An Akzo Nobel cause?

The European Court of Justice’s (ECJ) decision to refuse in house counsel legal privilege in cartel cases has been met with disapproval by the British legal community.

David Hull
David Hull

The hotly awaited ruling was handed down yesterday (Tuesday 14 September), bringing to an end a six-year legal battle between chemical manufacturer Akzo Nobel and the European Commission (EC).

The snowballing case was kick-started in February 2003 when the EC sent officials on a dawn raid at Akzo Nobel’s Manchester office. The officials seized documents including emails which, Akzo Nobel argued, were privileged communications between employees and its in-house counsel.

Just months after the raid Akzo Nobel launched proceedings against the EC arguing that its in-house counsel had a right to privilege.

For more than two decades the EC has prevented in-house counsel from privilege in competition cases. The 1982 ruling given in AM& S Europe v Commission held that legal advice could only be privileged where it had been provided by external counsel. The main reason for this, it said, was because in-house counsel could be unduly influenced by the needs of the company.

Akzo Nobel’s attempt to challenge that ruling failed at the first instance in 2003 and it took the case to the ECJ. It argued that compliance demands on in-house lawyers at multinational companies had changed massively.

Covington & Burling partner David Hull, who was instructed to act for one of the several interveners, the Association of Corporate Counsel Europe, said: “At a time when the EC is imposing ever-increasing fines on companies that fail to comply with the competition rules, compliance with these rules is of paramount importance to companies.”

Therefore, Hull argued, it is essential for in-house counsel to enjoy legal privilege so they can adequately advise on company compliance issues.

The Law Society, which has long lobbied for privilege to be applied to in-house counsel, also gave its backing to Akzo Nobel.

In its ruling the ECJ disagreed, rejecting Akzo Nobel’s appeal; “An in-house lawyer, despite his enrolment with a Bar or Law Society and 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.”

This echoed, almost to the word, the legal opinion provided by the attorney general Juliane Kokott in April.

Law Society chief executive Desmond Hudson commented: “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.”

Linklaters senior consultant Sir Christopher Bellamy QC labelled the ruling “disappointing”. The CBI’s director for competitive markets Matthew Fell said the ECJ had missed an opportunity to “recognise the fundamental role that in-house lawyers play in competition law compliance”.

Yet on a domestic level at least in-house counsel do enjoy legal privilege in all areas of the law.

While the judgment is high on the agenda of many lawyers, it should be remembered that it will only apply to cartel and competition investigations carried out  by the EC.

As one senior competition partner said, “There has been a lot of hoo-ha about this ruling, but really it won’t change anything. It just means that external lawyers will continue to get instructions from in-house counsel”.