European Court of Justice Rules that Communications Between In-House Counsel and its Client are Not Entitled to Privilege
On September 14, 2010, the European Court of Justice (ECJ) affirmed a lower court ruling which held that the concept of privilege under European Union (EU) law does not apply to communications between a company and its in-house counsel. The decision in Akzo Nobel Chemicals Ltd. v. Commission was based, in part, on the observation that in-house lawyers are economically dependent on their employers and therefore cannot be regarded as truly independent.
The ECJ defined independence as "the absence of any employment relationship between the lawyer and his client." The in-house counsel's economic dependence and close ties with the company (i.e., its employer), puts him in a different position than that of the outside lawyer. As an employee of the company (and not as an independent lawyer), the in-house counsel is believed to be unable to ignore the commercial strategies of his client, thereby affecting his ability to exercise professional independence. On this basis, the ECJ reasoned that communications between commercial managers and their in-house counsel should not be subject to legal professional privilege.
The ECJ's decision confirms that, in the context of EU Commission investigations, communications sent to or by internal lawyers, regarding legal advice on a possible case against the company, would not be protected by privilege, whereas the same communications might have been protected by privilege if they had been sent to or by an outside lawyer who is licensed to practice in the EU. For the purpose of such investigations under EU law, communications with in-house counsel will not be privileged unless they clearly demonstrate that they are made exclusively for the purpose of seeking legal advice: (1) in the exercise of a company's "rights of defence," and (2) from an outside lawyer qualified to practice in the EU. This decision recognizes a legal environment in the EU which differs from that in the U.S., where the protection provided by attorney-client privilege can be extended to communications with both in-house lawyers and outside counsel.
U.S. and foreign companies (and their counsel) should be especially aware that the Akzo decision does not disturb previous EU case law which holds that only advice from a lawyer who is entitled to practice in an EU member state can be protected by legal privilege. This means that, in EU Commission cases, companies cannot claim privilege with respect to communications obtained from lawyers who are only qualified to practice in the U.S. As Advocate General Kokott explained in an earlier opinion in the Akzo case, some of the reasons for not extending the legal professional privilege to communications with lawyers who are not qualified in the EU is the lack of "mutual recognition of legal qualifications and professional ethical obligations to which lawyers are subject in the exercise of their profession" and the possibility that the legal tradition of the non-EU lawyer's licensing country does not enable a lawyer to exercise his profession independently. The Advocate General's rationale stands in contrast to the legal tradition in the U.S. where the attorney-client privilege can often be asserted to protect communications with both U.S.-licensed lawyers and lawyers who are not licensed in the United States.
The Akzo decision serves as a reminder that the legal traditions in the EU and other non-U.S. countries may vary significantly from those in the United States. Such differences may be present in a variety of areas, including attorney-client privilege, work product protection, privacy protection, and duties of disclosure. These differences can have a significant impact when a foreign party is involved in litigation in a U.S. court, as the legal framework of a foreign jurisdiction may dictate what information is discoverable in U.S. litigation. As a result, discovery, including document production and collection, can bring unique issues when a foreign party is involved in U.S. litigation.
If you have questions or concerns regarding discovery issues in cases involving foreign parties, the E-Discovery Team at Buchanan Ingersoll & Rooney is available to help.