The dismissal of the Akzo appeal by the European Court of Justice on 14 September 2010 is a major concern for General Counsel. Businesses trading globally face significant risks that communications with in-house Counsel may not be protected by legal privilege under the laws of other jurisdictions including the EU. In these circumstances there is a danger of disclosure to regulators or opponents in litigation who will use a company's own legal advice as adverse evidence. Regulators increasingly cooperate cross-border and litigants forum shop to obtain better access to such ammunition. Once disclosure has occurred in one jurisdiction, this may raise issues as to the waiver of privilege in proceedings in others including the US.
In the UK in-house legal advice will generally be privileged under English law on similar lines to the US position. Under the national laws of other EU member states the right of privilege is however usually restricted to advice from external law firms; the precise arrangements therefore need to be considered in each country as there are significant variations. For example, Belgium has a hybrid approach so that in-house lawyers can potentially benefit from privilege but only if they are members of the Belgian corporate lawyers association which is separate from the bar association for external lawyers.
EU law when enforced by the EU Commission also gives no recognition to privilege for in-house legal advice. This has been confirmed by the final outcome in the high profile and long running Akzo case in the European Court of Justice. This arose from a raid carried out by the Commission in February 2003 at the premises of Akcros Chemicals, one of the Akzo Nobel's subsidiaries in the UK. The raid was part of a cartel investigation in relation to tin stabilisers in the chemical industry. Applying EU law, and contrary to English Law, the Commission seized and sought to review documents which included advice given in connection with an anti-trust compliance programme. Akzo's defence team (which I led) and the company itself were threatened with sanctions for obstruction in seeking to resist disclosure of these documents.
This case subsequently became the focus for ACCA, the ABA, professional legal associations and even governments of many other countries to intervene in the debate over recognition of privilege for in-house lawyers in the EU. The Commission argued that this would assist companies to conceal anti-trust and other regulatory infringements. Corporate Counsel contest this pointing to increasing regulatory sanctions, including not just fines but also personal liabilities for senior management. They maintain that in this context their rights of defence require a safe harbour within which legal advice can be obtained and communicated across organisations and borders without the risk of it being used as a smoking gun. Such advice is most effectively and cost efficiently obtained from in-house lawyers who fully understand the businesses in which they operate. It is not practical to constantly seek external legal advice and can actually restrict the ability of companies to understand and work through complex areas of law.
The focus of this debate has been on anti-trust investigations because this is the primary area in which the Commission exercises its enforcement powers. In such circumstances the Commission will apply EU law wherever enforcement takes place. Other fields of regulatory enforcement are carried out very largely by the relevant authorities at national level in each member state. The approach to privilege in the relevant EU jurisdiction under its national laws will then apply. As already indicated however, even where national laws are applicable the risk of disclosure often still exists; for example in France in-house legal advice is not privileged.
An additional concern for General Counsel is that EU investigations and regulatory activity could develop in areas other than anti-trust in future. Privilege for in-house advice, based on EU case law, could then also be unavailable in those fields. Possible examples would include environmental compliance, money laundering and bribery. Ultimately there is a further fear that national law in EU member states could be affected by the EU approach in those jurisdictions, such as the UK, where in-house legal privilege is accepted. There seems to be little imminent risk of that, but the attraction to regulators is obvious.
The ECJ judgment in Akzo reinforces the existing legal position (based on the ECJ's 1982 decision in the AM&S case) and justifies the rejection of privilege for in-house counsel on the basis that lawyers directly employed by their clients do not have a sufficient degree of independence to justify privilege for the advice they give. This rationale adds insult to injury as far as in-house lawyers are concerned and makes the issue not simply one of commercial practicality but also of status recognition.
Companies point to the fact that a great deal has changed in terms of the sophistication of in-house advice since the AM&S judgment in 1982. In any event the distinction in terms of objectivity and independence between internal and external legal advisors is not, in the view of General Counsel, as clear cut as the Commission asserts and the experience of cases such as Enron suggests. The ECJ's reasoning is however consistent with the traditional approach of many national bar associations in EU states to which, as previously indicated, only lawyers in private law firms are admitted. This stance will be seen by some as a restrictive practice for reasons of vested interest. EU enlargement has however brought in more member states where this approach is taken so potentially strengthening the hand of those lobbying for privilege to remain the exclusive preserve of lawyers in private practice.
Although the ECJ judgment in Akzo spells the end of recent hopes for effecting a change through the courts, companies will now turn their attention to lobbying for a statutory solution. Akzo will therefore not conclude the debate, but for the present it does have significant consequences for the way in which in house teams operate.
Practical Implications
On sensitive matters the risk of disclosure of written legal advice (either generally in anti-trust matters or specifically by jurisdiction in relation to other regulatory or litigation issues) should be reviewed and taken into account at an early stage.
In the context of private actions, the risk may be reduced in many of the EU member state jurisdictions where in-house privilege is not available by the very restricted rights of discovery that apply in the civil proceedings of many continental European countries as compared to the US or the UK. In most of these jurisdictions there is no obligation for a party to disclose documents that are harmful to its case or which it does not select to support its own arguments. It would usually be necessary for the other party to apply for an order identifying very specifically any additional documents that it wanted disclosed and even then this could be hard to obtain. Narrow disclosure obligations of this nature are however much less likely to apply or assist in relation to regulatory matters.
- Where it is not practical to avoid or reduce the risk of disclosure, it may be necessary to instruct external lawyers to advise in order to ensure that privilege is available.
- Another approach taken by many businesses is to obtain in-house advice verbally in sensitive situations without making any record of it. There are however often practical limits to this approach.
- All communications over which a business wishes to at least try to assert a right to privilege should be clearly marked as "legally privileged". This will often ensure that there is the opportunity to debate the issue rather than a regulator simply seizing the documents, for example in the context of an anti-trust dawn raid.
- Advice should be taken on arrangements for the storage of electronic records on servers as regulators increasingly insist on disclosure where servers are accessible from the jurisdiction in which they exercise search or disclosure powers.
- Internal legal advice should be appropriately worded so that the context in which it is given is not misconstrued if disclosure is required.
Jonathan Sinclair - Partner and Head of Commercial Litigation and Antitrust Litigation at the specialist dispute resolution practice Stewarts Law LLP
Telephone: +44 (0)113 222 0029
Mobile: +44 (0) 7769 142265
Email: jsinclair@stewartslaw.com