Canadian COMPETITION LAW

September 18, 2010

We are pleased to provide this global competition law update (EU) from our friends at the leading Singapore firm Rajah & Tann.

Overview

Legal professional privilege serves to protect from disclosure all communications between a professional legal advisor and his client. This privilege is meant to encourage full disclosure between lawyer and client.

However, on 14 September 2010, the European Court of Justice (‘ECJ’) issued its long awaited decision in what is known as the ‘Akzo case’ and ruled that ‘in the field of competition law, internal company communications with in-house lawyers are not covered by legal professional privilege’. Whilst the decision comes as no real surprise, it is nevertheless a blow to part of the legal profession and to businesses as well.

The case has gathered a lot of attention since it started back in 2003, as it raised the critical issue of the protection of internal communications between the management of an undertaking and the undertaking’s in-house lawyer. In the EU, this question became even more critical since, on 1 May 2004, the new regulation on the implementation of the rules on competition laid down in Articles 101 and 102 of the Treaty on the Functioning of the European Union (‘TFEU’) abolished the previous practice of notifying business agreements to the European Commission (‘EC’), leaving it to businesses – and eventually to their competition lawyers, whether in-house or external – to assess the compatibility of their agreements or conduct with EU competition rules.

One would have, therefore, expected that the scope of legal privilege would be extended to internal communications between the management of an undertaking and the undertaking’s in-house lawyer. The point made by Akzo Nobel Chemicals Ltd (‘Akzo’) and its subsidiary, Akcros Chemicals Ltd (‘Akcros’), that such communications were covered by legal professional privilege was supported by three States, namely the UK, Ireland and the Netherlands and by a number of professional organizations, including the Society of Bars and Law Societies of Europe, the European Company Lawyers Association and the International Bar Association, to name a few.

This update reviews the reasons for this decision and the lessons to be drawn from it.

Background to the Decision

In February 2003, in the course of an investigation of a cartel on certain plastic additives (heat stabilisers), the European Commission, assisted by the UK Office of Fair Trading (‘OFT’) searched the premises of Akzo and Akcros and took copies of a number of documents. At that time, representatives of Akzo and Akcros, however, drew the attention of the EC investigating team to some of these documents being legally privileged, and therefore not seizable by the investigators.

Amongst these documents were two e-mails between Akcros’ general manager and Akzo’s coordinator for competition law, a lawyer enrolled as a member of the Netherlands’ bar and who was, at that time, employed in Akzo’s legal department. The investigating team took the view that these documents did not benefit from the legal privilege protection and took them away.

A few days later, Akzo and Akcros reiterated in a letter to the EC their claim of the legally privileged nature of various documents, including the two e-mails. In May 2003, the EC rejected the claim of legal privilege.

Akzo and Akcros then submitted a request to the Court of First Instance (now called the General Court and hereafter the ‘Court’) to annul that decision, on various grounds, including the fact that legal privilege protection should apply to communications between an undertaking and a lawyer, notwithstanding the fact that lawyer is an in-house counsel.

In September 2007, the Court dismissed the action for annulment as unfounded. In particular, the Court rejected the claim that the two e-mails were covered by legal privilege, as ‘the protection only applies to the extent that the lawyer is independent, that is to say, not bound to his client by a relationship of employment’.

The judgment by the ECJ on 14 September 2010 was issued further to the appeal by Akzo and Akcros against the Court decision.

Only Communications Between An Undertaking And Its External Lawyers Are Protected: Such Communications Cannot Be Seized By The Competition Authority

It is useful to highlight that the principle that undertakings can, when investigated, refuse to provide documents and information to the EC on the ground of legal privilege protection arises from the case law of the ECJ in a judgement issued in May 1982 (AM&S Europe Limited Vs Commission of the European Communities, hereafter the ‘AM&S case’).

In the AM&S case, the ECJ ruled for the first time that the EC’s very wide powers of investigations did not ‘exclude the possibility of recognizing, subject to certain conditions, that certain business records are of a confidential nature’. In particular, it was then recognized (which is not put into question by the Akzo case) that the confidentiality of certain communications between lawyer and client serves the requirements ‘that any person must be able , without constraint , to consult a lawyer whose profession entails the giving of independent legal advice to all those in need of it’.

The ECJ thus concluded that the EC was not entitled, when investigating an alleged infringement to the EU competition rules, to require the production of documents covered by legal privilege.

