This opinion applies European Union law and upholds a lower court’s ruling that a company’s written communications with its in-house lawyer in charge of coordinating compliance with anti-competition laws are not privileged.  The opinion holds that by virtue of the employment relationship that exists between an in-house lawyer and his or her company, in-house lawyers are “as a matter of law” not sufficiently “independent” to render their communications subject to the attorney-client privilege. 

Factual Background
This case involved an investigation by the European Commission (the “Commission”) into possible anti-competitive practices by two entities, Akzo Nobel Chemicals Ltd. (“Akzo”) and Akcros Chemicals Ltd. (“Akcros”) and their subsidiaries (collectively, the “company”).  An on-site investigation occurred in 2003 at one of the company’s facilities in the United Kingdom, during which Commission officials took numerous documents.  A dispute arose regarding the allegedly privileged status of certain documents.  In particular, the company contended that two e-mails exchanged between the General Manager of Akcros and the “coordinator for competition law” for Akzo were covered by the legal professional privilege (i.e., the “attorney-client privilege”).  Akzo’s “coordinator for competition law” was a member of Akzo’s legal department, and therefore an employee of the company, and was admitted as a member of the Netherlands Bar.  The two e-mails at issue involved: (1) a request for comments on a draft letter to be sent to a third party, and (2) changes to the wording of the draft letter. 

The appellate court began its analysis by recognizing that in Case 155/79 AM & S Europe v. Commission [1982] ECR 1575 the court had, taking account of the common criteria and similar circumstances existing at the time in the national laws of its Member States, previously held that the confidentiality of written communications between lawyers and clients should be generally protected, but that such protection was subject to two conditions: (1) the exchange with the lawyer must be connected to the client’s right of defense, and (2) the exchange must emanate from “independent lawyers, that is to say lawyers who are not bound to the client by a relationship of employment.”

The court then addressed the company’s contention that these criteria must not be interpreted so broadly as to exclude communications by in-house lawyers.  In that regard, the company argued that an in-house lawyer enrolled with the Bar was, by virtue of his or her obligations of professional conduct and being subject to discipline, just as independent as an external lawyer.  The rules of professional ethics and discipline applicable to the lawyer, the company argued, make the lawyer’s employment relationship with the company fully compatible with the concept of an “independent” lawyer.  The company further pointed out that the contract of employment for the in-house lawyer at issue required the company “to respect the lawyer’s freedom to perform his functions independently and to refrain from any act which might affect that task.”  The contract also required the lawyer to comply with all professional obligations imposed by the Netherlands Bar which has its own code of conduct and supervisory authority over admitted lawyers.

The appellate court noted that the requirement of independence is based on the conception of the lawyer’s role as “collaborating in the administration of justice and being required to provide, in full independence, such assistance as the client needs.”  The counterpart to this protection, the court explained, lies in rules of professional ethics and discipline which are laid down and enforced in the general interest.  Emphasizing its prior statement in AM & S – that the communication must be exchanged with “an independent lawyer, that is to say one who is not bound to his client by a relationship of employment” – the court stated “[i]t follows that the requirement of independence means the absence of any employment relationship between the lawyer and his client, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers.”  (Emphasis added).

The court went on to explain that “[a]n in-house lawyer, despite his enrollment with a Bar or Law Society and the professional ethical obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client.  Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.”

The court further concluded that although the professional ethical obligations under Dutch law might strengthen the position of an in-house lawyer within a company, “the fact remains that they are not able to ensure a degree of independence comparable to that of an external lawyer.”  Accordingly, regardless of any professional obligations under 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.”

The court also pointed out that the fact the lawyer’s position was one of “competition law coordinator” was demonstrative of the fact that an in-house lawyer’s employment can require tasks “which may have an effect on the commercial policy of [the company]” which “cannot but reinforce the close ties between the lawyer and his employer.”  Thus, the court concluded, “[i]t follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.”

The appellate court next addressed the company’s argument that the court’s interpretation of the requirements for application of the attorney-client privilege violated the principle of “equal treatment” which is a general principle of European Union law.  This principle requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified.  In responding to this argument, the appellate court stated it is clear “despite the fact that he may be enrolled with a Bar or Law Society and that he is subject to a certain number of professional obligations, an in-house lawyer does not enjoy a level of professional independence equal to that of external lawyers.”  The court further rejected the notion that the Netherlands legislature’s treatment of in-house and external lawyers as equal for purposes of admission to the bar and the professional obligations imposed by such admission required equal application of the privilege, finding that the legislative framework “does not alter the economic dependence and personal identification of a lawyer in an employment relationship with his [company]” and that it therefore “follows …that in-house lawyers are in a fundamentally different position from external lawyers, so that their respective circumstances are not comparable ….”  Accordingly, there was no breach of the principle of “equal treatment.”

