September 16, 2010
On September 14, 2010, the European Court of Justice (“ECJ”) held that communications between a company’s management and its in-house counsel are not insulated from discovery or disclosure in competition/antitrust law investigations by the European Commission (see: Akzo v. Commission).
This case involved an appeal commenced by Akzo Nobel Chemicals and its subsidiary Akcros Chemicals (“Akzo”), both of which were involved in a price-fixing investigation in connection with which the European Commission and U.K. Office of Fair Trading investigated the companies’ U.K. premises.
During the European Commission’s investigation, a dispute arose as to whether several documents, including two e-mails between Akcros’ Director General and Akzo’s coordinator for competition law, who was a member of Akzo’s legal department (and employed by Akzo), were covered by legal professional privilege (“LPP”). In reviewing the e-mails, European Commission investigators concluded that they were not covered by LPP and Akzo lost its appeal in the Court of First Instance (Court of First Instance judgment of 17 September 2007 in Joined Cases T-125/03 and T-253/03 Akzo Nobel Chemicals and Akcros Chemicals v. Commission).
Akzo’s appeal to the ECJ concerned the two disputed e-mails, with the ECJ rejecting Akzo’s argument that they were covered by LPP.
In coming to its decision, the ECJ relied on AM & S Europe v. Commission, which held that the confidentiality of written communications between lawyers and clients should be protected at the Community level, subject to two cumulative conditions: first, that the exchange with the lawyer must be connected to “the client’s rights of defence”; and second, that the exchange must emanate from “independent lawyers” (i.e., lawyers who are “not bound to the client by a relationship of employment”).
According to the ECJ, 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 ECJ concluded that, based on an in-house lawyer’s economic dependence and close ties with his employer, an in-house lawyer does not “enjoy a level of professional independence comparable to that of an external lawyer”, and therefore concluded that the CFI correctly applied the test set out in AM & S Europe.
The ECJ also rejected a number of alternative arguments made by Akzo, including that refusing to apply LPP to correspondence exchanged with an in-house lawyer violates the principal of equal treatment under European Union law, arguments based on distinctions between national legal systems and EU law and that the findings of the CFI violated the principle of national procedural autonomy and the principle of the conferred powers.
Implications
This important decision essentially means that European in-house counsel have no LPP rights in relation to competition investigations carried out by the European Commission. Practically, it means that the role of in-house counsel in Europe has been confirmed to be weaker than their counterparts in, for example, North America, potentially making it more difficult and expensive for European companies to obtain timely and effective legal advice entitled to the disclosure protections taken for granted in many other jurisdictions, including Canada. From the perspective of outside observers, it also appears that the approach taken both in the past in confirmed by this recent decision takes an overly technical, rather than a principled, approach to solicitor-client privilege, somewhat puzzlingly with the result that clients, who should be the beneficiaries for the privilege, are disadvantaged when seeking advice from in-house rather than outside counsel. The decision will likely also practically mean, again to the detriment of clients, that legal costs will rise given that outside (rather than in-house) advice may now be sought in some cases, based on the potential risk associated with in-house legal advice.
Solicitor-Client Privilege in Canada
In Canada, there is no solicitor-client privilege distinction between external and in-house counsel. Communications with counsel for the purpose of obtaining or providing legal advice are generally privileged in Canada irrespective of whether or not the counsel is external or in-house. Competition law advice frequently involves advice in relation to establishing and preserving legal privilege, as well as asserting privilege in the event of a criminal or civil search by the Competition Bureau, other compulsory production orders or document production requests in the context of civil proceedings.
Competition and litigation counsel also often counsel their clients to take commonsense precautions to establish and maintain privilege including: (i) marking all documents created in the context of receiving legal advice “Privileged and Confidential”, (ii) inserting “Privileged and Confidential” in the subject lines of correspondence to counsel (to make privilege claims easier to make in the event of a search and increasing the likelihood that privileged documents can be identified), (iii) marking all documents created at the request of counsel “Privileged and Confidential – Created at the Request of Counsel”, and (iv) ensuring that all privileged documents are kept in segregated files (and that care is taken to restrict circulation of privileged communications to intended recipients so as not to inadvertently waive privilege). Search and seizure compliance guidelines also typically contain guidelines as a matter of course, with the objectives to both claim and maintain privilege over documents (including electronic documents and e-mails) covered by solicitor-client privilege.
For the ECJ’s decision see: Akzo v. Commission. For more on the ECJ’s decision see: Antitrust and Privilege: An EU Court Restricts Attorney-Client Confidentiality, ECJ Deals Blow for In-House Professional Legal Privilege in Akzo Nobel Ruling and Europe Court Limits In-house Legal Privilege.
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