The ECJ, however, placed certain conditions to the protection of the confidentiality of written communications between a lawyer and its client. In particular, it stated that the confidentiality of written communications between a lawyer and its client would be protected provided that: (i) ‘such communications are made for the purposes and in the interests of the client’s rights of defence’; and (ii) ‘they emanate from independent lawyers , that is to say , lawyers who are not bound to the client by a relationship of employment’.

In short, under the AM&S case, the legal privilege protection did not apply to in-house lawyers in general. It is important to note that the issue in the Akzo case was not whether the legal privilege protection should apply to all in-house lawyers but rather whether the protection should also apply where the in-house lawyer is enrolled as a member of a Bar or Law Society.

On this, the thesis defended by Akzo and the parties supporting its views was that the existence of an employment relationship did not equate with a lack of independence on the part of the lawyer:

‘the criterion that the lawyer must be independent cannot be interpreted so as to exclude in-house lawyers. An in-house lawyer enrolled at a Bar or Law Society is, simply on account of his obligations of professional conduct and discipline, just as independent as an external lawyer. […] the rules of professional ethics and discipline applicable in the present case make the employment relationship fully compatible with the concept of an independent lawyer’.

The ECJ, however, rejected the point and concluded that:

‘the requirement of independence [as stated in the AM&S case] 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’.

In practice, this means that internal company communications with an in-house lawyer, whether enrolled as a member of a Bar or Law Society or otherwise, are not legally privileged in so far as EU competition laws are concerned. As a consequence, the EC can seize or require the production of these communications when investigating an alleged breach of the prohibition against anti-competitive agreements and conduct.

The situation seems different in Singapore, as the Competition Commission of Singapore made clear in its Guidelines on the powers of investigation that:

‘The power to require the disclosure of information or documents under Part III of the Act does not extend to any communication: between a professional legal adviser and his client, or made in connection with, or in contemplation of, legal proceedings and for the purposes of those proceedings, which would be protected from disclosure in proceedings in a court on grounds of privilege.

This will mean that communications with in-house lawyers, in addition to lawyers in private practice including foreign lawyers, can benefit from the privilege’.

It is not clear, however, whether communications with in-house lawyers who are not enrolled as a member of a Bar or Law Society would effectively be covered by the legal privilege protection.

Whilst the judgement by the ECJ puts an (at least provisory) end to the hope that internal communications between in-house counsel and their employer could benefit from the legal privilege protection, the Akzo case in its entirety nevertheless sheds light on the nature of privileged documentations and the limits of the EC rights when investigating a possible infringement of the prohibition against anti-competitive agreements and conduct.

The Communications Protected By Legal Privilege

Whilst this was not the issue before the ECJ, the Akzo case, however, gives an opportunity to review the nature of the documents that can be withheld from the EC in the course of an investigation.

In the AM&S case, the ECJ enounced clearly that the legal privilege protection was attached to ‘all written communications exchanged after the initiation of the administrative procedure […]which may lead to a decision on the application of articles 85 and 86 of the Treaty [now articles 101 and 102 of the TFEU] or to a decision imposing a pecuniary sanction on the undertaking.’ It must also be possible to extend it to earlier written communications which are related to the subject-matter of that procedure.

It is interesting to note that, in this case, the ECJ accepted that the protection covered communications exchanged between AM&S – which was located in the UK –  and its external lawyers long before the investigation had started on the basis that ‘the communications in question were drawn up during the period preceding , and immediately following , the accession of the UK to the Community , and that they are principally concerned with how far it might be possible to avoid conflict between the applicant and the Community authorities on the applicant’ s position , in particular with regard to the Community provisions on competition. In spite of the time which elapsed between the said communications and the initiation of a procedure, those circumstances are sufficient to justify considering the communications as falling within the context of the rights of the defence and the lawyer’ s specific duties in that connection. They must therefore be protected from disclosure.’

On that basis, it might be possible to argue, in jurisdictions where competition laws have come into force only recently or are about to come into force, that opinions by external lawyers in relation to an agreement or conduct which is later investigated by the relevant competition authority are legally privileged and, therefore, do not have to be provided to the competition authority.

Conclusion

At a time when businesses are required to self-assess their agreements and conduct, the ability for an undertaking to seek guidance from its in-house lawyer is certainly critical. The decision by the ECJ, however, suggests that, as far as the EU is concerned, businesses should seek such advice from an external lawyer – at least in order for legal privilege to apply.

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