SC Lawyer, January 2012, #1. The EU Court's Decision Akzo Nobel is Not a Big, Bad Wolf.

• Author: By Francesca Giannoni-Crystal and Nathan M. Crystal

South Carolina BAR Journal

2012.

SC Lawyer, January 2012, #1.

The EU Court's Decision Akzo Nobel is Not a Big, Bad Wolf

South Carolina LawyerJanuary 2012The EU Court's Decision Akzo Nobel is Not a Big, Bad WolfBy Francesca Giannoni-Crystal and Nathan M. CrystalOn September 14, 2010, in Akzo Nobel Chemicals Ltd. v. EU (Case-550/07), the European Court of Justice (ECJ) unanimously held that communications between in-house counsel and company executives are not privileged. It is hardly newsworthy that in Europe in-house counsel do not enjoy the attorney-client privilege (called the "professional privilege"). In 1982 the ECJ in AM and S Europe v. Commission (Case-155/79) focused on the requisite of independence to hold that a communication exchanged with an independent/external lawyer related to the client's rights of defense was privileged. Many, however, have been disappointed by Akzo Nobel because they expected the ECJ to extend the privilege to in-house counsel, considering that their role had expanded and the need for protection of their communications had increased. The ECJ did not do so.

While the decision has been criticized in the U.S. and warnings issued about the risk to American companies, the impact of the decision is not as great as critics claim because: (1) In very few European countries are in-house counsel members of the bar and are granted the professional privilege. Even if the ECJ had recognized the privilege, its decision would only have applied to EU litigation, not to domestic cases. (2) The professional privilege and the American attorney-client privilege are different. (3) Finally, the privilege is especially important in the U.S. because of discovery, while in Europe there is no discovery.

The Akzo Nobel decision

In 2003, during a European Commission's investigation regarding anti-competitive practice by two companies of the same group, Akzo and Akcros (hereinafter "Akzo"), a dispute arose between the commission officials and Akzo as to the disclosure of certain documents. In particular, the dispute focused on two e-mails exchanged between an Akzo executive and Akzo's coordinator for competition law (who was enrolled as an Advocaat of the Netherlands Bar and was also a permanent employee of Akzo). While Akzo alleged that the materials were privileged, the commission's officials disagreed and seized them. Akzo sued. The court of first instance ("General Court") rejected the claim, and Akzo appealed to the ECJ, alleging misapplication of the law or in the alternative, advocating a change in the law.

Clarifying AM and S Europe, the ECJ held that in-house counsel were not entitled to the privilege because they were not independent from their clients. As a result "an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client." Akzo Nobel¶ 45.

As the General Court stated: independence is necessary because of "the lawyer's role as collaborating in the administration of justice by the courts." General Court in Akzo Nobel ¶ 4. Being independent means that a lawyer must "structurally, hierarchically and functionally," be "a third party in relation to the undertaking receiving that advice." Id. The lack of independence exists even if the attorney is enrolled as a member of a bar: "It follows, both from 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." Id.¶ 49.

In arguing for a change in the law, Akzo claimed that national legal systems had evolved as to the application of the privilege to in-house counsel. However, the ECJ found no evolution. Akzo Nobel¶ 72.

In conclusion: Akzo Nobel stands for the proposition that the professional privilege does not attach to communications by or with in-house counsel, either enrolled or un-enrolled in a bar. However, this proposition should not be threatening to American companies based in or making business with Europe.

Why Akzo Nobel' s impact is modest

1) In only a minority of European countries are in-house counsel enrolled in a bar and entitled to the professional privilege.

We should not overstate the impact of Akzo Nobel: even before the decision it would have been unwise to assume that in-house counsel had the same role and legal status that they have in the U.S.

In the U.S. in-house counsel are members of the relevant state bars, and they are bound by the same rules of ethics that apply to external lawyers. Not surprisingly, they enjoy the same attorney-client privilege as external lawyers. See Restatement (Third) of the Law Governing Lawyers 72 cmt. c, 73 cmt. i (2000) (providing that the attorney-client privilege extends to communications between organizations and their inside counsel.) In Europe, however, this is not the case.

At least 19 of the 27 members of the European Union (Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Estonia, Finland, France, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Poland, Romania, the Slovak Republic, Slovenia and Sweden) prohibit employed lawyers from becoming members of the bar. Only in Denmark, Ireland, Portugal, Spain and the United Kingdom can employed lawyers be members of a bar, while in Germany and the Netherlands they can be members subject to certain conditions. The situation in Malta is unclear.

The countries that do not allow in-house counsel to be members of the bar generally do not grant them any professional privilege because they are not lawyers. Save a few exceptions, in these countries the internal company communications with in-house counsel are not protected.

