Legal professional privilege developments: Belgian legal challenges, French reforms, and US procedures on privileged materials
The article below is a summary of the discussions held on 10 October at a webinar organised by Concurrences, titled “Legal Privilege in the EU & US: What’s new?” and aims to provide an expansive discussion on the main points emphasised.
Legal professional privilege and independence of in-house lawyers has made a considerable evolution in the last 40 years. The reasoning put forth by the European courts in several landmark cases, in particular the AM&S and the Akzo Nobel cases, has greatly influenced the profession in European civil law jurisdictions and, by some claims, hindered economic development by a lack of harmonisation across Europe and by enabling foreign-based companies to enjoy a higher level of protection concerning their own legal teams.
However, in the last 5 years, the EEA has seen a major shift towards extending legal privilege and confidentiality rules to in-house counsel in direct opposition put forth by cases such as Akzo Nobel, which insinuated that in-house lawyers do not enjoy a level of independence required due to their employment relationship. Countries such as Spain, Switzerland, and now France have made considerable amendments to their existing legislation to extend certain rights to in-house lawyers.
Nevertheless, given the sensitivity of the topic and the technical nature, the EU could, as it has done in the past, again define the boundaries of the in-house counsel profession in a way that does not address the practical reality of the profession. Given that in cases such as Akzo Nobel, the Commission had only one lawyer representing their position, the impact of future cases should closely be monitored and challenged.
Akzo Nobel – still the EU norm
The EU had long been dominated by the reasonings put forth in the AM&S case and the Akzo Nobel case to restrict the extension of legal professional privilege to in-house counsel. In Akzo Nobel, the CJEU emphasized that for communications between lawyers and their clients to be protected under LPP, two cumulative conditions must be met: the communication must be connected to the client’s rights of defense; and the communication must come from independent lawyers, i.e., lawyers not bound to the client by an employment relationship. The court highlighted that the requirement of independence necessitates the absence of an employment relationship between the lawyer and the client. This means that LPP does not cover exchanges within a company or group with in-house lawyers. In the view of the CJEU, the concept of lawyers’ independence is determined not just by professional ethical obligations but also negatively by the absence of an employment relationship.
Despite being enrolled with a Bar or Law Society and subject to professional ethical obligations, the CJEU claimed that an in-house lawyer does not enjoy the same degree of independence from their employer as a lawyer working in an external law firm does in relation to their client. This distinction impacts an in-house lawyer’s ability to deal effectively with potential conflicts between professional obligations and the client’s aims. The court also addressed the principle of equal treatment, asserting that the fundamentally different positions of in-house and external lawyers render their respective circumstances not comparable.
This reasoning, however, has since then evolved substantially, in particular on Member State level. Several countries have, in recent years, introduced legislative elements that extend legal professional privilege to in-house counsel and dispute the reasoning put forth by the Court of Justice. In addition, several EU legislations have come under scrutiny concerning their interpretation of the question of legal privilege.
Outlook on EU level LPP
It must be emphasised however that the Akzo Nobel ruling has yet to be challenged before the CJEU. Ultimately, even if Member States have varying levels of legal privilege granted to in-house lawyers, there must be a European standard on the European level which is universally applicable. Currently this is still the Akzo Nobel ruling and the reasoning thereof. This means that to gain meaningful EU-wide reforms, new case law must be brought before the Court to overturn Akzo Nobel and to establish new standards.
This is the key next step that must be undertaken if the goal is to gain a harmonization of the extension of legal privilege for in-house counsel. The judicial system does not automatically adjust if Member States start leaning in another direction, as we have seen in recent years. Nor does it change the mandate under which the European Commission operates. This means that there must be a case that is challenged before the Court where the CJEU decides to overturn its past arguments on independence. While in practice this might seem reasonable, given that the economic well-being of law firms, in particular small firms, are similarly, yet differently dependent on their clients, it is highly unlikely that the CJEU will conclude outright that an employment relationship does not interfere with the independence of an in-house counsel. This would mean that a different legal standard would have to be created for in-house counsel on a European level, which also seems highly unlikely.
