Monday, November 01, 2010

EU Court of Justice Rules Internal Company Communications With in-House Lawyers Not Covered by Legal Professional Privilege

The European Union Court of Justice has ruled that the in-house corporate counsel are not entitled to the same legal professional privilege equal to outside counsel. Akzo Nobel Chemicals Ltd. v. EU, Case No. 550.07. In restricting the applicability of legal professional privilege to in-house counsel communications with clients, the Court indicated that inside counsel lack the independence from the company that would justify professional status in EU competition law matters.

The Court said that the requirement of independence means the absence of any employment relationship between lawyers and their clients, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers. The Court added that in-house lawyers, despite their enrolment with a Bar or Law Society and the resulting professional ethical obligations to which they are subject do not enjoy the same degree of independence from their employers as lawyers working in an external law firm do in relation to their clients. Thus, in-house lawyers are less able to deal effectively with any conflicts between their professional obligations and the aims of their clients.

Despite the professional regime applicable in the present case in accordance with the specific provisions of Dutch law, noted the Court, in-house lawyers cannot, whatever guarantees they have in the exercise of their profession, be treated in the same way as an external lawyer, because they occupy the position of an employee which, by its very nature, does not allow them to ignore the commercial strategies pursued by their corporate employer, and thereby affects their ability to exercise professional independence. The Court further noted that under the terms of their contract of employment in-house lawyers may be required to carry out other tasks, namely, as in the present case, the task of competition law coordinator, which may have an effect on the commercial policy of the undertaking. Such functions cannot but reinforce the close ties between the lawyer and his employer, reasoned the Court. It follows, both from the in-house lawyer’s economic dependence and the close ties with the employer, that they do not enjoy a level of professional independence comparable to that of an external lawyer.

The Assocaition of Corpoate Counsel criticized the ruling as locking into place the notion that in-house lawyers are not capable of independent judgment under EU professional standards. This puts companies who rely on the expert advice of their in-house lawyers at a disadvantage by forcing them to divulge confidential communications and jeopardizing their standing in litigation matters, as well as day-to-day business.