The court then turned to the alternative argument that even if the AM & S decision supported a finding of no privilege, the lower court had wrongly refused to widen the personal scope of the privilege on the ground that national laws were not unanimous and unequivocal in recognizing a privilege for communications with in-house lawyers.  The company argued that notwithstanding the lack of uniformity at a national level, the lower court “could set legal standards for the protection of the rights of defence which are higher than those in certain national legal orders.”  The court noted that, in considering the application of privilege, AM & S had acknowledged the need to take into account principles and concepts common to the laws of the Member States concerning the observance of confidentiality, particularly with respect to communications between lawyer and client.  However, the court in AM & S had explained that while protection of written communications between a lawyer and client is generally recognized, the scope and criteria for applying such protection can vary in accordance with different national rules.  The appellate court concurred with the determination that even though specific recognition of the role of in-house lawyers and the protection of their communications under the concept of privilege was “relatively more common in 2004 than when the judgment in AM & S Europe v. Commission was handed down [in 1982], it was nevertheless not possible to identify tendencies which were uniform or had clear majority support in the laws of the Member States.”  In that regard the court noted that a large number of Member States still exclude correspondence with in-house lawyers from protection under the privilege, and a considerable number of Member States do not allow in-house lawyers to be admitted to a Bar or Law Society, and thus do not recognize them as having the same status as lawyers established in private practice.  Accordingly, there is “no predominant trend towards protection under [the attorney-client privilege] of communications within a company or group with in-house lawyers … in the legal systems of the 27 Member States of the European Union” and “the legal regime in the Netherlands cannot be seen as signaling a developing trend in the Member States, or be a relevant factor for determining the scope of [the privilege].” 

The court of appeal next rejected the company’s argument that the “modernization” of procedural rules regarding cartels under European Union law “has increased the need for in-house legal advice, the importance of which should not be underestimated in preventing infringements of competition law, since in-house lawyers are able to rely on intimate knowledge of [companies and their activities]” and that establishment of compliance programs, which are in the interest of correct application of the competition law, “requires that exchanges within a [company] with in-house lawyers may take place in a confidential environment.”  The court acknowledged that there had been a large number of amendments to the rules of procedure, but explained that they did not suggest that lawyers in independent practice and in-house lawyers need to be treated in the same way with regard to attorney-client privilege since the issue of privilege was “not at all the subject matter of the regulation.”  The court noted that detection of infringement of the competition rules was growing ever more difficult, and that the regulations recognized the need for “broad” definition of the powers of the Commission.  Thus, it concluded, the regulations do not evidence an intent to require in-house and external lawyers to be treated the same way as far as attorney-client privilege, but rather “aim to reinforce the extent of the Commission’s powers of inspection, in particular as regards documents which may be the subject of such measures.”  Accordingly, the amendments to the regulation did not justify a change in the case law established by AM & S Europe v. Commission.

The court then turned to the company’s argument that the trial court’s ruling would “lower [] the level of protection of the rights of defence of [companies]” and that “[r]ecourse to legal advice from an in-house lawyer would not be as valuable and its usefulness would be limited if the exchanges within [a company or group] with such a lawyer were not protected by [the attorney-client privilege].”  In making this argument, the company contended that the rights of defence must include the right of freedom of choice as to the lawyer who will provide legal advice and representation and that attorney-client privilege forms part of those rights, regardless of the professional status of the lawyer concerned.  The court of appeal noted that in all proceedings in which sanctions, especially fines or penalty payments, may be imposed observing the rights of the defence is a fundamental principle of European Union law.  However, the court explained that when a company seeks advice from its in-house lawyer, it is not dealing with an independent third party “but with one of its employees, notwithstanding any professional obligations resulting from enrollment at a Bar or Law Society.”  The court further explained that even assuming consultation of in-house lawyers by the company was covered by the right to obtain legal advice and representation, that would not preclude application, where in-house lawyers are involved, of restrictions and rules relating to the exercise of their professional duties.  In that regard, the court noted that in-house lawyers are not always able to represent their employer before national courts, although such rules obviously restrict the possibilities open to potential clients in their choice of the most appropriate legal counsel.  Accordingly, “[i]t follows … that any individual who seeks advice from a lawyer must accept the restrictions and conditions applicable to the exercise of that profession.  The rules on [attorney-client privilege] form part of those restrictions and conditions.”

