based on the concept of the lawyer's role in the administration of justice, requiring him to provide legal assistance in the overriding interests of that cause.

'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,' the court said.

This, the Luxembourg judges continued, was despite the fact that an in-house lawyer may be on the roll of the local Bar or Law Society and that he was subject to professional ethical obligations.

An in-house lawyer, the court said, 'does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client. Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.'

'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.'

The court also rejected Akzo's argument that national laws have evolved in the field of competition law, saying that there was no predominant trend in the legal systems of the member states towards protection under legal professional privilege of correspondence within a company or group with in-house lawyers.

Gustaf Duhs, competition specialist at Stevens & Bolton, said the ruling reflected the current position at EU level and the position within the majority of EU member states, but that it was at odds with the position under UK law.

'The underlying concern appears to be that in-house legal professional privilege could be used to undermine the European Commission's power to gather information and could ultimately result in in-house legal departments becoming the focal point for anti-competitive activity,' he said.

'However, there are a number of countries where legal professional privilege extends to in-house legal advice, and I am not aware of any evidence of abuse of this privilege in these countries,' Duhs continued.

Julianne O'Leary, competition partner at Stephenson Harwood, said the decision reinforced the view that EU institutions were 'out-of-touch with the reality of day-to-day commercial life'.

'By handicapping in-house lawyers from having full freedom to have open and frank exchanges with their internal clients the current EU position is in fact counterproductive,' she said.

According to Duhs, companies may now look to procure and provide sensitive internal legal advice orally but he warned that given the complex nature of competition law and the importance of getting the law right, this may not be prudent.

'Companies may be better advised to rely on external counsel for sensitive advice that they do not wish to be disclosable,' he said.