Among the countries that do allow in-house counsel to be members of the bar, only the United Kingdom, Ireland, the Netherlands and Portugal unequivocally protect the internal company or group communications with in-house counsel with the privilege. Germany, even though it allows in-house counsel to be members of a bar, does not grant them any privilege in respect of internal company communications with their employer. In other states of Europe that allow in-house counsel to be members of the bar (i.e., Denmark and Spain), the situation of in-house counsel is uncertain since there are no specific legal provisions and as yet no settled case-law or administrative practice on the matter. The situation of Malta on the point is also unclear. For completeness, note that in Switzerland-which is not part of the EU-employed lawyers cannot be members of the bar and do not enjoy the privilege.

The above discussion had the limited purpose of explaining that: (1) Akzo Nobel follows well-established European principles; and (2) the impact of Akzo Nobel is modest. Even if the ECJ had recognized the privilege for in-house counsel, the holding would only have applied to cases involving the EU and not to private litigation or to public litigation brought by member countries.

(2) The professional privilege is different from the attorney-client privilege.

Even if in-house counsel in Europe had enjoyed the privilege, their communications would not have been as protected as in the U.S. In fact, the privilege that the ECJ denied to in-house counsel is the professional privilege, not the attorney-client privilege. This is not a terminological difference. With the exception of UK and Ireland, the two concepts are different both in scope and in purpose. In short, the professional privilege is not so well developed and weighty as the attorney-client privilege.

The purpose of attorney-client privilege is to promote full and frank communication between lawyer and client. The privilege encourages clients to give complete information to their lawyers; as a result clients receive more accurate advice and are more likely to conform their conduct to the law as advised by the lawyer.

The attorney-client privilege indisputably belongs to the client and prevents the admission into evidence of any communications between lawyers and clients that are made in confidence for the purpose of seeking legal advice. See Restatement (Third) of the Law Governing Lawyers 68 (2000). In federal court, under Upjohn Co.mpany v. United States, 449 U.S. 383 (1981), any communication between a lawyer and an employee for the purpose of facilitating legal advice regardless of the level of the employee is subject to the attorney-client privilege. Some state courts may limit the corporate attorney-client privilege to communications between lawyers and members of the control group. See Restatement (Third) of the Law Governing Lawyers 73, comment c (2000).

By contrast, in Europe the rationale, scope and limitations of the privilege are not so clearly defined. See Taru Spronken and Jan Fermon, Protection of the Attorney-Client Privilege in Europe, 27 Penn. Int'l L. Rev. 439 (2008). While there is probably not a single rationale for the privilege valid for all European countries, as the ECJ clarified in AM and S Europe, one common denominator seems to be that the privilege is necessary to respect and protect the right of defense. AM and S Europe¶¶ 18-19. The connection between the professional privilege and the right of defense in Europe has always been strong. Being generally based on the right of defense, in the majority of the European countries, the privilege is limited to lawyers enrolled in a bar. In addition, in some countries the privilege is also founded on the lawyer's role in the administration of justice as contributing to the maintenance of the rule of law. AM and S Europe ¶ 18. This explains why the ECJ in AM and S Europe imposed two requirements for the privilege to attach: (1) communication must be "made for the purposes and in the interests of the client's rights of defencedefense," and (2) communication must "emanate from independent lawyers, that is to say, lawyers who are not bound to the client by a relationship of employment." Id. ¶¶21-22.

While in the U.S. the privilege belongs indisputably to the client, in Europe the issue is not so clear. Traditionally the privilege was not a right of the client but rather a right/duty of the lawyer and a corollary of the lawyer's professional duty of confidentiality. However, modern authorities indicate that neither the client nor the lawyer control the privilege.

In the U.S. the decision of whether the privilege applies is always a legal matter to be determined by a court. In Europe, even if a lawyer's decision on the claim of privilege may also ultimately be decided in court, ethical obligations guide the lawyer's decision. The disclosure of facts known because of the representation is a serious ethical violation for a lawyer and in many European countries even a crime. See, e.g., Article 622 of Italian Criminal Code;, Article 226-13 of French Criminal Code;, Article 203 of German Criminal Code; and, Article 199 of Spanish Code. However, except in Norway, the professional privilege is not a rule of evidence. See CCBE, Conseil des Barreaux Europeenne, The Professional Secret, Confidentiality and Legal Professional Privilege in Europe, Update of Report by D.A.O. Edwards, QC (2003). If a lawyer-ignoring the privilege-chooses to testify, the evidence is not inadmissable even if the lawyer violates his duty of confidentiality.

(3) The attorney-client privilege is particularly important in the U.S. because of discovery, which does not exist in Europe.

Because discovery in the U.S. is wide ranging, the attorney-client privilege and the work product doctrine are important limitations. By contrast, in Europe discovery is unknown. Generally speaking, in Europe a party is obliged to produce only those documents referred in the pleadings. If a party wants access to specific documents held by the other party, he or she must move the court to order the other party to disclose them. However, consider that (1) the request must indicate precisely the documents sought, the reasons why they are necessary to litigation and the precise location of them, and (2) the party seeking the order must bear the cost.

