European Union Court of Justice Confirms That Legal Professional Privilege Does Not Protect Internal Company Communications With In-House Lawyers

Date: Oct 08, 2010

"A Major Setback To Legal Professional Privilege and In-House Counsel" – that's how the Association of Corporate Counsel (the "ACC") characterized a recent decision by the European Union Court of Justice (the "ECJ").[1] In its September 14, 2010 judgment, the ECJ confirmed that the legal professional privilege does not protect company or group communications with an in-house lawyer in European Union competition law matters.[2] According to the ECJ, in-house lawyers do not enjoy the same level of professional independence as external lawyers because an in-house lawyer is economically dependent on and has close ties with his/her employer. The ECJ reaffirmed an established principle in European Union law and applied it to a situation where the in-house lawyer was admitted to the Bar and was a member thereof.

The ECJ dismissed Akzo and Akcros' appeal challenging the European Commission's use of certain documents discovered during an investigation conducted by the European Commission at the premises of Akzo and Akcros in the United Kingdom. Specifically at issue were two emails between the Director General of Akcros and Akzo's in-house coordinator for competition law, who was also a member of the Netherlands Bar.

Relying on the 1982 AM & S[3] decision, the ECJ recognized that protection of written communications between lawyers and clients is subject to two conditions: (1) the exchange must be connected to the exercise of the client's rights of defense, and (2) must "emanate" from an independent lawyer. The ECJ noted that "[t]he requirement of independence means the absence of any employment relationship between the lawyer and his client."

The ECJ's decision is not entirely surprising given Advocate General Juliane Kokott's non-binding opinion earlier this year.[4] The ECJ echoed Kokott when it stated that an "in-house lawyer, despite his enrolment with a Bar or Law Society and the professional ethical obligations to which he is, as a result, subject, 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." As a consequence, the ECJ found that in-house lawyers are "less able to deal effectively" with conflicts between professional obligations and the aims of clients.

Moreover, the ECJ held that the Court of First Instance rightly decided that there was no violation of the principle of equal treatment. The ECJ explained that "in-house lawyers are in a fundamentally different position from external lawyers . . . " The Court of First Instance previously held that in-house lawyers and external lawyers are in "very different situations, owing, in particular to the functional, structural and hierarchical integration of in-house lawyers within the companies that employ them."[5]

The ECJ also rejected the argument that the "legal landscape" had evolved in such a way that would justify application of the legal professional privilege to internal communications with in-house lawyers. Instead, the ECJ found that "no predominant trend towards protection under legal professional privilege" of internal communications with in-house lawyers "may be discerned in the legal systems of the 27 Member States of the European Union."

It is therefore of utmost importance for in-house lawyers and the companies who employ them to remain cognizant of the limits on the legal professional privilege in matters of European Union law. Moreover, it is important to be aware that the privilege under European Union law is more restrictive than the law of the United States which offers protection to company communications with in-house counsel.[6]

Both in-house and outside counsel licensed in the United States and providing advice to companies in the European Union must be particularly aware of this fact. In Kokott's earlier opinion she noted that even if the legal professional privilege did extend to in-house counsel, such extension would not "under any circumstances" justify inclusion of lawyers from countries outside of the European Economic Area.

The ECJ may one day expand the legal professional privilege. Until then, lawyers and companies may want to re-evaluate protocols and consider the following suggestions, which have been compiled, in part, using recommendations from the ACC and examples, provided by the ACC, of various practices implemented by in-house legal departments. To access these materials and for more information and additional suggestions, visit: ACC Practical Recommendations, Legal Professional Privilege – Practices Implemented by In-house Legal Departments. Please note that even if implemented the following suggestions do not guarantee that a communication will be protected by the privilege.

  • House privileged and confidential documents in a secure location, separate from non-privileged documents
  • Develop document organization safeguards to avoid co-mingling of business and legal documents
  • When addressing sensitive legal issues, limit recipients to those who need to know
  • When possible and appropriate, limit written communications between in-house lawyers and internal clients implicating European Union matters
  • Retain outside counsel to provide ongoing legal advice regarding important European Union designated matters, especially competition law matters
    • Direct communications on important issues to outside counsel
  • Ensure internal investigations regarding European Union matters are conducted under the supervision and direction of outside counsel
    • Mark all in-house counsel notes and work papers relating to such investigations: "Prepared at the direction of outside counsel."
    • Turn over all in-house counsel notes and papers prepared at the direction of outside counsel to the custody and control of outside counsel

[3] Case 155/79, AM & S Europe Limited v. Commission of the European Communities, 1982 E.C.R. 01575

[4] Case C-550/07 P, Akzo Nobel Chemicals Ltd., and Akcros Chemicals Ltd. v. European Commission (April 29, 2010); See Advocate General of the European Union Court of Justice: Internal Company Communications With An In-house Lawyer Remain Unprotected By The Legal Professional Privilege.

[5] Joined Cases T-125/03 and T-253/03, Akzo Nobel Chemicals Ltd., and Akcros Chemicals Ltd. v. European Commission, 2007 ECR II-3523, para. 174

[6] See Upjohn Co. v. United States, 449 U.S. 383 (1981)