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EU court denies privilege protection to in-house lawyers

|Written By Andi Balla
EU court denies privilege protection to in-house lawyers

The European Union’s highest court has ruled in-house lawyers cannot use solicitor-client privilege in communications that come under investigation by EU’s competition watchdog.

The highly anticipated Sept. 14 decision by the European Court of Justice in Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v. European Commission has drawn concern in the global legal community.

“An in-house lawyer cannot, whatever guarantees he has in the exercise of his profession, be treated in the same way as an external lawyer, because he occupies the position of an employee which, by its very nature, does not allow him to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence,” says the decision by a panel of 11 ECJ judges.

The Luxembourg-based court adds, “the in-house lawyer’s economic dependence and the close ties with his employer” mean “he does not enjoy a level of professional independence comparable to that of an external lawyer.”

The ruling closely follows the recommendation made to the court by Advocate General Juliane Kokott, on which InHouse reported earlier this year.

But the ECJ ruling has been a hard pill to swallow for the international community of in-house lawyers. The Association of Corporate Counsel, which represents more than 25,000 in-house counsel members around the world, including many in Canada, says the decision reflects an antiquated view of the in-house legal counsel.

“We are dismayed that the ECJ did not seize the opportunity to recognize the independent judgment and value of the in-house profession,” says Susan Hackett, ACC’s general counsel. “Since in-house counsel play such a vital role in assuring that their companies comply with the law, the ECJ should be promoting — not demoting — their capacities.”

In a statement, the ACC also said the ruling would have “the perverse effect of undermining the efficacy of corporate compliance in multinational companies.”

While in Canada courts have consistently afforded privilege protection to both in-house and private practice lawyers, the EU ruling would affect Canadian companies with subsidiaries in the European Union and many other multinational companies.

“The ECJ ruling has serious ramifications as it denies in-house attorneys and multinational businesses in Europe and elsewhere the critical legal counsel on competition law matters that companies working in today’s global legal marketplace require,” says J. Daniel Fitz, a former ACC board chairman in the United Kingdom.

“This puts companies who rely on the expert advice of their in-house lawyers at a disadvantage by forcing them to divulge confidential communications and jeopardizing their standing in litigation matters, as well as day-to-day business.”

Randy Hughes, a partner and head of the competition group at McCarthy Tétrault LLP in Toronto, says most EU competition cases are international in nature so the ruling could affect Canadian companies and counsel that do business related to the European Union, placing them in jeopardy.

“Companies and their counsel need to be prudent in their communications under these circumstances,” says Hughes.

Adam Fanaki, a partner at Davies Ward Phillips & Vineberg LLP in Toronto, says the judges usually follow the advocate general’s recommendation, so the decision should not come as a surprise. But the ruling is going to make it more difficult for in-house counsel to give advice to their employers and will force them to do their communications face to face rather than through e-mails or letters.

Solicitor-client privilege is a fully recognized concept in North America and the United Kingdom regardless of whether the lawyer works for a company or an external firm. However, many EU countries do not traditionally extend the same privilege to in-house lawyers. That tradition has now been upheld for the entire European Union, although it faces a lot of opposition, particularly in Britain.

“In-house lawyers are the front-line guarantor of compliance. It is sad that while the EU strives to legislate for higher standards of corporate governance and risk management, the decision of the court in effect rejects this key tool in achieving this aim,” says U.K. Law Society chief executive Desmond Hudson.

The Akzo case stems from a raid on the offices of one of the world’s largest plastics companies, which EU regulators accused of running cartel practices. Two e-mails between the company and their in-house counsel were found, and the company wanted them excluded from the case. The EU General Court handed the original ruling in the case, saying the company’s claim should be dismissed. The claim was then appealed to the European Court of Justice in Luxembourg.