Are In-House Lawyers Privileged?

The European Court of Justice has issued a hugely controversial ruling on the extent of legal professional privilege afforded to in-house lawyers. Nicholas Dobson assesses its impact.

When is a lawyer not a lawyer? Answer: when the lawyer is employed in-house. At least that’s according to the European Court of Justice (ECJ) in relation to EU Commission competition investigations. For on 14 September 2010 the ECJ decided that, for these purposes, legal professional privilege (LPP) is available only to lawyers outside the employment relationship (see Akzo Nobel Chemicals Ltd v. Commission of the European Communities (C-550/07 P)).

Background

The ECJ decision related to certain documents identified in the course of a Commission investigation into British company Akzo Nobel Chemicals and its subsidiary Akcros Chemicals (the Applicants). These documents were contended by the Applicants to be subject to LPP which the Commission disputed.

The ECJ agreed with the Commission that the documents were in the circumstances not protected by privilege. This was in the light of the decision in AM & S Europe v. Commission ([1982] ECR 1575) where the ECJ had ruled (amongst other things) that for LPP to apply in this context the communication between lawyer and client must emanate from “independent lawyers” i.e. “lawyers who are not bound to the client by a relationship of employment”.

Applicants’ Submissions

The Applicants (supported by the UK Government) had submitted (amongst other things) that the criterion of lawyer independence cannot be interpreted to exclude in-house lawyers. For an “in-house lawyer enrolled at a Bar or Law Society is, simply on account of his obligations of professional conduct and discipline, just as independent as an external lawyer”. The Applicants also submitted that having regard to significant recent developments in the legal landscape since 1982 the Court below should have “reinterpreted” the AM judgment so far as concerns the principle of legal professional privilege. These submissions were, however, roundly rejected.

Decision of the ECJ

The ECJ remained entirely unpersuaded that an employed lawyer has the requisite degree of independence for these purposes. Agreeing with the Advocate-General, the Court considered that “the concept of the independence of lawyers is determined not only positively. . . by reference to professional ethical obligations, but also negatively, by the absence of an employment relationship”.

In the ECJ’s view, despite enrolment with a Bar or Law Society and the resultant professional ethical obligations, an in-house lawyer “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”. The Court therefore took the view that “an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client”. For, to the ECJ, the position of an employee “by its very nature” does not allow the employee lawyer “to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence”.

The ECJ also declined the opportunity to revise the interpretation of the law in this area laid down back in 1982 in the AM case, taking the view that the legal situation in EU Member States has not evolved since AM “….to an extent which would justify a change in the case‑law and recognition for in-house lawyers of the benefit of legal professional privilege”. For there was “no predominant trend” across Member States in relation to LPP and neither, said the ECJ, could any “uniform tendency” be established in the legal systems of Member States “….towards the assimilation of in-house lawyers and lawyers in private practice”.

UK Picture

As the Law Society points out, the Akzo Nobel decision does not affect the scope of LPP in England and Wales. And, under English law ‘the advice of in-house lawyers continues to enjoy ostensibly the same protection as the advice given by a lawyer in private practice” providing the advice is “given in the capacity of legal advisor”.

As to UK competition law, the Law Society points out that LPP currently “applies to advice given by in-house and external lawyers during an investigation under the UK Competition Act 1998”. The Society also understands that “UK competition enforcement authorities, such as the Office of Fair Trading (OFT), will respect LPP when conducting an investigation under the EU competition rules”. In addition: “Sections 30 and 65A of the Competition Act 1998 effectively apply the common law on privilege to documents requested by the OFT or other regulatory body in the course of competition investigations in England and Wales”.

Commentary from the Law Society and ACSeS

The Law Society has warned that the decision will hinder European business. Its Chief Executive, Desmond Hudson, said that in-house lawyers represent “the front-line guarantor of compliance” who can ensure lawful and ethical behaviour best “….when they know their full, frank and independent legal advice can be given in confidence”.  Also, in-house lawyers are “….best placed to give fast and bespoke advice to colleagues”.

Endorsing the Law Society’s comments, Dr Mirza Ahmad, President of the Association of Council Secretaries and Solicitors (ACSeS), said he regretted that “the ECJ has signally failed to give due weight to the substantial professional integrity and independence of employed lawyers” and has also “turned down a golden opportunity to update the law in this area, so as to raise compliance standards across the EU”. Dr. Ahmad also could not accept the ECJ's view that the in-house lawyer's economic dependence on and close ties with the employer compromise professional independence. He said that local government lawyers constantly gave robust and independent professional advice which, whilst in the interests of their authorities, was certainly not always to the liking of their political masters.

Comment

So the ECJ has once again descended from on high to issue a controversial diktat. This time it has decided effectively to impugn the professional integrity of in-house lawyers across Europe. Of course, the size of the EU with 27 member states and their different legal institutions and traditions does make subsidiarity a tough call when determining questions of EU law. But it is nevertheless disappointing that the ECJ felt itself unable to take a lead in supporting and highlighting the ethical professionalism required of in-house lawyers. And (other considerations apart) there is a danger that this diminished view of in-house lawyers will bleed-across into other areas of EU law and gain wider application.

I would therefore certainly agree with Mirza Ahmad’s comments. Throughout my in-house career (and beyond) I have had to give robust professional advice which was certainly not always what the political leadership wanted to hear. And every local government lawyer with whom I have spoken has said much the same.

As to domestic law, (following the decision on 11 August 2010 of the First Tier Tribunal in Surrey Heath B.C. & Kevin McCullen v. Information Commissioner (EA/2010/0034)) local government lawyers giving legal advice in their capacity as monitoring officers will need to ensure that the legal context of the advice is made very clear. For as Lord Scott said in the Three Rivers case (Three Rivers District Council and others v. Governor and Company of the Bank of England (No 5) [2004] UKHL 48)), whilst legal privilege if it exists is absolute and cannot be overriden, nevertheless: “the judge called upon to make the decision should ask whether the advice relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law.” If it does not, then legal advice privilege would not apply.

© Nicholas Dobson

Dr Nicholas Dobson is a senior consultant with Pannone LLP, specialising in local and public law. He is also communications officer for the Association of Council Secretaries and Solicitors.