Notably, not only is discovery unknown in European proceedings, it is also difficult to obtain discovery in connection with a U.S. proceeding. Courts in civil law countries are reluctant to execute broad production requests in connection with U.S. proceedings when the request seeks to determine the existence of evidence rather than to obtain specific documents whose existence the requesting party knows of or reasonably assumes. The reason is that those requests are considered as an evasion of the requisite burden of proof. Under the 1970 Le Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters ("Hague Convention"), a treaty to which the U.S. and many European countries are parties, evidence would be discoverable. However, many European countries have used the reservation right under Article 23 of the Hague Convention to limit the scope of their duties under the Convention to avoid responses to certain requests from abroad. Article 23 of the Convention provides that, "A Contracting State may at the time of signature, ratification or accession, declare that it will not execute Letters of Requests issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries." As a result, some countries-such as France, Netherlands, Switzerland, United Kingdom and the Scandinavian countries-oppose discovery requests when considered "fishing expeditions"; other countries-such as Germany, Italy, Poland and Spain-refuse to execute pre-trial discovery requests altogether.

In addition, a party to U.S. litigation seeking discovery in Europe faces other hurdles. The U.S. Supreme Court has held that the Hague Convention is not the exclusive way for a U.S. litigant to obtain discovery abroad. See Societe Nationale Industrielle Aerospatiale v. United States District Court, 482 U.S. 522 (1987) (holding that the Hague Convention does not pre-empt the discovery provisions of the Federal Rules of Civil Procedure). Despite this holding, U.S. litigants still face difficulties obtaining discovery abroad because of blocking statutes, privacy law or simply lack of remedies for noncompliance with request.

"Blocking statutes" enacted in many civil law countries forbid discovery requests made on their citizens or residents. For example, France, Germany, Italy, the Netherlands, Norway, Sweden and the United Kingdom all have blocking statutes. These statutes criminalize the very act of providing information requested in the course of foreign legal proceedings when the request is brought outside the procedures of the Hague Convention. See, e.g., the French statute N° 80-538 of July 16, 1980; see also Marc J. Gottridge and Thomas Rouhette, "Blocking" Statutes Bring Discovery Woes, N.Y.L.J. (April 30, 2008). Privacy laws in force in many European countries (such as the privacy laws passed by EU members pursuant to Directive 95/46/EC) criminalize the unauthorized transfer of third party personal data.

In criminal cases and in governmental investigations in Europe, public authorities can obtain and seize documents containing communications from in-house counsel (as in Akzo Nobel). In these cases, the privilege would arguably be useful. However, as a practical matter, also in these cases, the importance of the lack of privilege for in-house counsel should not be overstated. First, because in the majority of European countries in-house counsel are not technically lawyers and cannot represent clients at trial, it is likely that a company will hire outside counsel for a criminal matter or in connection with a governmental investigation. Second, in the U.S. the attorney-client privilege and the work product doctrine are not unlimited. See, e.g., Restatement (Third) of the Law Governing Lawyers 68-93 (2000) (discussing scope and limitations on the privilege and the work product doctrine). Save exceptions-Iceland, Spain, Lichtenstein and Austria where the privilege, when granted, seems basically unlimited-similar limitations exist in Europe for the professional privilege of the independent lawyers enrolled in a bar.

Conclusion

Akzo Nobel makes it clear that communications between an entity and its in-house counsel are not privileged in a proceeding in which the European Union is a party. However, unlike what many American critics say, the result in the decision should not have been surprising and its practical importance should not be overstated. The decision follows logically from the principle recognized in almost all European countries that in-house counsel are not members of the bar and are therefore not entitled to the professional privilege. In addition, the practical impact of the decision in litigation is unlikely to be great. Even if the ECJ had ruled that the privilege applies to in-house counsel, the decision would only have governed litigation involving the EU, not domestic private litigation or litigation involving member states. Discovery in Europe is essentially nonexistent, and broad requests for pretrial discovery emanating from U.S. proceedings are limited by reservations adopted by most European countries under Article 23 of the Hague Convention and possibly by blocking statutes and privacy laws. Therefore, the risk of disclosure of communications involving in-house counsel in private litigation in Europe is quite small. In public litigation, the authorities may seek communications with in-house counsel, but in these cases companies almost always retain outside counsel, where the professional privilege is well established both in cases involving the EU and member countries.

Francesca Giannoni-Crystal is the founding member of Crystal and Giannoni-Crystal, LLC. Nathan Crystal is a Distinguished Visiting Professor of Law at the Charleston School of Law. A longer version of this article was published in Volume 11, Issue 1, of the Global Jurist.