A new European ruling on competition matters has shaken the business community and dismayed lawyers. Matt Packer finds out about its effect on attorney-client privilege


What’s good for the law firm goose is evidently not for the in-house gander. That was the message to corporate counsel this week from Europe’s Court of Justice (CJ). Attorney-client privilege – a central tenet of customer relations in law firms – has typically been thought of as a grey area when it comes to communications in companies. But on 14 September, the CJ put it firmly off limits for in-house counsel.

The case that prompted this move goes back to February 2003. That month, European Commission officials and a team from the UK’s Office of Fair Trading (OFT) investigated the Manchester premises of Akzo Nobel Chemicals and Akcros Chemicals – companies that had been working as a joint venture since 1993. The grounds for the visit: suspected anticompetitive behaviour. At the premises, the OFT and Commission teams gathered a sizeable quantity of documents for use as evidence. Nothing particularly unusual about that.

What was unusual was the ensuing discussion between the investigators and proprietors over the nature of some of that material. In the legal wrangle that followed, the disputed paperwork was construed as two sets:

Set One consisted of a typed memo from the general manager of Akcros to his immediate boss. This memo outlined discussions conducted with Akcros employees concerning their knowledge of potential avenues for legal advice on competition law compliance. Also in the set was a duplicate of the memo, embellished with handwritten notes detailing contact with a named attorney.

Set Two contained further handwritten notes that were used in the creation of set one’s memo – plus an email chain between Akcros management and the Netherlands-based lawyer of business partner Akzo. The lawyer was identified as a permanent member of Akzo’s legal team – an in-house lawyer – and again, the subject at hand in the documents was competition law.

During the investigation, Akzo/Akcros staff told the visiting officials that the documents were, as the CJ put it, ‘likely to be covered by the protection of confidentiality of communications between lawyers and their clients (legal professional privilege, or LPP)’. For Akzo/Akcros, this was crucial to the integrity of their defence.

Powers of inspection

The resulting lawsuit – Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others – reduced the anticompetitive behaviour allegation to a virtual sideshow. The two sets of documents became the main attraction.

In October 2003, the European Court of First Instance (CFI) made an interim ruling that preserved confidentiality until a final judgment was made on whether the documents were covered by privilege. It was not until September 2007 that the CFI offered a ruling in the case – finding in favour of the Commission. Akzo/Akcros had argued that, under European Council Regulation 1/2003 (a directive set down to implement competition law), their contact with an in-house lawyer should be considered in the same terms as if it had occurred with an independent, external lawyer.

The CFI felt otherwise. It based its legal position on the 1982 test case AM&S Europe v Commission, which set terms according to which legal advice must be requested and given in the context of a client’s defence rights. The outcome of the case bound legal privilege exclusively to communications between businesses and their external lawyers, on the grounds that in-house lawyers do not have the same level of independence.

Akzo/Akcros were left to prove their exemption from AM&S Europe, and that their interpretation of Regulation 1/2003 was valid. By the time their case came to appeal, the UK government had joined their side as an official sponsor – such was the concern over the effect that the CFI ruling would have on business flexibility. But the CJ swayed not one inch from the lower court’s ruling. Contrary to Akzo/Akcros’s assertions, it said, Regulation 1/2003 ‘does not aim to require in-house and external lawyers to be treated in the same way as far as LPP is concerned, but aims to reinforce the extent of the Commission’s powers of inspection – in particular as regards documents which may be the subject of such measures’.

Again contrary to the appellants, the CJ stated that the rights of defence ‘are in no way undermined by the interpretation of the scope of LPP adopted by the General Court’. In a defence of European policy, the CJ added that, if LPP were defined at national level rather than European Union level, ‘that would give rise to complex and uncertain situations for all the persons concerned, which would prejudice the principle of legal certainty relied upon by Akzo and Akcros’.

Fundamental role

The business community has not taken the judgment well. Matthew Fell, director for competitive markets at the Confederation of British Industry (CBI), 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.’

In the wake of the original CFI ruling, specialist commercial litigators Blake Lapthorn issued guidelines on how companies should treat their documents in the event the decision was upheld. Now that it has been, those guidelines are worth repeating:

• Do not assume that all communications are privileged

• Keep privileged communications separate from non-privileged ones

• Circulate communications on legal advice strictly on a need-to-know basis

• Take care not to mix business advice with legal advice in the same documents, in case whole documents containing sensitive business data lose their privilege

• To guarantee protection, privileged documents could be sent through an external lawyer who is qualified to practise in member states.

Law firms have been keen to demonstrate that they see the business world’s point on the issue. Andy Millmore, head of litigation at London-based practice Harbottle & Lewis, said: ‘It's a disappointing decision for UK businesses. Quite rightly, the government got involved in the case to express its concern, but to no avail.’ Millmore pointed out that the scope of the judgment is limited to investigations into anticompetitive behaviour. However, he added: ‘That still means that UK companies which employ in-house lawyers will now need to consider carefully from whom they seek legal advice on competition law matters.’

International group the Association of Corporate Counsel (ACC) went even further, saying that it was ‘dismayed’ by the ruling. ‘In-house counsel are top legal practitioners who are just as capable as their outside counsel counterparts,’ said ACC general counsel Susan Hackett. ‘The idea that professional independence stems from the type of office a lawyer works in, rather than from their moral and professional compass, evidences a deep misunderstanding of legal professionalism and lawyers,’ she added.