25 March 2021 | By Marten Männis
Legal Privilege
Legal Professional Privilege in Europe and Beyond
On 10 March 2021, ECLA, together with Cleary Gottlieb Steen & Hamilton LLP, held a comprehensive roundtable discussion on legal professional privilege (LPP) for in-house counsel. The discussion included the status of LPP in various European jurisdictions, including Germany, France, the UK and others, in addition to providing a regulatory overview within the EU legal framework, contrasting it with the status of LPP in the US, where LPP has enjoyed a legal standing for well over seven decades.
General Remarks
The general remarks of Jonathan Marsh, President of ECLA, focused largely on the overarching effect that LPP has on business operations and on the Single Market as a whole. The lack of proper LPP protections arguably has two disadvantages – it interferes with the proper function of corporate compliance and puts EU companies at a disadvantage against jurisdictions with LPP protections in place. The former has a chilling effect on management that can cause businesses to avoid disclosing sensitive information internally. It should be stressed that the primary role of in-house counsel is to help their companies comply with the law. The latter creates situations where EU authorities can seize documents from in-house counsel which can be shared with governments and private litigants in subsequent proceedings. This impacts the proper functioning of the Single Market, as knowledge of this risk forces companies to use outside counsel exclusively, which brings an increased cost to the businesses and decreases their efficiency in addressing legal matters. There are even scenarios where businesses, due to the increased costs and internal risks, decide to not consult anyone.
Another strong argument in favour of LPP concerns EU fundamental rights. Article 16 of the EU Charter of Fundamental Rights recognises the right to conduct a business with accordance with Union and national law and practices. Today, national law and practices allow for the assertion of LPP to protect legal advice from in-house counsel in a number of Member States. Those states have thus determined that the existence of an employment relationship between a client and their lawyers does not compromise their independence or objectivity of professional judgment. ECLA recognises that the independence argument is critical in this debate. Furthermore, this is one of the core values that ECLA advocates for on a European level. The ECLA White Paper ‘Independent by Design’ fully addresses this unfounded notion that in-house counsel do not have the necessary independence from their employers to provide an independent legal assessment.
National status of LPP in European jurisdictions and the US
The Spanish developments are rather exciting, as the new General Statute of Spanish Lawyers, replacing the current system that has been effect since 2001, includes an explicit reference to in-house lawyers. More on that can be read in our recently published article. The new law could come in conflict with the CJEU Akzo Nobel case, which should be monitored closely.
LPP in France
In France, the LPP developments are progressing more slowly compared to some other Member States. The government has commissioned numerous expert opinions on the subject matter over the last few decades, with all of them recommending reforming the law on legal privilege. None of the attempts have succeeded in actually making a material change thus far. The latest report was led by French deputy Raphaël Gauvain in 2019. In the report, on which more can be read here, Gauvain proposes to better protect French companies by giving company lawyers a status similar to that of external legal counsel, in particular with respect to legal privilege. “With unilateral economic sanctions, no financial or commercial transaction is today beyond the reach of the American legal apparatus,” Gauvain writes. It was “imperative to elaborate a strategy to contain the extraterritorial legal assault to reaffirm [France’s] sovereignty and protect its enterprises and the millions of jobs that depend on it.”
In Fall 2020, the French Minister of Justice Éric Dupond-Moretti made a proposal that included extending LPP to in-house counsel. ECLA has been active in supporting this measure together with AFJE and Cercle Montesquieu, ECLA’s two French member associations. In particular, ECLA issued a letter clarifying the situation in foreign jurisdictions, to provide evidence to the French government that the proposed changes function accordingly in other jurisdictions, where in-house counsel do enjoy LPP. In opposition, the local bar associations have been rather vocal to this change, fearing an increased competition from the in-house counsel in the legal services market. This is a wholly anticompetitive argument and essentially hinders the quality of legal advice that French businesses can attain.
Another notable recent development concerns the criminal proceedings against the former French President Nicolas Sarkozy. The president was accused of trying to obtain details of other legal proceedings by using his outside counsel to propose a prestigious promotion to the judge assigned to the cases. The discussions over the phones were monitored, with the information derived thereof used against the criminal proceedings against him. His defence argued in vain that these discussions should be covered by LPP.
The Sarkozy case has no direct connection to extending LPP to in-house counsel – however it does give the opposing parties, such as the French prosecution, additional firepower in reasoning their opposition to this extension, particularly in criminal matters. Nevertheless, it should be viewed as a temporary setback, given that the arguments for establishing an extensive LPP protection for in-house counsel far outweigh the counterarguments from a business and from an employment perspective.
No good news in Germany?
Dr. Clarissa Freundorfer, General Counsel at DB Cargo AG and a Board Member at DAV, the German member association of ECLA, provided her insights into the developments in Germany. She noted the similarities that the French and German setup previously had with respect to in-house counsel. In 2016, a specific section was introduced, whereby company lawyers, by legal definition, are seen as independent and not subject to instructions by their employers. This means that company lawyers in Germany fulfil the conditions set by the Akzo Nobel judgment, in which the independence of company lawyers was brought out as a counterargument against extending privileged communications to in-house counsel.
