ECJ Decision in Akzo Nobel: Missed Opportunity to Extend In-House Privilege

The European Court of Justice (ECJ) decision in Akzo Nobel Chemicals Ltd. v. Commission on September 14, 2010, affirmed the position that communications between in-house lawyers and the company are outside the scope of the legal professional privilege.

Akzo is the latest in a line of European decisions (especially in the UK courts) suggesting that some courts are taking a more restrictive view on scope of privilege. For companies and in-house lawyers, this case should serve as a reminder to maintain awareness of disclosure obligations—and to take steps to protect sensitive material that may be used against them in litigation.

Azko Nobel Asserts Privilege in Wake of Raid

The European Commission, assisted by the UK Office of Fair Trading (OFT), seized a number of documents during a dawn raid at the premises of Akzo Nobel in the UK. The company claimed that some of the documents, including email correspondence between Akzo's general manager and the company's competition law co-coordinator (an in-house lawyer who was registered with The Netherlands Bar) were privileged. The Commission disagreed, and Akzo challenged the Commission in the European Court.

A number of professional bodies intervened in the proceedings. It had been hoped that the ECJ would find in favour of Akzo and overturn the 30-year old case law of AM&S v. Commission, which held that privilege was not available to in-house lawyers in the context of investigations by the European Commission in competition matters.

However, the ECJ instead confirmed the existing position with regard to antitrust investigations by the Commission: that any communication by in-house lawyers will not be privileged and can therefore be seized and relied upon as evidence.

ECJ: Lawyer–Company Relationship Lacks Independence

The ECJ's decision is one of policy. The Court was mindful of the need to balance the desirability of maintaining confidentiality in lawyer–client communications with having, in the interest of justice, all appropriate material before the Court. The ECJ concluded that because of the close economic ties between in-house lawyers and their employers, they lacked the necessary degree of independence when giving their advice.

As the ECJ put it:

Notwithstanding the professional regime applicable in the present case in accordance with the specific provisions of Dutch law, 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.

Decision Applies Only to Competition Investigations

While the decision in Akzo is a source of concern for the legal community—and particularly the in-house community—its application is, in fact, fairly narrow. It applies to competition investigations by the European Commission only. It does not affect the position in individual member states or non-EU countries unless the investigation is being conducted by the Commission.

In these instances, however, the reach of the decision does extend to communication with lawyers not just within the EU, but also outside the EU. Documents created by in-house lawyers that are accessible from the EU will not be privileged, regardless of their point of origin, and regardless of whether or not they would be privileged under the jurisdiction of that location.

What In-House Counsel Can Do

Documents prepared by in-house lawyers and clients will attract privilege only where they are prepared exclusively for the purpose of seeking legal advice from an external lawyer. Privilege does not extend, in any situation, to advice from a lawyer unless the sole purpose of that communication is legal advice.

Companies and in-house lawyers can, however, take steps to protect material that could be subject to mandatory disclosure during antitrust investigations by the Commission. Such measures include:

• Conduct company investigations orally
• Resist preparing notes, minutes or files related to company investigations
• Review electronic mail policies related to communications
• Instruct external lawyers to provide advice in the context of defense
• Mark sensitive communications between an external lawyer and the company as "Privileged and Confidential"

Akzo Decision Will Not Be Last Word

Akzo is the latest in a line of decisions that indicate a narrowing of the scope of privilege and a particularly restrictive view being taken by the courts. Last year, the High Court in the UK handed down judgment  in Prudential v. Special Commissioner of Income Tax which stated that legal professional privilege does not extend to advice on tax law given by accountants. It was held that privilege is linked to the legal profession and not just to the purpose and nature of the advice sought.

If the trend is to continue, companies may find communications with in-house lawyers lack privilege in other types of investigations. The Akzo decision will surely not be the last word on the subject.