HOWZAT

The only difference, he said, was that they act for one client only, and not for several clients. He added: “I have always proceeded on the basis that the communications between the legal advisers and their employer \ are the subject of legal professional privilege.” Lord Denning went on to qualify this by limiting the LPP to communications made in the capacity of legal adviser.

But in Europe there is an exception to that legal professional privilege after a case in 1983 in which the European Court of Justice held that a company could not withhold from the commission privileged communications made by its in-house lawyers unless made for the purposes and in the interests of the client’s rights of defence; and emanated from independent lawyers (not employed by the company).

The exception is regarded as being limited to competition law investigations by the commission, enabling it to use as evidence any such communications it comes across in the course of such an investigation.

Yesterday, the Court of First Instance (CFI) reaffirmed what has been held by the European Court of Justice.

Nicole Kar, a partner in the competition-antitrust practice at Linklaters, said: “This long-awaited judgment provides important clarification about the scope and procedure for asserting privilege in the course of a commission dawn raid. In-house counsel will be disappointed with the court’s ruling. However, companies, which can face criminal sanctions in some jurisdictions for refusing to disclose disputed documents, can now proceed with greater confidence as to their legal rights.

“Internal company documents prepared exclusively for the purpose of seeking legal advice from an external lawyer in exercise of its rights of defence may be privileged, even if they have not yet been, nor will be, exchanged with a lawyer.

“But merely discussing a document with a lawyer, or preparing a document as part of a competition compliance programme does not automatically confer privilege.”

John Schmidt, competition law partner at Shepherd and Wedderburn, added that although the ruling seemed simply to reaffirm pre-existing case law, it provides significant further guidance on the limits of what the commission is entitled to do in cases of genuinely disputed documents.

Where the commission carried out a dawn raid, it was not entitled “even to look through the documents where (i) there is a genuine dispute over whether a document is covered by privilege (i.e. that it is not clear from the face of the document that it is or is not privileged) and (ii) the company provides a sufficient explanation of the circumstances that would make it privileged (even if disputed by the investigators) and (iii) where a cursory examination of the document would provide the commission with information is should not have.

“In those circumstances the correct process is either to leave the document with the company or to take it in a sealed envelope and then adopt a formal decision that is appealable to the CFI before reviewing the contents.

“While this increases the company’s (and its lawyers’) bargaining position, the effect of the judgment is that if the commission nevertheless reviews the document and subsequently it turns out not to be privileged any breach of process is de facto healed by the fact that the document was not privileged.”

The long-running case arose after the commission, assisted by the UK Office of Fair Trading, carried out a dawn raid at Akzo’s premises in the UK and seized and made copies of numerous documents. Akzo Nobel argued that two sets of these documents were privileged.

The documents in Set A were drafted in preparation for seeking the companies’ external lawyers’ advice. The commission officials examined the documents and put them into a sealed envelope as they considered themselves not in a position to reach a definite conclusion as to their privileged character on the spot.

The documents in Set B comprised drafts of the documents in the first set and e-mails between the companies and their internal lawyers. The commission examined the documents in the second set and put them on its files, taking the view that they were not protected by legal privilege.

Akzo argued that legal privilege attached to both sets of documents. The company challenged the commission, arguing that it had violated the principle of legal professional privilege as set out in case law, and had denied the organisation its fundamental rights — such as the right to privacy.

The company also claimed that the commission had violated Regulation 17/62 that implemented the current Article 81 (prohibiting cartel arrangements) and Article 82 (prohibiting abuse of a dominant market position) TEC.

Most commentators had expected the judgment to extend the current rule for in-house lawyers as it was held by the President of the Court of First Instance that the developments of the national laws of member states support the view that a link of employment did not necessarily exclude the independence required for the function of counsel to be fulfilled.

The companies have two months in which to lodge an appeal against the ruling of the Court of First Instance.

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• BGC 'set aside £40m to lure Tullett brokers'
• Legal aid review to ensure value
• Fears as 21 magistrates' courts face closure