Advocate General Recommends Limiting Legal Privilege in European Commission Competition Investigations
On 29 April 2010 the European Court of Justice’s Advocate General Kokott issued an advisory opinion in a closely-watched case defining the limits of legal privilege in Europe. In what will come as a disappointing – although not unexpected – conclusion for in-house counsel, Advocate General Kokott opined that in European Commission cartel investigations, legal privilege does not apply to in-house lawyers, even if they are members of a bar or law society in an EU Member State. Rather, legal privilege in this context applies only to external counsel admitted to the bar of a Member State. The Court is not obliged to follow the Advocate General’s opinion and there are occasions when the Court decides that it is time for EU law to take a new direction. The Advocate General’s role is to explain to the Court what the law is and, where appropriate, to indicate when and how EU law could be developed. With no encouragement from the Advocate General it seems unlikely that the Court will make new law in the present case.
Background: Seizure of Internal Emails
The case, styled Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others, arose in 2003, when the Commission conducted dawn raids at the premises of Akzo and its subsidiary Akcros, on suspicion that they participated in a cartel. In the course of the inspections, the Commission seized two emails exchanged between the general manager of Akcros and a member of Akzo’s in-house legal department, who was admitted to the Netherlands Bar.
Akzo and Akcros disputed the seizure of the emails on the basis of legal privilege, and appealed the seizure to the European General Court. The General Court, however, dismissed their appeal on the grounds that legal privilege does not apply to communications involving in-house lawyers. Akzo and Akcros subsequently appealed to the Court of Justice, and the Advocate General has now given an advisory ruling.
Enrolled In-House Lawyers are Not Entitled to Privilege
In-House and External Lawyers are Not Equally Independent
The core issue in the case involves the “independence” of in-house lawyers. The Court of Justice established long ago that only independent lawyers are entitled to legal privilege. Supported by a large number of interveners, Akzo and Akcros, argued that a lawyer is “independent” (and therefore entitled to legal privilege) when he or she is subject to the professional and ethical obligations of a bar or law society (as an “enrolled in-house lawyer”). In other words, a lawyer’s independence is determined by membership of a bar, not by whether he or she is in an employment relationship with a client or instead providing services through an external law firm.
The Advocate General disagreed with Akzo and Akcros, ruling that a salaried in-house lawyer – notwithstanding any bar membership – does not enjoy the same degree of independence from his or her employer as a lawyer working in an external law firm. The Advocate General reasoned that an in-house lawyer forms part of the structure of the undertaking and is therefore economically dependent upon and identifies strongly with the undertaking. As a result, an in-house lawyer is less able than an external lawyer to deal effectively with conflicts of interest between his or her professional obligations and the objectives of his or her client. Therefore, in the Advocate General’s view, an in-house lawyer lacks the independence necessary to justify the application of legal privilege.
Trends Towards According Privilege to In-House Counsel
The Advocate General’s opinion extends beyond the argument of “independence”. In particular, he opines that no trend exists in Europe towards the protection of internal company and group communications with an in-house lawyer admitted to a bar, despite evidence to the contrary adduced by Akzo and Akcros (and intervening parties). In particular, his opinion rejected the argument that privilege should be extended because companies are now obliged by the Commission to assess their own behaviour vis-à-vis competition law under Regulation (EC) No 1/2003.
Troublingly, the Advocate General also stated that communications with an enrolled in-house lawyer in connection with a compliance programme are not entitled to legal privilege because they are “general in nature” and have no connection to rights of defence in a specific case.
Erosion of Legal Privilege Available in Member States
Finally, the Advocate General concluded that denial of privilege to enrolled in-house lawyers in Commission investigations would not erode legal privilege accorded to the same lawyers at Member State level.
Akzo and Akcros argued that substantive rules of privilege would effectively be determined by the Commission, irrespective of Member States’ rules, if legal privilege simply did not apply at all to enrolled in-house counsel in Commission investigations. The Advocate General rejected this view, stating that there is no requirement for EU law and national law to apply the same standards on the protection of legal privilege. Regrettably, the Advocate General did not elaborate on the erosion of privilege at Member State level.
Non-EU Lawyers are Not Accorded Privilege
The Advocate General also made clear that legal privilege should not be accorded to communications with external counsel admitted to a non-EU bar in the context of a Commission cartel investigation.
According to the Advocate General, legal privilege to in-house lawyers from countries outside the European Union “would not under any circumstances be justified,” because there is no adequate basis for the mutual recognition of legal qualifications and professional ethical obligations in the relationship with those countries. In the words of Advocate General Kokott, it is not the task of the European institutions to verify, “at considerable expense”, whether the third country has “sufficiently established rule-of-law traditions” which enable lawyers to exercise their profession in an independent manner. This has obvious, serious implications for global cartel investigations involving lawyers from jurisdictions outside of the European Union.
The Advocate General’s opinion is not surprising, but it has troubling implications – especially if it is followed by the Court of Justice.
In respect of in-house counsel, companies should anticipate that communications with their in-house lawyer will not be accorded legal privilege in a Commission cartel investigation – regardless of whether their lawyer is admitted to a bar. This creates direct conflicts with the privilege that may be accorded at a national level (for example, in the United Kingdom), and companies must be aware of this. Given the Advocate General’s troubling remarks that efforts in respect of compliance are not privileged, companies should consider involving outside counsel in sensitive competition-related compliance efforts and analyses.
Moreover, the Advocate General’s view regarding lawyers admitted in third countries is troubling, particularly in light of the increased level of global cartel investigations. If followed by the Court of Justice, this threatens to create an environment where clients cannot reliably be sure that their communications with external counsel admitted, for example, in the United States, Canada or Japan, will be protected from privilege in the European Union. And given the broad information-sharing that exists between enforcement bodies, there is a real risk that the concept of legal privilege could be significantly eroded, unless an external EU lawyer is also involved.
The Court of Justice has yet to rule in this case and could adopt a ruling that differs from the Advocate General’s opinion, although this is not expected. In the meantime, companies should be aware of the limitations of legal privilege that they may face in Europe – namely, that neither communications with their in-house lawyer, nor those with external non-EU lawyers, are protected from Commission cartel investigations. Companies should therefore take steps to involve external, EU counsel in competition compliance and sensitive competition matters.