For anyone familiar with EU competition law, they know about the dawn raids that some companies have suffered at the hands of the EU Commission.  These raids, much like police breaking into a house unannounced in search of a criminal, are fully authorized and legal under Article 20 of the Council Regulation No. 1/2003.

Specifically :

The Commission's powers of inspection

1. In order to carry out the duties assigned to it by this Regulation, the Commission may conduct all necessary inspections of undertakings and associations of undertakings.

2. The officials and other accompanying persons authorised by the Commission to conduct an inspection are empowered:

(a) to enter any premises, land and means of transport of undertakings and associations of undertakings;

(b) to examine the books and other records related to the business, irrespective of the medium on which they are stored;

(c) to take or obtain in any form copies of or extracts from such books or records;

(d) to seal any business premises and books or records for the period and to the extent necessary for the inspection;

(e) to ask any representative or member of staff of the undertaking or association of undertakings for explanations on facts or documents relating to the subject-matter and purpose of the inspection and to record the answers.

which is a substantial amount of latitude for the inspectors to drop in for a chat.

Akso Noble Chemical and Akcros Chemicals were subject to the predecessor of the aforementioned dawn raid regulation in early 2003 at their Manchester UK offices.  A substantial number of documents were taken including communications between managers of the company and one of their in-house lawyers, a Mr. S, who is also a member of the Netherlands bar.

At issue was the attorney-client privilege or in France the "secret professionnel" as it applies to communications between in-house counsel and the employees of the company for whom counsel works.

The European Court of Justice already addressed this question in 1982 in the AM & S Europe Limited v Commission of the European Communities case laying down two conditions which must be met such that the communication is covered by the attorney-client privilege.  The conditions in AM & S are that "[1]such communications are made for the purposes and in the interests of the client ' s rights of defence and ,...[2] they emanate from independent lawyers , that is to say , lawyers who are not bound to the client by a relationship of employment ." (emphasis added).  The particularity of the question submitted in the Akzo case is that in-house counsel in certain countries, in this case the Netherlands, are subject to being members of a bar and thereby to all of the obligations of a lawyer operating independently from the company.  The Commission argued that AM & S held that there could be no subordination between the lawyer and the employer and in the presence of such a relationship the company could not claim privilege.  This view is consistent with the French ethics rules that in-house counsel may not be lawyers and are in fact required to resign from the bar in order to work in-house.

The ECJ, admitting the Commission's and the Advocate General's argument held that despite the in-house lawyer being subject to the same professional responsibility rules as an external (read independent) lawyer, that they could not guarantee the same level of independence as external counsel.  Therefore, in-house counsel communications fail to meet the second factor of the AM & S Europe Limited privilege test.

This decision raises a number of questions regarding the employment status of in-house counsel based in European companies, whether it be purely European groups or the subsidiaries of American companies.  Moreover the ECJ's decision puts in to question the professional responsibility rules in place in various countries and how they apply to in-house counsel who remain members of their respective bars.

For the first question, will European entities begin to shed in-house counsel as they can no longer rely on their advice being protected by privilege?  In-house counsel may be relegated to purely administrative tasks or outsourcing any associated to legal counseling to outside counsel.  This approach establishes a legal fiction that is found in some civil law countries such as France, where independence of the lawyer is primordial.  In France the question of privilege for in-house counsel does not exist as they, by definition, are not subject to the professional responsibility rules thats lawyers are.  But is outside counsel any more independent than in-house counsel when it comes to advising the client?  The lawyer, in general, also has to zealously advocate for the interests of the client and therefore it becomes very hard to establish the distinction between "somewhat less independent" in-house counsel and the outside lawyer who has been retained to represent the company.  In reality this level of independence does not really exist the way the ECJ suggests.

Secondly, if lawyers who work as employees of a company are subject to their professional responsibility rules can they truly respect their obligations?  The ECJ has essentially asked if in-house lawyers are even capable of remaining in compliance with their professional obligations.  This question is particularly critical in countries which require even in-house counsel to be members in good standing of the respective bar in order to practice, but the ECJ challenges their ability to respect as faithfully the ethics rules in place.  The Advocate General in the AM & S submitted that in-house counsel still obligated to be a member of the bar and thereby the professional responsibility rules should have communications covered by privilege.  This minority view perhaps better captures the reality of the profession.

Finally, can a simple contract fix this problem?  Companies can jettison their in-house staff but retain them as counsel for an indefinite period.  This would of course be subject to local rules regarding eligibility for membership to the bar.