ECJ deals blow for in-house professional legal privilege in Akzo Nobel ruling

In-house counsel have no right to professional legal privilege in cartel investigations carried out by the European Commission, the European Court of Justice (ECJ) has held today.

Akzo Nobel NV, the world’s biggest maker of paints, was told this morning it had lost its bid to extend legal privilege to competition investigations by the European Commission.

The decision confirms the position of the Advocate General Juliane Kokott who in April published a legal opinion stating: “There is a structural risk that an enrolled in-house lawyer will encounter a conflict of interest between his professional obligations and the aims and wishes of his company, on which he is more economically dependent and with which, as a rules, he identifies more strongly than an external lawyer.”

The dispute began in February 2003 when the European Commission  carried out antitrust raids at Akzo Nobel’s Manchester offices. Officials at the raid confiscated documents which, Akzo Nobel argued, were privileged communications between employees and its in-house counsel. 

In April 2003, the company challenged the right of the EC to have access to the communications.  That decision went against Akzo Nobel and it appealed to the ECJ to have the ruling overturned.

The court’s decision today confirms the stance taken by Europe in 1982 when it ruled in AM&S Europe v Commission that legal advice can only be privileged where it is connected to ’the client’s rights of defence’ and, second, where it emanates from ’independent lawyers’, that is to say ’lawyers who are not bound to the client by a relationship of employment’.

In a statement the ECJ said: “The court considers that the current legal situation in the member states does not justify consideration of a change in the case law towards granting in-house lawyers the benefit of legal professional privilege.

“Similarly, the evolution of the legal system of the European Union and the amendment of the rules of procedure for competition law are also unable to justify a change in the case-law established by the judgment in AM& S Europe v Commission.”

Akzo Nobel had built up strong support for its case across the European Union. Several organisations including the European Company Lawyers Association, American Corporate Counsel Association (ACCA) and the International Bar Association, intervened in support of the appeal.

MARKET REACTION:

Linklaters senior consultant Sir Christopher Bellamy QC commented: “This is a disappointing judgment. In modern circumstances the primary enforcer of competition law is often the in-house lawyer. In my view, that role should be strengthened, not weakened. This judgment, however, makes it more difficult for companies to take effective and prompt advice from their in-house legal department, and will I fear prove counter-productive, quite apart from the underlying issue of fundamental rights.”

Matthew Fell, CBI Director for Competitive Markets, said: “We are very disappointed that the Court has not taken the opportunity to bring the 30-year-old case law up to date and recognise the fundamental role that in-house lawyers play in competition law compliance.”

Law Society chief executive Desmond Hudson said: “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. 

Ashurst competition partner Euan Burrows  said:”The ECJ’s judgment is a missed opportunity. There’s never been any suggestion that OFT investigations under the Competition Act 1998 are impeded by the fact that the OFT may not examine communications with in-house lawyers because they are privileged.  The ECJ’s judgment confirms the muddled status quo for companies who must continually second guess whether advice from their in-house team may end up before the European Commission.”