17 Sep 2010

European Court holds no legal privilege for in-house lawyers

The decision by the European Court of Justice in Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v Commission of the European Communities (C-550/07P) earlier this week held that internal communications by company employees with in-house counsel do not satisfy the lawyer/client test. Hence such communications are not privileged.

The decision means that in-house lawyers' communications in the EU will be available to regulators there, giving them an important tool for their investigations into cross-border conduct.

What is legal professional privilege?

Legal professional privilege protects communications where:

  • there is a communication between lawyer and client for the dominant purpose of seeking or providing legal advice or for use in actual or anticipated litigation; and
  • the communication is confidential.

Why the ECJ found that in-house counsel's communications are not privileged

The European Court of Justice (ECJ) relied heavily on its earlier decision in AM & S Europe v Commission (1982) ECR 1575 (Case 155/79) which had found that for communications between lawyers and clients to be protected, the exchange must emanate from an "independent" lawyer.

The EJC in Akzo Nobel found that:

  • the need to establish independence is incompatible with any employment relationship existing between the lawyer and client. So communications within a company or group with in-house lawyers will not attract privilege;
  • despite the fact that in-house lawyers may share essential characteristics with external lawyers, and both are subject to a number of professional ethical obligations, an in-house lawyer does not enjoy a level of professional independence equal to that of external lawyers; and
  • many Member States did not allow in-house lawyers to be admitted to a Bar Association or Law Society and therefore did not regard them as having the same status as lawyers in private practice.

What does this mean for in-house counsel here?

Although the decision in Akzo Nobel is limited on its facts to investigations in the EU conducted in the competition sphere, it may have wider ramifications.

In Australia, confidential communications with in-house legal counsel attract privilege provided the capacity and independence of in-house counsel can be established.

Australian law recognises that in-house counsel can be independent of their employer. Whether they are in any given case is ultimately a question of fact. Relevant to this inquiry are many factors, including:

  • does the in-house counsel hold a practising certificate?
  • does the in-house counsel's employment contract reflect their independence (this may not be so if, for example, the in-house counsel's remuneration is linked to the performance of the business)?
  • what are the in-house counsel's reporting lines?

The risk remains however for multinational corporations with business operations in the EU. Communications involving in-house counsel which are protected by privilege here may be required to be produced in the EU. Once produced, disclosure between agencies is often specifically authorised.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.