The court also rejected the company’s argument that the trial court’s ruling undermined the principle of “legal certainty” and that attorney-client privilege for correspondence with in-house lawyers should no be dependent on whether it is the Commission or a national competition authority that carries out an investigation.  The court acknowledged that certainty was a general principle of European Union law which requires that rules involving negative consequences for individuals should be clear and precise and their application should be predictable for those subject to them.  However, the court explained that the lower court’s ruling did not give rise to any legal uncertainty as to the scope of that protection.  The court noted that the Commission’s powers under the regulations may be distinguished from investigations which can be carried out at the national level, and that the availability of both means of inquiry was based on a division of powers between the various competition authorities, and thus the rules regarding attorney-client privilege could vary according to that division of powers and the rules relevant to it.  In that regard, the court concluded that companies who are subject to investigation are able to determine their rights and obligations based on the authorities and law applicable.  Accordingly, “the principle of legal certainty does not require that identical criteria be applied as regards legal professional privilege.”

Finally, the court turned to the company’s argument that the ruling of the lower court taken in totality violated the principle of “national procedural autonomy”  and the principle of “conferred powers.”  The company argued that regulations of the European Union legislature expressly provided that even in cases of inspections carried out at the request of the Commission, the agents of the national competition authority are to exercise their powers in accordance with their own national rules.  Thus, since the European Union legislature has not provided a harmonious definition of the attorney-client privilege, the Member States should remain sovereign to decide that specific issue that is part of the right of defence.  The court of appeal explained that under the principle of national procedural autonomy, absent European Union rules governing the matter, “it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from European Union law.”  However, in this case, the trial court’s decision was rendered with respect to the legality of conduct taken by an institution of the European Union (the Commission) on the basis of a regulation adopted at the European Union level, which, moreover, does not refer back to national law.  Uniform interpretation and application of the principle of attorney-client privilege at the European Union level, the court explained, is essential so that inspections by the Commission can be carried out under conditions in which the company is treated equally.  If this were not the case “the use of rules or legal concepts in national law and derived from legislation of a Member State could adversely affect the unity of European Union law.”  Such an interpretation and application of that legal system cannot depend on the place of the inspection or any specific features of the national rules.
With respect to the issue of conferred powers the court explained that national law is applicable in the context of investigations conducted by the Commission as European competition authority only insofar as the authorities of the Member States lend their assistance.  “However, the question of which documents and business records the Commission may examine and copy as part of its inspections under antitrust legislation is determined exclusively in accordance with EU law.”

This decision has significant implications for entities, individuals and lawyers that are subject to the jurisdiction of the EU, and/or conduct business with EU companies and/or have communications with their in-house counsel.  These parties must consider, in communicating with in-house counsel, that such communications may not be subject to the attorney-client privilege.

The case is also noteworthy for the fundamental principle that serves as the basis for the ruling – i.e., that the professional conduct of in-house lawyers is necessarily subject to a greater level of influence by a corporate client simply by virtue of the employment relationship.  The decision does not discuss in detail why this alleged diminution of independence should render communications carried out in furtherance of the attorney-client relationship subject to less protection.  There is a suggestion, at least implicitly, that in-house lawyers are likely to try and assist their corporate client/employer in engaging in wrongdoing, motivated by the company’s economic concerns.  However, it is not clear that mere consideration of the economic interests of a company (particularly in an area like compliance with anti-competition laws) necessarily equates to advising a course of conduct in violation of the law or that is otherwise unethical.  To the contrary, it may well be in the best economic interests of the company to ensure that it complies with all such laws.

The full scope and application of the decision remains unclear.  For example, does it apply to “any” communication in which the in-house lawyer is involved?  Would communications by a lawyer in the US legal department of an international corporation be subject to disclosure if the company found itself under investigation by the Commission in one of the EU Member States?

Finally, it is noteworthy that numerous legal associations and third parties intervened in the appellate proceedings, arguing against adoption of the lower court’s ruling.  This included organizations such as The Conseil des Barreaux europeen, the Algemene Raad van de Netherlands Orde van Advocaten, the European Company Lawyers Association, the Association of Corporate Council Association, the International Bar Association, and the United Kingdom of Great Britain and Northern Ireland and the Kingdom of the Netherlands.