EU must resolve the issue of in-house privilege

The European Court of First Instance has clarified the scope of legal professional privilege in competition investigations and prescribed the procedures to be followed by the European Commission in cases where the privileged status of documents is disputed, such as in dawn raids.

In a significant judgment, the European Court of First Instance (CFI) has clarified the scope of legal professional privilege (LPP) in competition investigations and prescribed the procedures to be followed by the European Commission in cases where the privileged status of documents is disputed, for example during dawn raids.

In its judgment in Akzo Nobel and Akcros Chemicals v European Commission last month (September), the CFI confirmed that, once the Commission has begun an investigation, communications between a client and its external lawyer relating to the investigation’s subject matter are protected by LPP. Earlier communications prepared exclusively for the purpose of seeking legal advice in relation to the subject matter of the investigation will also be protected.

In this case, the internal documents were:#a note prepared by a manager for the purposes of recommending to his superior how certain practices should be altered in the light of competition law concerns;#that note annotated in the light of a subsequent discussion with Akzo’s external lawyers to whom it had been sent; and#handwritten notes of employee interviews made by the manager in preparation for drafting the note.

As none of the materials had been prepared exclusively for the purposes of obtaining external legal advice, they were not privileged.

The CFI was also asked whether LPP should extend to in-house lawyers. In 1982, in AM&S Europe v Commission of the European Communities, the European Court of Justice (ECJ) had concluded that in-house lawyers lacked the independence and overriding duties to the court characteristic of lawyers in independent practice.

The Council of Bars and Law Societies of Europe, the Dutch Bar and the International Bar Association (IBA), among others, interv-ened to argue that privilege should be extended to in-house lawyers, at least those belonging to the local bar and subject to its disciplinary rules. The CFI refused, however, to extend this protection to communications between in-house counsel and their internal clients.

While this may have been bad news from Akzo’s point of view, the CFI stressed the wider importance of ensuring that communications between lawyers and their clients remain confidential. The CFI found that the Commission could cause “irreparable harm” to a company simply by casting a “cursory glance” at potentially privileged documentation during a dawn raid. It confirmed that such harm could not be undone by excluding the documents from the investigation.

The CFI went on to say that, where the status of documents is in dispute, a company should, where possible, allow the Commission to skim read the superficial features of a document to assess a claim for LPP. If the Commission then rejects the LPP claim, the document should be sealed in an envelope.

If even a brief examination would undermine LPP, the document should be sealed in an envelope without being looked at. The Commission would then take the envelope away and issue a decision rejecting the LPP claim, which the company can challenge before the CFI. However, as such a challenge would not have a suspensory effect and if the Commission is to be prevented from looking at the documents the company would need to obtain interim relief.

Although the CFI’s procedural protections are well intentioned, the president of the ECJ has previously held that there is no need to grant interim relief in such cases, as a company’s rights are adequately protected against removing documents that have been improperly obtained from the file. Without a change in approach from the ECJ, there is a risk that the CFI’s procedural protections may prove ineffective in practice.

One other question that remains unanswered by the judgment is whether legal advice from external lawyers that does not relate to the subject matter of a Commission investigation can attract LPP. While it may be safe from Commission inspection on grounds of relevance, it would be useful for the European courts to clarify that all communications between external lawyers and their clients exchanged for the purposes of obtaining legal advice are privileged.