Akzo Nobel Chemicals and Akcros Chemicals v. Commission—Attorney-Client Privilege for In-House Counsel Is Limited (Sept. 2010)
- In investigations of EU competition laws, clients may only assert the
attorney-client privilege for communications with outside counsel.
- A valid claim for attorney-client privilege over written materials exists
if the exchange was for the client's defense AND the exchange occurred
with counsel not employed by the client.
- Akzo made four arguments why the documents should be privileged.
Each was rejected.
- The court's ruling conflicts with laws of some of EU members as well
as other foreign jurisdictions such as the United States.
- ABA Model Rule 1.6 was recently amended to permit broader disclosure of confidential information. Is this a trend?
Introduction: The European Court of Justice (ECJ), the highest court in the European Union for matters dealing with European Union law, recently issued its decision in Akzo Nobel Chemicals Ltd v. Commission (Sept. 2010). [1] Specifically, the Court held that in the context of an investigation into potential violations of EU competition law (similar to United States antitrust laws), a client may assert attorney-client privilege only over communications with an "independent lawyer"—that is a lawyer "not bound to the client by a relationship of employment." Although limited in scope, the case can potentially impact in-house counsel's role.
Background: In February 2003, European Commission officials, along with the Office of Fair Trading, began investigating Akzo Nobel Chemicals, Ltd. and Akcros Chemicals Ltd. for possible competition law violations. They reviewed and then seized various documents from the companies' facilities, precipitating a dispute over the privileged nature of some of the documents. The focus of the dispute was a series of two emails between Akcros's general manager and Akzo's legal coordinator for competition law.
After a brief written exchange with the companies, the Commission issued an order informing the companies that the Commission would retain the contested documents, despite their claims of privilege. In response, the companies brought an action in the General Court seeking reversal of the Commission's determination. The General Court rejected Akzo and Akcros's arguments and dismissed the action. The companies appealed, but the ECJ ultimately affirmed the General Court.
The Court's Opinion: The ECJ followed the two-part test for attorney-client privilege in competition law investigatory matters originally announced in AM & S Europe v. Commission. [2] First, the exchange with the lawyer must concern the client's "right of defense," and second, the exchange must occur with an independent lawyer not employed by the client. It is this second prong that was at issue in Akzo. By affirming the General Court, the ECJ in Akzo reaffirmed its prior holding in AM & S—that both prongs must be met in order to assert privilege.
On appeal, the companies presented four broad arguments, each of which the Court ultimately rejected. First, they asserted that an in-house attorney is as independent as external counsel, particularly when that attorney is a member of a bar or law society and is bound by those professional and ethical obligations. The Court rejected this argument, finding that the nature of the employment relationship makes it impossible for the in-house attorney to be independent in the same way as an external attorney. In reaching this conclusion, the Court emphasized the obligation of an attorney to collaborate in the administration of justice. The Court implicitly suggested that an in-house attorney cannot fully satisfy this obligation because of the employment relationship and, thus, in-house communication should not receive the benefit of the privilege.
Next, the companies argued that the General Court's holding of no privilege violated principles of equal treatment. The Court disposed of this argument by finding that external and internal counsel are not similarly situated. Accordingly, the Court concluded equal treatment principles did not apply, and the privilege was therefore not afforded to communications with in-house counsel.
The companies also claimed that in light of the changes in the legal landscape since AM & S, particularly the "modernization" of the procedural rules on cartels, which created an increased need for in-house legal advice, the Court should revisit its prior holding. The Court disagreed with this argument. The Court found no change or increased consensus among the Member States about attorney-client privilege for in-house counsel and also found that the changes to the procedural rules did not alter the difference between internal and external counsel. Accordingly, the Court found no reason to revisit AM & S. In fact, the court reasoned that in order to pursue the goals of the competition laws, the Commission must have effective investigative powers free from the encumbrance of unfounded privilege claims.
Finally, the Court rejected the companies' concluding arguments that their rights of defense were infringed and that the restrictions on privilege undermine principles of legal certainty.
Brushing off arguments that their holding would violate national procedural autonomy and principles of conferred powers, the ECJ emphasized the limited nature of the holding—that it only applies to competition law investigatory matters by the European Commission. Member States are still free to maintain different rules on attorney-client privilege for legal matters falling exclusively within their jurisdiction.
Implications: As a result of the Court's holding, a company can guarantee attorney-client privilege in EU competition law investigations only by tethering in-house advice to communications with external counsel. In other words, the communications must ultimately emanate from external counsel in order to remain privileged. Unfortunately, the precise contours of what it means for communication to "emanate from" external counsel remains unclear.
The General Court explicitly held that documents prepared to summarize advice from external counsel or in preparation for receiving advice from external counsel are protected by privilege. The ECJ, however, did not reach this question because it was not squarely presented, leaving additional uncertainty about the precise scope of the privilege.
Further complicating matters, this holding conflicts not only with the laws of some EU Member States but it also conflicts with the laws of foreign jurisdictions such as the United States. Regardless of this conflict, where a company is under the jurisdiction of the EU's competition law, the company is subject to EU privilege rules. By way of example, if a company were being investigated for EU competition law violations and asserted privilege based upon advice given by an in-house attorney admitted to practice in the United States, privilege would still be denied, even though such a privilege would likely be recognized in the United States. [3]
At present, the holding in Akzo only applies to EU competition law investigations. It is possible of course that the holding could move beyond competition law into other realms of EU law, but it is unlikely to expand beyond EU law. This is because the Member States retain control over the scope of the privilege as it relates to their national laws.
In sum, protection of attorney-client communication will require an awareness of the current EU landscape and may require some adjustment to typical modes of attorney-client communication.
Trends: In 2003 the American Bar Association adopted controversial changes to the model rule of professional conduct by expanding when an attorney may disclose confidential client information. These changes, along with the Akzo decision, could suggest a trend of narrowing both the scope of and the obligations attendant to attorney-client privilege. For example, two changes to model rule 1.6 allow disclosure "to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services," [4] or to rectify or mitigate a fraud involving financial injury for which the lawyers' services were used. It will be interesting to watch for further changes across all jurisdictions that either confirm or disconfirm this potential trend.
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[1] Case C 550/07P, Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v. Commission 2010.
[2] Case 155/79, AM & S Europe v. Commission 1982 E.C.R. 1575.
[3] The United States, in contrast, has joined the Treaty of the Hague Evidence Convention. Article 11 of that document controls recognition of privilege and outlines two different legal frameworks under which a party can assert privilege in a document exchange with a foreign party. A party can do so either according to the law of the state of execution (meaning the law of the state from which the document or evidence is being produced) or under the law of the state of origin (meaning the state from which the request is made). Convention on Taking of Evidence Abroad in Civil or Commercial Matters, art. 11, March 18, 1970, 23 U.S.T. 2555, T.I.A.S. No. 7444 available at cf. 28 U.S.C. § 1782 (controlling execution of discovery requests to the United States); see also Council Regulation (EC) 1206/2001 of 28 May 2001 (similar to the Hague Convention Evidence and applying as between EU Member States but not addressing privilege).
[4] Model Rules of Prof'l Conduct R. 1.6 (2009).
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For more information, please contact WTO lawyer Nancy Cohen.