No legal privilege for in-house lawyers - EU court

By Foo Yun Chee

BRUSSELS, Sept 14 (Reuters) - In-house lawyers are not covered by client confidentiality when advising their employers on EU cartel investigations, Europe's highest court said on Tuesday, a ruling that may boost the power of EU regulators.

The European Court of Justice said in-house lawyers, because they are financially dependent on their employers, do not have the same professional independence as external lawyers and therefore do not qualify for the same legal privilege.

The decision is the result of an appeal brought by Dutch chemicals group Akzo Nobel, which is contesting a decision by EU regulators in 2003 to make use of two Akzo email messages seized during an anti-trust investigation.

Akzo had argued that the emails to their in-house lawyers were protected by legal privilege, which allows companies to refuse to disclose confidential, legal communications to third parties, including courts and regulators.

But in 2007 the EU General Court, the court of first instance, rejected Akzo's argument, and the European Court of Justice has now turned down Akzo's appeal against that ruling.

'In the field of competition law, internal company communications with in-house lawyers are not covered by legal professional privilege,' the European Court of Justice said.

'The Court holds, as a result of the in-house lawyer's economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer,' it said.



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Experts said the verdict would reinforce the European Commission's powers in antitrust investigations. The Commission is already considered a powerful force in antitrust law.

'Limiting legal privilege to outside lawyers gives the Commission a wider ability to seize documents during dawn raids,' said Peter Camesasca, a partner at Covington & Burling.

Others said the ruling could complicate efforts by companies to carry out an effective antitrust compliance programme by making employees aware of the dos and don'ts in competition law.

'This is a disappointing judgment,' said Christopher Bellamy, a senior legal counsel at Linklaters.

'In modern circumstances the primary enforcer of competition law is often the in-house lawyer. In my view, that role should be strengthened, not weakened.

'This judgment makes it more difficult for companies to take effective and prompt advice from their in-house legal department, and will I fear prove counter-productive, quite apart from the underlying issue of fundamental rights,' he said.

The Commission, the competition watchdog in the 27-country European Union, welcomed the ruling.

'This concludes a long-standing litigation and brings about an important confirmation on the personal scope of legal professional privilege with regard to in-house lawyers,' it said in a statement.

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