However, the 2016 legislation explicitly refused to extend LPP protections to in-house counsel in criminal matters. The discussions back then rather extensively elaborated on why in-house counsel should not have legal privilege in such matters. There were two overarching arguments against it: it would hinder an effective criminal law enforcement and would create the danger of excluding the prosecuting authorities from having proper access to relevant evidence. This implies that companies would use the offices of their in-house counsel to hide incriminating documents.
This seems like a far-fetched argument and does not correlate with the actual role of company lawyers, which is to help companies be compliant with the relevant legislation. Unfortunately, there is little hope that this will change in the future, especially since there is a draft legislation in place that would narrow legal privilege for external counsel, using effective criminal prosecution as an argument for curtailing it. This is a clear warning to outside counsel who oppose extending LPP to in-house counsel : The arguments used against LPP for in-house counsel can be turned against outside counsel to further restrict their LPP coverage.
Modernising the company lawyer profession in Belgium
In contrast, Belgium has extended LPP to in-house lawyers for two decades. Simon Vander Putten, Secretary-General at IBJ/IJE, the Belgian member association of ECLA, gave some insights into how LPP is derived from company lawyers being members at IBJ/IJE. The company lawyer has been a regulated profession in Belgium since 1 March 2000. If an individual works as an in-house counsel in Belgium, they can choose to join the association. Membership provides individuals the protected title of the profession, with the membership also obligating members to submit to the code of ethics, under which intellectual independence is required. This requirement is enforced by the relevant disciplinary bodies.
Under Article 5 of Law 1 March 2000 regulating the profession, advice given by company lawyers [who are a fully admitted member to the IBJ/IJE], for the benefit of their employer and in the execution of their office as legal advisor, is confidential. The term confidential entails that such advice cannot be seized by authorities.
According to the Belgian case law, LPP for company lawyers is derived from Article 8 of the European Convention on Human Rights (ECHR), concerning the right to private life. It has been confirmed by the Belgian judicial system in separate cases – at the Brussels Court of Appeal on 5 March 2013 in the Belgacom case; at the Brussels Labour Court on 5 April 2011 and on 17 December 2014; and at the Brussels Court of First Instance on 30 October 2017. Nevertheless, the case law has made it clear that company lawyers in Belgium do not enjoy professional secrecy, with a distinction being made between company lawyers and external lawyers affiliated with the relevant Bar associations.
The decision to derive LPP from Article 8 instead of Article 6 ECHR, concerning a right to legal assistance was explained in the preamble of the Law 1 March 2000, which states that company lawyers cannot by nature have the same LPP protections as external counsel. The argument however had political implications rather than substantive ones.
There are ongoing attempts to modernise the statute, given that it has in place for over two decades. In December 2020, Members of the Belgian Federal Parliament filed a bill aiming to modernise certain aspects of the profession and of the IBJ/IJE, such as governance, disciplinary rules.
The first of the two major changes that the bill aims to bring concerns opening the company lawyer profession up to certain self-employed company lawyers. The current exclusion for example includes active executive organs, who legally have to be under a self-employed status. The argument in favour of extending the profession to such individuals was recently supported by the Shell Etosha case in the Netherlands, in which the Court found that in-house counsel can have LPP even when they sit on executive boards. Currently, the Belgian legal system requires individuals to be self-employed when sitting on certain executive boards. This excludes such individuals from being seen as company lawyers under law, given that the Law 1 March 2000 requires company lawyers to be employees of the company.
The current setup also does not reflect the realities of the current labour market, in which an increasing number of self-employed individuals provide equivalent services with that of company lawyers, without any of the legal rights and obligations that company lawyers have under the law. This includes cases where individuals are replaced when on medical leave or in cases where interim legal managers join the legal team.
The second major change entails strengthening the LPP provided under law. A part of this change would bring already established case law into law. This would include extending LPP to not only covering advice, but also the request of the advice and the draft of the advice. This would provide legal certainty under law. Furthermore, the concept of legal advice should be defined under law. The definition, in addition to advice on the legal situation, should include other tasks that company lawyers fulfil, such as giving advice on either entering or avoiding legal proceedings and following-up on legal proceedings.
This second change would not alter the exclusivity allowing only outside counsel argue before the court. This change would address the aforementioned Article 6 ECHR, concerning a right to legal assistance. Furthermore, this change would set criminal sanctions for company lawyers who breach their duty of confidentiality.
These changes would ensure that LPP under Belgian law are fully recognised in a sustainable way in the foreseeable future. Furthermore, this would provide immediate benefits to Belgian companies in international matters, enabling Belgian company lawyers collaborate more closely with legal professionals from other jurisdictions, such as in-house counsel based in the US. Under the current regime, US counsel usually are required to communicate with external counsel by their companies due to the fact that Belgian company lawyers do not have criminal sanctions in place, if they were to breach their duty of confidentiality.
The different types of privilege under English & Welsh law
Sunil Gadhia, Partner at Cleary Gottlieb and a member of the firm’s Executive Committee, provided some key insights into the developments of LPP under the English and Welsh jurisdiction.
