CFI’s in-house privilege ruling lambasted

Last week (17 September) Europe’s second highest court, the Court of First Instance (CFI), ruled against Akzo Nobel in the case of Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (www.thelawyer. com, 17 September).

The decision reaffirmed the conclusions reached in the case of AM&S Europe v Commission of the European Communities in 1983. Here the European Court of Justice (ECJ) held that AM&S could not withhold privileged communications made by its in-house lawyers from the Commission.

The decision has sparked widespread criticism from in-house lawyers and competition lawyers in private practice.
PartyGaming’s general counsel Andrew Fritchie said: “I think the decision is the most wrong-headed and commercially naive judgment I’ve heard in a very, very long time.”

At the time of judgment the CFI stated that the ECJ had specifically held that the protection only applied to the extent that the lawyer is independent, meaning that the lawyer should not be bound by any affiliation of employment, and had expressly excluded communications with in-house lawyers.

The majority of lawyers have said the judgment is flawed as it is based upon the assumption that in-house lawyers, as salaried employees of an organisation, are not independent of the organisation.

As such, in-house lawyers are not privy to the legal privilege enjoyed by external lawyers. Lawyers have expressed that the decision displays a general lack of understanding of the scope of an in-house lawyer’s role within an organisation.

“The decision is based on a flawed assumption that in-house counsel are conflicted between duties to the employer and the special duty owed by lawyers as officers of the court to uphold the law,” said Alliance Boots group legal counsel Marco Pagni, whose view is shared by many.

“It’s essentially a more general problem that commercial people don’t understand” said one global general counsel of a technology company. “I sent a document out to our internal commercial team last week and they sent it out to 15 people – it’s already difficult to maintain these privileges.”

Honda UK head of legal Daniela Baker said: “It’s
disappointing that this decision doesn’t reflect reality.”
Conversely, lawyers have also said that the ruling may have taken the view that in-house lawyers across Europe are not subject to harmonised standards.

“In-house lawyers throughout Europe are not uniform
in terms of qualifications, independence and a number of other factors,” said Berwin Leighton Paisner (BLP) competition partner Adrian Magnus.

Despite this, Magnus added that the move by the CFI
is still “inappropriate and
somewhat arbitrary”.

His view is supported by a large number of in-house lawyers, who say that, although the decision was expected to be in favour of the Commission, it effectively makes the work of an in-house lawyer that much harder.

Global general counsel at CMC Markets Dominic Bacon said: “Lawyers are increas-ingly being asked to be the guardians of corporate governance, but to do their jobs properly they need to have their advice protected in the same way as an external lawyer.”

Pagni agreed, saying: “I think it’s wrong that solicitors and barristers in private practice are assumed to be above
pressure from clients in a way that in-house counsel are not.”

The ruling will bring tighter boundaries and added pressures to the realm of the in-house lawyer. In-housers will now exercise added care in providing advice to their clients, with most saying that the ruling has only made their jobs more difficult.

Every document recording communication between in-house lawyers and their clients is now legally available to the Commission, should the need to review the documents arise.
Magnus said the move may even affect the confidence of in-house lawyers.

Canon Europe general counsel Gordon Stewart expressed a similar view. “It’s a constraint, in short. They’ve made it more difficult to give advice, which is frustrating,” he said.

The move will no doubt add increased pressure on in-house lawyers, who will be forced to think twice when approached for advice. Some competition partners have expressed the view that the ruling may lead to increased formal appointments.
“To ensure the privileges, in-house lawyers will have
to use external lawyers,” said one competition partner at a
City firm. “If it’s particularly sensitive or complex, then it may be the safest bet.”

Magnus added that the protection under legal privilege applies to all documents seized in a dawn raid exercise, and as such internal lawyers may now turn to alternative communication methods.

Some competition lawyers suggested that in-house lawyers may now prefer to have conversations on the phone and avoid emails.

The debate appears one-sided: in-house lawyers are disappointed and competition lawyers are trying to understand the rationale behind the ruling, while lobby groups such as the Law Society have clearly expressed their discontent at the CFI’s ruling.

But whether the decision will lead to in-house lawyers turning to clever communication methods, increased appointments of external lawyers or finding that their advice is not sought remains to be seen.

CMC’s Bacon said: “People will be less willing to seek
our advice and may proceed without sufficient legal input.
“That cannot be what the legislators want.”