Legal issues emerge from the DAC6 Directive
Belgium has in recent years been at the forefront in challenging EU legislation and their applicability with the constitutional rights that the legal profession has under the Charter of Fundamental Rights. The main point of contention has been Directive 2018/822, also known as DAC6. It introduced an obligation for intermediaries to report certain cross-border arrangements with a tax impact to the tax authorities of each country, aimed at combating aggressive tax planning. The Directive aimed at enhancing transparency and information sharing among EU Member States to tackle tax evasion and avoidance.
The Flemish Bar Association, along with the Belgian Tax Lawyers Association, challenged the Belgian measures implementing Directive 2018/822 before the Belgian Constitutional Court, who sought a preliminary ruling from the CJEU, as to whether Articles 47 and 7 of the Charter of Fundamental Rights are infringed concerning the reporting obligations established under the Directive. The directive’s requirement for intermediaries, including lawyers, to report certain tax arrangements to tax authorities was seen by the claimants as conflicting with the rights to privacy and confidentiality inherent in the lawyer-client relationship. Particularly, when lawyers were to notify other intermediaries of their reporting obligations, it potentially revealed sensitive client-lawyer engagements, which, according to the claimants, was a breach of the privacy rights protected under EU law.
In response, the Court of Justice of the European Union (CJEU) issued a judgment on 8 December 2022 (case C-694/20), declaring the reporting obligation between intermediaries relating to the waiver of the communication obligation due to professional privilege under Directive 2018/822 contrary to European Union law. The court found that the mechanism provided by the directive could violate the fundamental right to respect for private life as it obligated lawyers to notify other intermediaries, thus revealing that a lawyer had been consulted, infringing upon the privacy rights of the individuals involved.
The Belgian Constitutional Court reached a judgment on 20 July 2023. It confirmed the judgment of the CJEU and annulled the relevant provisions covered by case C-694/20 of the Flemish decree that transposed the DAC6 Directive.
However, there is also an ongoing case C-623/22 before the CJEU, addressing the same DAC6 Directive, lodged by the Belgian Association of Tax Lawyers and Others, the Ordre des barreaux francophones et germanophone, the Orde van Vlaamse Balies and Others, and the Institut des conseillers fiscaux et des experts-comptables and Others. The questions referred in this case concern the principles of equality and non-discrimination, the principle of legality in criminal matters as guaranteed by the Charter of Fundamental Rights, and the right to respect for private life, as guaranteed by Article 7 of the Charter and Article 8 ECHR. If successful, this could result in either additional elements or the entirety of the Directive being annulled.
Mistaken translation in the Whistleblowing Directive?
There are additional developments in Belgium concerning the applicability of EU law. IBJ/IJE, the professional association of in-house lawyers, has highlighted concerns about the EU Whistleblowing Directive, due to the language used in the official French translation. The Directive addresses lawyers as ‘avocat’, a term exclusively used to refer to external counsel, which seemingly omits in-house lawyers entirely. This linguistic choice has led to a challenge by the IBJ/IJE before the Constitutional Court of Belgium, in a bid to either rectify what might be a translation error or deliberate exclusion. The IBJ/IJE initially sought clarification European Commission However, the short response from the Commission surprisingly cited the precedent set by Akzo Nobel. This brings forth questions on the relevance of invoking Akzo Nobel to justify the disparate treatment of in-house and external counsel, particularly in the transposition of the Whistleblowing Directive.
This challenge comes amidst a discernible trend among Member States extending confidentiality or secrecy for legal advice provided by in-house counsel.
French legal reforms a cause for celebration
At the same time, France has undergone a positively monumental shift in advancing legal protections for in-house counsel. On July 10, 2023, the French Government presented an amendment to Article 19 of Rule 99 of the Rules of Procedure, making significant changes to the role and responsibilities of in-house lawyers in France. The amendment fundamentally reshapes legal advice confidentiality in the corporate sector and improves France’s attractiveness in the global market. Under this amendment, legal advice drawn up by an in-house lawyer or, at their request and under their supervision, by a member of their legal department, which is done for the benefit of their employer, is considered confidential. In other words, French legal departments providing legal advice to their employers enjoy confidentiality rules when providing said advice.
