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In-House Lawyers: Time to Re-Think their Position

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The European Court of Justice (ECJ) has recently denied legal privilege for in-house lawyers advising on competition law throughout the European Union. This decision is highly controversial and may come as a surprise for many companies and businesses that rely on their in-house legal departments to ensure compliance with legal matters, including compliance with competition law. Companies may now have to rethink their structural and legal planning.

The European Court of Justice (ECJ) has recently denied legal privilege for in-house lawyers advising on competition law throughout the European Union. This decision is highly controversial and may come as a surprise for many companies and businesses that rely on their in-house legal departments to ensure compliance with legal matters, including compliance with competition law. Companies may now have to rethink their structural and legal planning.

The judgment relates to the European Commission's power to require production of documents in the course of competition investigations. In AM&S Europe Ltd-v- Commission (1983) the ECJ had established that the right to legal privilege will be respected provided two conditions are satisfied: first, such communications must be made for the purposes and in the interests of the client's rights of defence; and secondly, that they must emanate from independent lawyers, that is to say, lawyers who are not bound to the client by a relationship of employment.

The issue resurfaced two decades later in the case of Akzo Nobel Chemicals Ltd v. European Commission (2010). In this case, the Commission refused to recognise privilege for the communications exchanged between the company and its lawyers and Akzo appealed the decision to the European Court of First Instance (CFI, now the General Court). Many practitioners hoped that the CFI would change its position and favour the right to legal privilege especially since AM&S was decided at a time when in-house legal departments were less common and less tightly regulated. However, the CFI rejected the arguments put forward by the companies and upheld the ECJ's decision in AM&S. It stated that privilege could not extend to in-house lawyers because such lawyers did not satisfy the second AM&S condition, that is, they were not "fully independent" of the client. Akzo Nobel and Akros appealed the CFI decision to the ECJ. Their appeal was backed by a number of European governments; the International Bar Association and other bodies representing lawyers.
The ECJ ruled that in-house lawyers, including those that are enrolled with a Law Society and subject to professional ethics codes, do not enjoy the same degree of independence from their employers as lawyers working in external law firms. In-house lawyers are therefore, in the eyes of the ECJ, less able to deal effectively with any conflicts between their professional obligations and the aims of their client. Moreover, the ECJ considered that, unlike external lawyers who may rely on other income from other clients, the position of in-house lawyers is characterised by complete economic dependence on their employers.

It should be stressed that Maltese law on legal professional privilege continues to apply, such that it continues to extend to communications made between clients and their in-house lawyers but as a result of this ruling it is arguable that this privilege may not apply in relation to communications pertinent to matters that later become subject of a competition law dispute.

In conclusion, in-house lawyers in Malta can generally benefit from privilege in much the same way as external lawyers provided they are advising on legal rather than on administrative matters. However, as a consequence of this decision companies may now need to consider using external law firms for competition compliance issues that may potentially give rise to a competition dispute or investigation.

Dr. Jeanette Ciantar is an associate at Fenech & Fenech Advocates specialising in European law.


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