Legal Professional Privilege in the US and EU: Lacunae and the Case for Convergence.
Introduction
It is common ground on both sides of the Atlantic that communications covered by Legal Professional Privilege (LLP) are, in principle, excluded from disclosure, cannot be seized, and cannot be used as evidence in regulatory or Court proceedings. It is also common ground that the application and scope of LPP varies significantly between countries and legal systems which, in turn, results in inconsistencies and different treatment of a single piece of evidence depending on where it is physically located or electronically stored, who has seen it, and the agency/litigant attempting to seize it. In the context of European competition law enforcement, the question arises whether the European Commission can require corporations under investigation to disclose material that is protected by LPP in a non-EU jurisdiction. The issue is of obvious importance to international corporations and legal practitioners involved in cross-border transactions and investigations.
Current State of EU LPP
There are no pan-European rules governing the notion and application of LPP across the EU, including in the context of competition law enforcement, meaning that each Member State is left to decide the scope and application of LLP within its own domestic jurisdiction. Therefore, developing the notion of LPP at EU level has been left up to the EU Courts (including the European Court of Human Rights (ECtHR)).
In the leading case C-155/79- AM&S v Commission (AM&S) the Court of Justice of European Union (CJEU) held that the predecessor of Regulation 1/2003 (Regulation 17/62) should be interpreted as granting confidentiality to written communications between an independent, EEA-qualified external lawyer and their client(s) if such correspondence was sent to the client for purposes of exercising its rights of defence in relation to a European Commission investigation. Therefore, AM&S established a two-pronged test for the protection of written communications between lawyers and their clients which provides that the communication must: (i) be made "for the purposes and in the interests of the client's rights of defence" (the "first AM&S condition"); and (ii) "emanate from independent lawyers, that is to say, lawyers who are not bound to the client by a relationship of employment" (the "second AM&S condition").
It bears emphasizing that the recognition of LPP in AM&S was at the time novel to many Member States and the EU itself; and one must remember that it was also before the Lisbon Treaty entered into force, before the resulting accession to the European Convention on Human Rights (ECHR), and before the recognition of the Charter of Fundamental Rights of the European Union (Charter) as primary EU law. Notably, in delivering her Opinion in AM&S, Advocate General Kokott considered the scope of LPP protection in individual Member States and identified only six which, at that time, recognized LPP protection for in-house counsel who were registered with a Bar of a Member State (namely Ireland, Greece, the Netherlands, Poland, Portugal, and the United Kingdom—at the time a Member State).
Three decades years later, in Joined Cases T-125/03 and T-253/03, Akzo Nobel Chemicals a.o. v Commission (Akzo), the CJEU endorsed the proposition that in-house counsel are not independent if bound by an employment relationship with the client, even if the lawyer in question is enrolled with a Bar of a Member State and therefore subject to stringent professional and ethical obligations. Although both AMS and Akzo deal with the respective specific, narrow circumstances before the Court, today they are still considered the leading precedents for defining the application of LPP in EU competition proceedings.
However, important developments over the last 14 years have possibly rendered AM&S and Akzo outdated. The protection afforded to attorney-client communications is now enshrined in Article 7 of the Charter and the jurisprudence of the ECtHR. Article 8(2) ECHR makes clear that there can be no interference by a public authority with the exercise of the right to privacy (and other rights deriving from it, including the LPP protection) with very limited exceptions such as in the interests of national security, public safety or the economic well-being of the country and any such limitations must be compatible with the rule of law. It is also settled ECtHR case law that individuals who consult a lawyer can reasonably expect that their communication is private and confidential.
Recently, in the landmark Case C-694/20 Orde van Vlaamse Balies and Others, (OVB) the CJEU took account of the ECtHR's case law and went a step further than the earlier case law to find that LPP applies to all communications between EEA-qualified external lawyers and their clients without it being limited to advice relating to the exercise of the rights of defense. In other words, OVB clarified the first AM&S condition (see above) but did not make any reference to the second AM&S condition relating to in-house counsel.
The recognition of LPP amongst EU Member States has also evolved significantly over recent years. Of the Member States identified by AG Kokott in AM&S as offering at that time no LPP protection to in-house counsel communications, several have since reconsidered and are now extending LPP protection to such communications, especially when they are duly qualified under the laws of the state where they practice, including Hungary, Spain, Belgium, and France, whereas in others (such as Italy), there are ongoing debates on the issue.
Current State of LPP in the US and the Legal Lacuna
In the US, LPP is broader than in the EU and extends to in-house counsel communications, and to in-house counsel work product prepared for a corporate client. The LPP protection originates from the 1947 Supreme Court case, Hickman v. Taylor. The extended protection is recognized throughout the US, by the federal courts and the courts of all US states alike.
