Member Article

The purpose of legal privilege is that companies must be able to obtain legal advice without the risk of having to submit sensitive communication with a lawyer to an authority, such as the Swedish Competition Authority or a court of law during litigation. The ECJ recently held, in the Akzo-case, case C-550/07 P, judgment of 14 September 2010, that communication between a company and its in-house counsel is not subject to the legal privilege, even where the in-house counsel is a member of a Bar or Law Society within the EU/EEA. This applies to dawn raids conducted by the European Commission. Elisabeth Eklund and Lisa af Burén explain when a company can be subject to a dawn raid, what kind of material the competition authorities are entitled to read and the consequences of the Akzo-case on the protection of sensitive documents.

 

Dawn raids – what can and cannot the Competition Authority/Commission do?

 

In its quest for evidence of competition law infringements, the Competition Authority (or the Commission, if the possible competition law infringement has an effect on trade between Member Sates) may carry out dawn raids. At a dawn raid, the authorities are entitled to gain access to premises, land areas, means of transport and other areas. If there is particular suspicion that evidence is stored in the homes of employees, dawn raids may even be conducted in private homes.

 

The competition authorities may take copies of basically all documentation, both in physical and electronic form. This means that the authorities are entitled to examine and take copies of bookkeeping material, agreements, letters, emails, diaries, lists of calls, electronic documents etc. Computers are often examined in order to find out which documents may have been erased. The competition authorities are entitled to ask employees for explanations of facts but they are not entitled to conduct any interrogations, which may, however, be conducted later in the investigation. In order to secure its rights, the competition authorities are entitled to seal off the company’s premises for a period and to the extent necessary for the investigation. A dawn raid is thus a very far-reaching measure for the company subjected to it. For a dawn raid to be carried out, there must be a concrete suspicion of a violation of the competition rules. Thus, the authorities may not undertake a “fishing expedition”.

 

It is in the gathering of copies of material, that issues of legal privilege become relevant. The competition authorities are not entitled to make copies of documents which are drafted by a company in order to seek legal advice from a lawyer nor may they copy the advice which the lawyer has prepared. In order to facilitate the identification of these documents, it is important to understand what kind of material is protected by the legal privilege and to store this in a special folder marked with, e.g., “material protected by legal privilege”.

 

In order for the company to safeguard its right to defence, a competition lawyer should be present during the dawn raid. In reality, an entire team is required since it is important to have an oversight of which information the competition authorities are getting access to, and the authorities usually send fifteen or so persons. If, during an on-going dawn raid, a discussion arises whether a document is protected by legal privilege or not, the document in question should be put in an envelope and be sealed until the issue of legal privilege is solved.

 

After the dawn raid, it is important to go through all material as soon as possible in order to get a general view of which evidence material the authority has in its possession and what consequences this can have for the company. Infringements of the competition rules involve, inter alia, the risk of fines of up to a maximum of 10 percent of the company’s worldwide annual turnover. It also means that liable representatives may face a trade prohibition for three to ten years and, in countries like the US, UK and Norway, liable representatives may even risk imprisonment.

 

Background to the Akzo-case

 

The background to the Akzo-case was the Commission’s investigation of a suspected cartel in 2003. When the Commission conducted dawn raids in the companies Akzo Nobel’s and Akcro’s (which are both part of the Akzo Nobel group) premises in the UK, the commission gathered certain documents, among them email correspondence between a CEO and an in-house lawyer. The companies claimed that the email correspondence was protected by legal privilege since the in-house lawyer was a member of the Dutch Bar. The Commission ruled that the documents were not protected, which led the companies to appeal the decision to the Court of First Instance (now the General Court).

 

The General Court rejected the companies’ claim to set aside the commission’s decision. The companies appealed the decision to the European Court of Justice (ECJ) and claimed that the General Court, among other things, had incorrectly interpreted the case AM & S Europe, in which the ECJ established that the legal professional privilege applies to communications between a lawyer and his/her client on the condition that the communication has been made with regard to the client’s right to defense and that the lawyer holds an independent position.

 

In its decision, the ECJ confirmed that the judgment of the General Court, i.e. that communication with in-house lawyers is not covered by legal privilege even if the in-house lawyer is a member of a Bar or Law Society within the EU/EEA. The ECJ stated that in-house lawyers cannot assert such independent position as was listed in the AM & S Europe case. The companies argued that in-house lawyers who are members of a Bar or Law Society should also fall under the independency criteria since they are bound by ethical and disciplinary rules. The ECJ did not accept this argument but held that an in-house lawyer is financially dependent and closely tied to his/her employer and that his/her position therefore cannot be compared to that of an external lawyer.

 

What documents are protected by confidentiality after the Akzo-case?

 

The judgment means that the following documentation is protected by legal privilege vis-à-vis the Commission in accordance with the EU competition rules: External communication with lawyers who are members of a Bar or Law Society within the EU/EEA, if the communication concerns the company’s right to defence. Also the company’s internal documents are covered if these have been drafted solely for the purpose of being able to engage external legal advice provided that the advice itself is covered by the confidentiality. Documents in which an in-house lawyer describes the (confidential) advice he/she has received from an external lawyer provided that it is unchanged.

 

The following documentation is not protected:

 

• Communication between a company and its in-house • lawyers, including competition law advice.

 

• Legal advice and internal documents regarding legal advice from external lawyers who are not members of a Bar or Law Society within the EU/EEA, e.g. the US.

 

• Documents which have not solely been drafted for the purpose of seeking legal advice, e.g. a document where a part of the document has been drafted for the purpose of informing the company’s management.

 

• Documents in which an in-house lawyer writes his/her own comments or makes amendments to the original (confidential) external advice also fall outside the legal privilege and the documents must be handed over to the authority.

 

Thus, in the light of what is set forth above, it is important to make sure that you engage an external lawyer in competition law matters if there is a risk that the company will be subject to a dawn raid in the future. As stated above, it is important that all written communication with the lawyer is kept within a narrow circle, and that documentation is consistently marked with “protected by legal privilege” and stored in a special place; all with the aim of avoiding problems in a possible dawn raid.

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