In-house lawyers should defend themselves

A RECENT opinion handed down by the advocate general in Brussels rejecting privilege for communications with in-house counsel threatens the status and future of in-house solicitors, and has caused significant concern to major companies and City lawyers.

The background to the case was a dawn raid carried out by the Office of Fair Trading and the European Commission in February 2003, at the premises of Akzo Nobel Chemicals and Akcros Chemicals in Eccles, Manchester. During the investigation the commission took copies of a large number of documents. Akzo claimed that certain of these papers were covered by legal privilege, which meant that the commission could not have access to them. The commission disagreed, and now the GC100 group of leading general counsels (GCs) has voiced concerns about the Akzo case.

When leading the defence team responding to the raid I never thought this would still be making waves. But regulatory risks are now top of the agenda for general counsels for businesses, particularly those with a global reach. The sanctions for non-compliance – not just in fines but also personal liability for senior management – now make it imperative that legal advice can be obtained without the risk of it being used as adverse evidence.

In-house legal teams are embedded in the businesses they serve and are generally best placed to ensure swift, effective compliance and to do so cost efficiently. Giving advice verbally or constantly turning to outside advisors simply for privilege protection or to avoid disclosure risks is not practical. It can actually restrict the ability of companies to understand and work through complex areas of law.

This at least is the US and UK perspective based on long experience of affording privilege to in house lawyers. But it contrasts with traditions in many continental jurisdictions, which place great emphasis on the status of the independent bar association. Arguably EU enlargement has increased the number of states taking that line. The EU Commission adopts their view in arguing that in house lawyers are subject to the influence of the companies that employ them to a degree that impinges on the objectivity of their advice and therefore the protection it should merit. The battle for GCs is therefore about professional recognition as well as business imperative.

The debate has focused on antitrust investigations, the main sphere in which the EU Commission exercises its enforcement powers. In most other areas regulatory enforcement is largely carried out at national level and the approach to privilege in the relevant jurisdiction will apply. An additional spectre for GCs is that EU investigations and regulatory activity could develop in other areas in which privilege, based on EU case law, could also then be unavailable, like environmental compliance, money laundering and bribery.

There is a concern that English law could be affected as it becomes increasingly interwoven with EU law. There seems to be little imminent risk of that, but the attraction to regulators is obvious. At present the OFT will provide most of the manpower and assistance for commission antitrust raids in the UK, but also leads its own domestic raids where in-house privilege must be respected. Regulators in all jurisdictions including the UK and US have in recent years pressured companies to give “voluntary” waivers of privilege, suggesting where their ambitions lie.

The crusade for in-house lawyers’ privilege sparked the formation of the European Corporate Lawyers Association, and also worries the American Corporate Counsel Association. The European Court of Justice is expected to give its judgment on Akzo within months. If, as expected, it follows the advocate general’s opinion, in-house lawyers in the City and elsewhere will be keeping up the pressure.