Further, under US law, LPP must be strictly safeguarded to prevent or reduce the risk of "waiver of privilege." If a communication protected by LLP is disclosed voluntarily to a third party, LPP can no longer be relied upon to protect that communication from discovery/disclosure from e.g., antitrust agencies or other parties in litigation, as parties may not pick and choose what information protected by LPP will be disclosed and to whom. US case law generally requires a court order to compel the production of privileged material to avoid the severe consequences of a waiver of privilege.
The severe consequences that can flow from a waiver of privilege in the US becomes apparent when one considers the divergence between US and EU on the scope of LPP protection which, as detailed above, is significantly more limited in the EU. For example, if an undertaking disclosed to the European Commission communications that are protected by LPP in the US (e.g., communications with in-house counsel) in order to respond, for example, to a request for information, the undertaking in question could be exposed, for example, to the risk of a potential waiver of legal privilege should a US court find that those communications covered by US LPP were voluntarily disclosed in the EU. Voluntary disclosure of US LLP communications would in turn mean that communications that would normally be off-limits to US competition authorities and private plaintiffs, could be subject to discovery by any litigants/adverse parties in pending and future U.S. litigation which would seek to obtain the disclosure of the now non-privileged documents.
Consideration must therefore be given to whether the disclosure of documents and communications to the European Commission in response to a request for information or during a dawn raid could be held to be "voluntary." However, U.S. case law on point is particularly limited. One significant and instructive opinion is in re Vitamins Antitrust Litigation No. MC 99-197 (TFH), 2002 WL 35021999 (Vitamins). Vitamins adopted the principle that, absent true and demonstrable compulsion, disclosure likely will result in waiver. Vitamins also illustrates the risk that the production of US LPP material specifically to the European Commission, despite the contention that failure to comply would result in serious consequences, including fines, could still result in a waiver of privilege.
Following the reasoning in Vitamins, it would seem that disclosing material protected by LPP in the U.S. in response to a European Commission's simple or even mandatory request for information (i.e., one adopted under Article 18(3) of Regulation 1/2003) would in all likelihood be considered as a voluntary disclosure under US law. Vitamins also suggests that the mere risk of potential of future penalties for failure to comply with the Article 18(3) mandatory request may not be sufficient to meet the requisite level of "compulsion" to protect against being held by a US court to have waived privilege voluntarily.
Practice, Further Challenges, and Considerations
For the time-being, in practice, it is not uncommon that parties subject to EU merger control proceedings take the risk and disclose documents covered by US LPP (sometimes in a restricted manner) in the interest of expediting the clearance of the proposed transaction which could otherwise be blocked. Also, within the context of antitrust investigations and in response to requests for information, the European Commission often will not require the disclosure of communications protected by LPP with external non-EEA-qualified lawyers (e.g., US-qualified external counsel), but will not recognize LLP protection for in-house communications, even where another country recognizes that such communications are protected by LPP in its jurisdiction.
There is also no precedent from the EU Courts directly on-point; the only cases that directly addressed the issue were ultimately withdrawn. It is worth noting in the context of the ongoing review of Regulation 1/2003 the subject of extension of LPP to in-house counsel has been raised. It remains to be seen whether the European Commission is ready to provide clarity on the matter given the recent developments in Member States and increasing pressure from stakeholders, though it is unlikely that it will alter its established practice without solid precedent from the EU Courts.
The issue of whether the European Commission – an EU institution – can compel the production of an international corporation's US LPP communications has additional important implications as it ultimately pertains to whether a foreign agency can interfere with the sovereignty of another country by seeking to obtain documents that are legally privileged under the laws of the country in question. In the absence of case law addressing that question, there is no answer as a matter of Union law on whether the privileged status of the pertinent material should be determined by reference to the laws of the requested state (i.e., the state where the documents are located,) or the laws of the requesting state.
The issue becomes yet more complicated in light of the extensive use of electronic communications and the data storage location which may also affect the assessment of which law is applicable (e.g., how would communications that are only located in and accessible from the US and considered privileged under US law should be treated in case the European Commission requested their disclosure?).
Another aspect of the issue that requires further consideration is whether, in the case of international group of companies, the European Commission can indeed compel their EU subsidiaries to produce documents under the sole custody and control of subsidiaries located outside the EU.
In light of the foregoing considerations, the development of human and fundamental rights legislation, the growing trend among EU Member States to extend LPP protection to communications between in-house counsel and their clients and the sweeping consequences that a potential waiver of privilege could entail for U.S. and/or multinational organizations, it is perhaps time for the EU Courts to reconsider and extend the application of Akzo and AM&S to in-house counsel communications, when the opportunity arises.
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