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Brief Counsel

The invidious position of in-house counsel in Europe

10 May 2010

Aspirations by European in-house counsel to secure the same recognition as their counterparts in law firms have been set back by an influential opinion from the Advocate-General for the European Court of Justice, delivered at the end of last month.

The Court found that legal professional privilege does not apply to communications between a firm and its in-house counsel.

New Zealand, fortunately, does not take the same view.

The opinion

Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (Case C 550/07 P) developed out of an inquiry by the European Commission into suspected price-fixing by Akzo for additives used to make plastic products.  The Commission raided Akzo’s United Kingdom offices in 2003 and seized a number of papers – among them e-mails between a company executive and in-house counsel.

Akzo argued that the Commission could not use the documents as they were protected by legal professional privilege.  The Court of First Instance rejected Akzo’s application, relying on the long-standing precedent of AM & S v Commission [1982] ECR 1575 that privilege only attached to communications with EU-qualified and independent lawyers.

Akzo appealed to the European Court of Justice in Luxembourg, arguing that AM & S and the distinction between in-house and external counsel ought to be revisited.  The Court’s procedure requires an opinion from the Advocate-General, a court legal adviser.  A final ruling by the Court is not due until later this year.  However, the Court regularly (but not always) follows the Advocate-General’s advice.

In his opinion, delivered on 29 April, the Advocate-General held that AM & S was still good law and that the appeal should be dismissed in its entirety.  He explained his finding thus:

[A]n enrolled in-house lawyer, despite his membership of a Bar or Law Society and the professional ethical obligations associated with such membership, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his clients.  Consequently, an enrolled in-house lawyer is less able to deal effectively with any conflicts of interest between his professional obligations and the aims and wishes of his client than an external lawyer.

The New Zealand position

New Zealand does not make such a categorical distinction between in-house and external counsel.  Section 6 of the Lawyers and Conveyancers Act 2006 defines “lawyer” as “a person who holds a current practising certificate as a barrister or as a barrister and solicitor”.  If in-house counsel hold practising certificates, they are treated the same as all other lawyers under that Act.

Legal professional privilege is primarily governed by section 54 of the Evidence Act 2006.  This allows privilege to attach to communications with “legal advisers” which, under section 51 of the Evidence Act, includes all “lawyers” as defined by the Lawyers and Conveyancers Act.  Accordingly, the key question in New Zealand is not whether in-house counsel are independent, but whether they hold practising certificates.

Privilege attaches to a communication under section 54 of the Evidence Act, however, only if the communication was intended to be confidential and was made in the course of and for the purpose of the client obtaining or receiving legal services from the legal adviser.

For external counsel dealing with clients at arm’s length, these criteria are relatively easy to meet.  But it is more problematic for in-house counsel whose presence within an organisation and constant communication with the client (employer) makes it more difficult to determine which communications are properly treated as privileged. 

As Professor Duncan Webb notes1, in-house counsel often simultaneously engage in both legal and commercial work, or provide advice to their clients beyond legal advice (for example, advice on negotiating).  They therefore need to be vigilant in considering whether their communications meet the tests required for privilege to attach.

A dangerous presumption?

The tendency, reflected in Azko, to treat in-house counsel as second-class citizens was also evident in Sydney Airports Corporation Limited v Singapore Airlines Limited [2005] NSWCA 47.  In that decision, Chief Justice Spigelman found that a lower court had not erred in treating as a relevant consideration for privilege purposes the fact that the lawyer concerned was employed as in-house counsel.  This was despite the fact that the relevant Australian legislation makes no such distinction.  Spigelman CJ’s stated reason for his ruling was that in-house counsel are more likely to act for purposes unrelated to legal advice than are external counsel.

But is this presumption safe?  As Professor Webb observes, both internal and external counsel have a similar predisposition to abuse privilege since both come under similar pressures from their clients.  Moreover, in-house counsel are under the same obligations prescribed by the Lawyers and Conveyancers Act.  In fact, rule 15.2 of the Act’s associated Rules of Conduct and Client Care specifically states that in-house counsel cannot act in a way that would compromise their obligations under the Act and the Rules. 

Conclusion

Given they are under the same obligations as external counsel, in-house counsel should be treated the same for the purposes of determining whether communications with their clients are privileged.  This is the case in New Zealand where they have the same rights and obligations as any other lawyer.

Our thanks to Marcelo Rodriguez Ferrere, Solicitor, for writing this Brief Counsel. For further information, please contact the lawyers featured.

Footnote

  1. “Privilege, Corporate Counsel and Lawyer Independence”, 2009, 15 NZBLQ 195

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