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In-house lawyers have no right to secrecy in EU competition cases, rules ECJ

Conflict of interest threatens

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In-house lawyers at companies being investigated for competition law offences do not enjoy the same privacy rights for communications with their companies as lawyers from external firms, the European Court of Justice (ECJ) has said.

The ECJ has ruled that in-house lawyers are in danger of suffering a conflict of interest because they have a duty to their permanent employer as well as to the law. They cannot be allowed the same legal professional privilege (LPP) as external lawyers because they are not independent, the Court said.

LPP allows for total secrecy between a lawyer and a client, meaning that even law enforcement authorities cannot seize and read documents or communications.

When the European Commission raided Akzo Nobel Chemicals Ltd (Akzo) and Akcros Chemicals Ltd (Akcros) as part of a competition investigation into a cartel in the plastics additives market, it seized two sets of documents.

The companies claimed that the documents were protected by the LPP that existed between those companies and their in-house lawyers. The dispute as to whether those documents – which were seized but sealed – were protected went all the way to the ECJ, Europe's highest court.

The ruling will not apply to competition investigations begun by the Office of Fair Trading and UK regulators. The ECJ acknowledged the right of member states to recognise in-house lawyers' LPP in cases pursued by the national competition authorities. The UK recognises in-house lawyers' rights in cases initiated by the Office of Fair Trading and sector regulators.

In an opinion published earlier this year, ECJ advisor Advocate General Juliane Kokott said that the lack of independence of in-house lawyers could lead organisations to abuse any legal professional privilege they were given by, for example, storing cartel agreements or other incriminating documents in lawyers' files.

Competition law expert Adrian Wood said that the ruling will cost businesses money by forcing them to use external legal advisers for some tasks.

"As a result of the ruling, clients will have to continue adopting artificial communication procedures with their external lawyers to limit the full impact of their inability to invoke LPP," he said.

Wood said that the ruling came despite the Court's acknowledgement of in-house lawyers' roles in preventing competition law breaches.

"Paradoxically, the Court of Justice recognised implicitly the role in-house lawyers can play in securing greater competition law compliance, but then denied the in-house community use of an important professional tool that could ensure internal compliance levels are raised quickly and cost-effectively," he said.

Akzo and Akcros argued before the ECJ that their lawyers should be allowed the same privacy as external advisors because they had a duty to the law as well as to their employer.

"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," they argued, according to the ECJ ruling. "Furthermore, the guarantees of independence enjoyed by an ‘advocaat in dienstbetrekking’, that is an enrolled lawyer in an employment relationship under Dutch law, are particularly significant."

The ECJ said, though, that this was not enough to guarantee independence.

"While the rules of professional organisation in Dutch law mentioned by Akzo and Akcros may strengthen the position of an in-house lawyer within the company, the fact remains that they are not able to ensure a degree of independence comparable to that of an external lawyer," said the ruling.

"An in-house lawyer cannot, whatever guarantees he has in the exercise of his profession, be treated in the same way as an external lawyer, because he occupies the position of an employee which, by its very nature, does not allow him to ignore the commercial strategies pursued by his employer, and thereby affects his ability to exercise professional independence," it said.

The Court said that the fact that an in-house lawyer will often be in charge of competition law compliance underlined the potential conflicts of interest at stake.

"It must be added that, under the terms of his contract of employment, an in-house lawyer 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," it said.

Wood said that organisations, as well as individuals, may have the right to protection under the European Convention on Human Rights, and that this could be a future route by which in-house lawyers could win the right to confidentiality in communications with employers.

"Human rights law can in principle be invoked by companies and it would be interesting for a court to explore whether the institutionalised discrimination perpetuated by this ruling could be attacked on Convention grounds," he said. "The EU opened negotiations in June 2010 on the possible accession of the EU to the European Convention on Human Rights. Should an Accession Treaty be eventually concluded within the anticipated time scale, an opportunity to revisit the legal professional privilege issue may arise sometime over the next decade."

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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