The confidential protection enjoyed by lawyers over their communications does not extend to in-house lawyers, the European Court of First Instance ruled yesterday.

In a keenly awaited decision, the court held that companies facing the seizure of documents by the European Commission in dawn raids could not automatically claim legal professional privilege.

That protection applied only to the extent that a lawyer is independent, which — it said — meant not bound to his client by a relationship of employment.

But the court also held that where there was a dispute over whether documents were protected, then the European Commission had no right to inspect them and had to keep them sealed until a formal decision was made, including any appeal.

The ruling, in a case brought by Akzo Nobel and Akcros Chemicals against the European Commission over a raid and seizure of documents in 2003, was a blow to in-house lawyers who had hoped to win an extension of privilege, putting them on an equal footing with private practice lawyers.

The Law Society of England and Wales, which represents more than 100,000 solicitors and has lobbied hard for a reform of the law, immediately condemned the judgment and gave warning that it would harm the interests of improving business practice.

Des Hudson, chief executive of the Law Society, said: “It appears to be a foolish move by the court not to refresh its case law to reflect the realities of the 21st century. The role of in-house counsel has evolved greatly since 1982.

“It is an outrageous suggestion that the advice given by solicitors, who are bound by the Law Society’s high professional standards, should not be afforded the same level of protection merely because of their employed status. This inequality between members of the same profession is unsustainable and it is disappointing that court did not set this straight.

“In addition, this situation would appear to run counter to the European Commission’s ambition to increase the culture of compliance within European companies. Unrestricted access to in-house counsel provides informed and cost-effective legal assistance in ensuring such anti-trust compliance.

“The court may have ruled, but we will continue to work hard with the commission and the other EU institutions to ensure that the advice of in-house solicitors is given the protection it merits.”

The society has been lobbying extensively to draw attention to what it argued was the important role played by in-house counsel in good corporate governance, highlighting that there are many solicitors in the roles who are regulated and have a core duty of independence.

In general, in-house lawyers in England and Wales can claim legal professional privilege (LPP) on behalf of their clients — namely the company for whom they work. In a Court of Appeal case in 1971, Lord Denning ruled that salaried legal advisers are “regarded by the law as in every respect in the same position as those who practise on their own account”.

Times Recommends

• PM to sue Icesave to get savers' money
• Former UBS lawyer pays $6.5m to settle probe
• Test case over non-dom told to pay UK taxes