The amendment introduced rules concerning the confidentiality of legal advice drawn up by in-house lawyers or their team members that, if appropriately labelled and identifiable, cannot be seized or required to be handed over in civil, commercial, or administrative proceedings or litigation. This confidentiality is not applicable in criminal or tax proceedings.
Two key conditions must be met for confidentiality to apply for French in-house counsel. The lawyer, or the member of their team that reports to them, must hold a master’s degree in law (or an equivalent diploma) and must provide proof of initial and continuing training in ethics. Legal advice under confidentiality rules must be appropriately labelled – confidentiel – consultation juridique juriste d’entreprise, translated as confidential – legal consultation with in-house counsel.
The reasoning behind this amendment is both practical and economical. There have been decades of discussions (and several international court proceedings highlighting the discrepancy) by which French companies have been at a disadvantage when dealing with foreign-based companies where in-house counsel do enjoy legal privilege. The French government acknowledged this “paradoxical situation”, in which French in-house lawyers must implement and uphold compliance obligations while avoiding the risk of self-incrimination by their companies. As the representatives put it: “The stakes are too high… – It’s about jobs and the attractiveness of our nation. Our aim is to encourage more companies to establish their legal departments within France and to recruit French in-house lawyers.”
American procedures for filtering privileged materials
The Americal legal system has notably less distinction between in-house and external counsel. Furthermore, the concept of privilege has been well-defined within their legal systems. Concerning Federal investigations, the US Department of Justice (DOJ) has established mechanisms to handle potentially privileged materials encountered during investigations. A primary method is the deployment of ‘filter teams’ or ‘taint teams.’ These teams, typically comprising federal prosecutors uninvolved with the ongoing investigation, are tasked with reviewing seized materials to ascertain their privileged nature. Non-privileged materials are directed to the case prosecutors, while privileged or potentially privileged ones invoke a resolution process. This may entail discussions with the privilege holder, negotiations with counsel, or court interventions when necessary.
The timing of a filter review is case-dependent. For instance, searches at attorney’s offices or servers warrant immediate filter reviews given the high likelihood of encountering privileged materials. In such scenarios, agents separate from the prosecution team execute the search warrant, thereby safeguarding the prosecution team from allegations of undue exposure to privileged documents. Conversely, in non-attorney search scenarios, such as those targeting a company or individual’s premises, a filter review is conducted when there is an indication of legal representation for the account holder, with decisions made on a case-by-case basis.
While the use of filter teams has faced judicial scrutiny, as evidenced in notable cases like that within the Fourth Circuit in the In Re Search Warrant case, their employment continues. A recent development has been the establishment of Special Matters Units within the Criminal Division’s Fraud Section and the Antitrust Division, taking over the filter team responsibilities in fraud and antitrust matters respectively. These units operate independently from the prosecution teams, focusing solely on filter reviews and other special matters.
In this case, a filter team was authorized to review materials seized from a law firm. However, the Fourth Circuit court found that the district court erred in denying the law firm’s motion seeking to enjoin the government’s use of a filter team. The appellate court expressed concerns regarding the “plain view” doctrine in connection with the filter team’s access to the materials seized from the law firm. The concern was that even if the filter team was instructed to ignore information related to possible criminal activity by other law firm clients in the seized materials, the review of such information could not be undone. The court found it troubling that federal agents and prosecutors were going through law firm materials protected by attorney-client privilege and the work-product doctrine. Moreover, the court opined that the magistrate judge’s authorization of the filter team and the filter protocol was improper, warranting injunctive relief. The district court was seen to have abused its discretion by failing to enjoin the filter team’s review of the seized materials. The appellate court, therefore, reversed the district court’s denial order and remanded the case for further proceedings.
Alternatively, a growing practice is the engagement of special masters. As private practitioners, special masters act as arbitrators on privilege matters, offering an additional layer of scrutiny and impartiality in resolving privilege claims.