REUTERS | Jason Lee

A privileged position? Legal advice privilege under scrutiny

Legal advice privilege exists so that a client and his solicitor may speak candidly to each other when seeking and providing advice as to what should be done in a relevant legal context. That candour would be impaired if those communications might be disclosable to a third party.

This area of privilege has been undermined in recent years, particularly for in-house lawyers. This post takes a broad look at the ECJ’s judgment in Akzo Nobel, against the backdrop of the judgment in Three Rivers, and considers whether together they represent a judicial trend away from legal advice privilege.

Akzo Nobel/Akcros Chemicals

The Akzo Nobel decision confirmed that communications between in-house lawyers and their clients are not covered by legal professional privilege in European Commission competition law investigations; only communications with EU-qualified external lawyers are protected.

The ECJ considered that, as a result of the in-house lawyer’s economic dependence on their employer and the close ties associated with the employment relationship, they do not enjoy a level of professional independence comparable to that of an external lawyer:

“…consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client”.

In-house lawyers might be justifiably affronted that the ECJ regards their professional independence as likely to be impaired. The Law Society’s Chief Executive, Desmond Hudson, observed that:

“In-house lawyers ensure [corporate compliance] best when they know their full, frank and independent legal advice can be given in confidence”.

Many commentators have stressed the limited scope of Akzo Nobel. It is, after all, a decision confined to in-house lawyer communications in the context of European Commission competition law investigations only. Nevertheless, coupled with the earlier Three Rivers’ decision, one might start to feel that the concept of legal advice privilege was under attack.

Three Rivers DC v The Bank of England

The Three Rivers’ decision maintained legal advice privilege as between lawyers and their clients, but it narrowed the scope of the term “client”. It established that not all a company’s employees are “clients” for the purpose of legal advice privilege; only those, for example, who have been tasked with procuring legal advice. It follows, therefore, that legal advice may lose privilege if circulated beyond those individuals who procured the advice.

Unfortunately there is no clear authority on how, in the context of an in-house lawyer’s advice, one analyses who the “client” is in this narrower sense. This uncertainty therefore favours caution when disseminating written legal communications.

Impact for in-house lawyers

It is worth reflecting on the combined effect of Akzo Nobel and Three Rivers on the working practices of an in-house lawyer.

In-house lawyers already have a host of legal risks to manage in their roles and now they have further reason to pause before committing their advice to writing. They must consider who their client is (to avoid falling foul of Three Rivers) but, even having managed that, there still remains a latent risk that their advice may be disclosable if it becomes pertinent to a European Commission investigation.

The wider impact of Akzo Nobel

There is a chance that the Akzo Nobel decision may also impact on disclosure in English proceedings which “follow on” from decisions of the European Commission. For example, customers of an unlawful cartel (as established by a European Commission decision) may claim damages to compensate for the alleged uplift in prices that they allege they were forced to pay.

When it comes to disclosure in that type of action, the claimant may seek documents used in the course of the European Commission’s cartel investigation. Following Akzo Nobel, those documents may include the legal advice given by a cartelist’s in-house lawyers. This raises the question of whether the English courts will entertain the possibility of the disclosure of documents that would ordinarily be privileged in English legal proceedings.

The future

The effect of cases like Three Rivers and, in particular, Azko Nobel, on the status and application of legal advice privilege is limited and specific in nature. However, these cases do add uncertainty, engender debate and raise the possibility that the protection offered by legal advice privilege may, over time, be gradually eroded.

All that said, any lawyers who start to feel disheartened should just remind themselves of the judgment in Prudential plc v Special Commissioner of Income Tax. That case confirmed that an accountants’ advice would not be covered by legal advice privilege, even if it was materially identical to advice that would be privileged if it was given by a lawyer in identical circumstances. So, for the time being at least, lawyers do remain in a uniquely privileged position.

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