English and Welsh law recognises three types of LPP: legal advice privilege (LAP); litigation privilege (LIP); and working papers privilege.
LAP protects confidential communications between a lawyer and their client, including documents evidencing those communications. These communications have to be made for the dominant purpose of either giving or obtaining legal advice.
LIP protects confidential communications and any documents evidencing those communications, where adversarial litigation was in reasonable contemplation and which were created for the dominant purpose of litigation. This also includes communications between the client or lawyer and a third party.
Working papers privilege protects documents that, though they are not necessarily communicated to a client, would give the recipient of the papers a clue to the trend of the advice given by the lawyer. A standard example would be the internal research notes of a lawyer.
One aspects of LAP that has been challenged under English and Welsh law concerns the definition of the lawyer and the client. The definition of a lawyer for these purposes includes counsel based outside the jurisdiction, in-house lawyers and non-legally qualified personnel, such as trainees and paralegals. Conversely, the definition of a client is limited to those employees who have express or implicit authority to seek and receive legal advice on behalf of the company.
This approach was endorsed in RBS Rights Issue Litigation [2016] EWHC 3161 where the court held that only individuals constituting part of the directing mind and will of the corporation or the duly authorised organ of the corporation were a client for the purposes of LAP. This interpretation has been consistently upheld by the English courts, though it has been broadly criticised, including in Serious Fraud Office v ENRC Limited and another [2018] EWCA 2006.
Unlike LAP, Litigation Privilege (LIP) applies to communications with third parties. However, there must be a reasonable prospect of litigation. A general expectation is not sufficient for this purpose. Note that adversarial proceedings do not include administrative, inquisitorial, investigative or fact-finding matters (though they do cover criminal and regulatory prosecutions).
Attorney-Client Privilege in the US – the gold standard?
Jennifer Kennedy Park, Partner at Cleary Gottlieb, gave a contrasting overview to LPP in the US jurisdictions. The US LPP regime is much more expansive than it is Europe.
The Attorney-Work Product Doctrine protects the working thoughts and work products of lawyers. It applies to documents and other tangible things prepared in anticipation of litigation, which are prepared by or for a party or their representatives. It was established in U.S. Supreme Court ruling Hickman v Taylor (1947) and is now embedded in rules of civil procedure. This privilege covers in-house lawyers as well.
Attorney-Client Privilege applies to all attorneys admitted to the bar and everyone working on their behalf, including paralegals, secretaries and translators. For Attorney-Client Privilege to apply, a communication must be confidential, and be between a client and their attorney for the purpose of giving or receiving legal advice. Note that corporations can be clients for this purpose, and (unlike in the UK) every individual employee of a company that is receiving advice from an attorney or an in-house counsel is considered to be a part of the client for the purposes of Attorney-Client Privilege.
There are aspects that the Attorney-Client Privilege does not cover. A common scenario excluded from LPP in the US concerns communications that are made in the presence of third parties who are outside the attorney-client relationship. Communications that are made for the purpose of rendering business advice are also outside of scope. However, if legal advice and business advice are mixed, the communications could be considered privileged if the legal matters are predominant.
Supranational LPP in the EU
The right for LPP in the EU is derived from the Charter of Fundamental Rights, specifically under Articles 47 and 48 of the Charter, whereby everyone shall have the possibility of being advised, defended and represented; and respect for the rights of the defence of anyone who has been charged shall be guaranteed. The CJEU has had relatively little case law with regards to decisions on LPP. As of now, the European Courts have confirmed privilege protection for three categories of documents:
- Written communications with external counsel, established in Case 155/79 AM&S v Commission;
- Internal notes reporting legal advice from external counsel, established in Case T-30/89 Hilti v Commission; and
- Documents produced exclusively for the purpose of seeking legal advice from external counsel, established in Cases T-125/03 and T-55/03 Akzo Nobel Chemicals and Akcros Chemicals v Commission.
The above-mentioned case law extends the scope of LPP only to external counsel who are entitled to practice within one of the EEA Member States. Note that the Commission routinely insists on excluding LPP for in-house counsel advice. Conversely, the Commission can be more amenable as a practical matter to LPP claims for advice from external counsel from ex-EEA jurisdictions. Similarly, the Commission has claimed that LPP is limited to competition matters, in practice the Commission sometimes accepts the exclusion of a broader range of legal advice, especially where the material is not relevant to the investigation at hand.
The latest development in the Netherlands – the Shell Etosha ruling
The final part of the roundtable discussion – the Shell Etosha ruling by the Rotterdam District Court, can be read in detail here. ECLA submitted a notable amicus curiae to the proceedings concerning the discussions on LPP. Robbert Snelders and Richard Pepper at Cleary Gottlieb, had this to say concerning the judgment:
“The decision by the Rotterdam District Court helpfully reaffirms the application of legal professional privilege for in-house counsel under Dutch law. But this is an important judgment beyond the Netherlands, as it emphasises the importance of LPP for in-house counsel, upholds the relevance of national rules in this respect, and supports the representation of internal counsel at the highest level of company management.”
