In-house lawyers have no right to secrecy in EU competition cases, says CJEU advisor

The total secrecy permitted with advisors from external law firms does not apply to staff lawyers, said the advisor to the EU's top court.

Juliane Kokott, Advocate General to the Court of Justice of the European Union (CJEU) has advised the Court to rule that legal professional privilege at EU level does not extend to the internal relationship between in-house lawyers and their client employers for the purposes of competition law investigations.

Lawyers' communications with clients have traditionally been secret in many situations, and large companies often have in-house legal departments and also typically use law firms to carry out some of their legal work.

Kokott has said that even if they are members of a national professional body of lawyers and are qualified in the European Economic Area (EEA), in-house lawyers cannot claim legal professional privilege. This is open only to independent EEA-qualified lawyers working for external firms, it said.

The Advocate General's Opinion confirms earlier longstanding judgments from Luxembourg that EU law should treat these two kinds of advisors differently.

Legal professional privilege not only serves to ensure the rights of defence of the client but is also an expression of the lawyer’s status as an independent legal adviser and ‘collaborat[or] in the administration of justice’ who gives legal advice ‘to all those who need it’," said Kokott in her opinion. "Consequently, the freedom to engage in unimpeded and reliable communications with his client which legal professional privilege creates for a lawyer must be exercised by him in such a way as to ensure the proper administration of justice."

"In order to be able to avoid conflicts of interest between his professional obligations and the aims and wishes of his client, a lawyer must not enter into a relationship of dependence with his client," she wrote. "An enrolled in-house lawyer, however, is in just such a relationship of dependence. As I have already said, an enrolled in-house lawyer is not only part and parcel of the structures of the undertaking in whose legal department he works as an employee but is also more economically dependent on and identifies much more strongly with that undertaking than an external lawyer would."

"There is therefore a structural danger that an enrolled in-house lawyer – even if, as is usually the case, he is himself of good character and has the best intentions – will encounter a conflict of interests between his professional obligations and the aims and wishes of his company," she said.

The case concerned Akzo Nobel Chemicals Ltd (Akzo) and Akcros Chemicals Ltd (Akcros) and a European Commission investigation into a cartel in the plastics additives market.

The Commission carried out a raid at the UK premises of Akzo and Akcros in its role as the authority responsible for enforcing competition law in the European Union.

The companies objected to the Commission's taking of two sets of documents which they said were covered by the legal professional privilege applied to its communications with its in-house legal team.

The Commission took copies of the documents and kept them sealed while the parties disputed whether or not it could look at the documents.

The Commission's investigation continued and it eventually fined 24 plastics additives producers a total of €173,860,400. Akcros was amongst the companies fined, as were several companies in the Akzo Nobel group, though not the precise Akzo company involved in the CJEU case.

Kokott said that it was important to draw a distinction between external lawyers that might have many clients and in-house teams dependent on one company for their living. If legal professional privilege were extended to enrolled in-house lawyers, it could easily be abused, she said.

"The susceptibility of an enrolled in-house lawyer to conflicts of interest also makes it difficult for him to raise an effective opposition to any abuses of legal professional privilege. Such abuse may, for example, consist in handing over evidence and information to an undertaking’s legal department, under cover of a request for legal advice, for the sole or primary purpose, ultimately, of preventing the competition authorities from gaining access to that evidence and information."

"At worst, the functional departments of an undertaking may be tempted to misuse the company’s or group’s internal legal department as a place for storing illegal documents such as cartel agreements and records of meetings between the parties to those cartels and of the modus operandi of a cartel," she said.

"In view of the specific conflicts of interest and risks of abuse which may arise within an undertaking or a group of undertakings, it seems appropriate to me not to extend the protection afforded by legal professional privilege to internal company or group communications with enrolled in-house lawyers," said Kokott.

The Advocate General said that a previous case, AM&S, outlined specifically that legal professional privilege only applied to external legal advisors.

"In AM & S, the Court recognised that ‘the confidentiality of written communications between lawyer and client’ must also be protected at Community level (now, at European Union level). For the purposes of reliance on that protection, the Court identified two core cumulative conditions (‘criteria’) which it had drawn from a combination of the laws of all the Member States at that time," she wrote.

"First, the communication with the lawyer must have a connection with the exercise of the client’s rights of defence: it must be a ‘communication’ made ‘for the purposes and in the interests of the client’s rights of defence’ (connection with the rights of defence). Second, it must be a communication with an independent lawyer, that is to say with a lawyer who is ‘not bound to the client by a relationship of employment’ (independence of the lawyer)."

"I take the view that the legal position in the now 27 Member States of the European Union, even some 28 years after AM & S, has not developed in such a way as would require – today or in the foreseeable future – the case-law at European Union level to be changed so as to recognise enrolled in-house lawyers as benefiting from legal professional privilege," she said.

Advocates General publish their assessment of the arguments in cases before the CJEU as a guide to judges. The opinions are not binding but are followed in most cases.

Adrian Wood, a specialist in competition law at Pinsent Masons, the law firm behind OUT-LAW.COM, said that in the UK national-level investigations will allow in-house lawyers to keep communications secret, but that this would not apply in European Commission investigations.

"The Opinion recognises that EU States, such as the UK, that make no distinction for UK competition law enforcement purposes between the LPP rules applying to in-house and external lawyers should be allowed to maintain those rules in place for any competition investigations initiated at national level by the UK Office of Fair Trading or a UK sector regulator," he said. "If the Court of Justice confirms the opinion, as seems highly likely, clients will have to continue adopting artificial communication procedures with their external lawyers to limit the full impact of the ruling."

"The Advocate General recognises squarely the financial downside involved for companies in so doing, but was quite dismissive of complaints about increased costs in the face of her core arguments concerning the need for LPP to attach only to independently sourced legal advice."

Wood said that Akzo's unsuccessful attempts so far to overturn nearly 30 years of EU judgments has produced one small but in his view significant development in legal professional privilege for companies caught up in EU competition investigations.

"At an earlier stage in this litigation, the first level court ruled that legal privilege could apply to certain types of preparatory documents," he said. "If these are internal working documents or summaries that were created exclusively for the purpose of seeking legal advice from an external lawyer in the exercise of the rights of the defence they could be privileged, even if those documents had not been seen by an external lawyer and had not necessarily been created by an in-house lawyer."

"This has proved to be a welcome extension of privilege that will be unaffected by the final ruling of the Court of Justice," he said.