In-house lawyers are fighting to establish the same privilege rights as their colleagues in private practice enjoy - but the issue is a contentious one, as Mark Smulian discovers

Records of what passes between a solicitor and client are normally considered even more sacrosanct to lawyers than confessions to a priest or conversations between doctors and their patients.

This status of privilege means that a solicitor could give a robust answer if any investigating body wished to seize such records as part of its enquiries.

But one category of solicitor, and indeed barrister, cannot.

This is that of lawyers who are employed directly by companies which find themselves on the receiving end of an investigation by the European Commission.

The probe could even be one of the 'dawn raids' favoured by those investigating allegations of breaches of competition regulations.

However, the situation could be about to change with a vote in the European Parliament - scheduled for 8 October - to extend privilege in cases connected with mergers, which would be a first step to reform.

But even if this is agreed, splits in the profession across the EU make fundamental change questionable.

Lara Oyesanya, head of legal services at Lex Vehicle Leasing and deputy vice-chairwoman of the Law Society's Commerce & Industry Group, maintains that lack of privilege 'could be a very big issue for in-house lawyers in competition cases'.

One way companies can try to avoid having documents seized by the commission is by going to an external lawyer for advice, in which case these would be covered by the external lawyer's privilege.

But apart from the possibility that this might cause their employers to question the value of having in-house lawyers, it also increases costs.

'In-house lawyers are the gatekeepers and appointing the right external lawyer is quite a job on its own, and they also need to manage the external lawyers and their costs,' says Ms Oyesanya.

She hopes that the impending vote on extending privilege for mergers 'will open a door and be one step in the right direction'.

But she is not hopeful.

She says the commission is firmly of the view that in-house lawyers are not truly independent but take orders from their managers, who might use privilege to conceal documents that should be disclosed to investigators.

Ms Oyesanya says: 'The commission is very serious about tackling anti-competitive practices and is worried by anything that it thinks might prevent that.

'The European Company Lawyers Association (ECLA) has been campaigning for ten years on this and I think will just have to keep trying.'

Lack of privilege for in-house lawyers is not just something on which the commission insists to suit its own arrangements.

It bases its recognition of privilege for private practice lawyers on their membership of the Law Society or Bar Council or equivalent bodies in other member states.

The problem is that in several countries, in-house lawyers are not permitted to join these bodies, even though they normally have the same training and qualifications as their private practice counterparts.

As far as the commission is concerned, this means that there are a large number of in-house lawyers around Europe who are not bound by the codes of a professional association, and so it will not grant them privilege.

But this catch-all stipulation also affects those who belong to such bodies, as in the UK.

The difficulty of finding a way through this is illustrated by the case of Austria.

There, in-house lawyers do not join the main professional association because it provides benefits such as hardship and pension funds for its members, and it sees no reason to extend these to lawyers who are paid salaries and benefits by their employers.

Another reason for inertia on the issue is that the European-wide legal profession is not united on what should be done.

The Council of Bars and Law Societies of the European Union (CCBE) represents more than 500,000 lawyers through its member bodies.

Its lack of a common position on whether privilege should be extended indicates the problems of reconciling very different professional traditions.

The proposal before the European Parliament would extend privilege to communications between in-house counsel and companies in cases under the future EC merger regulation, provided that 'the legal counsel is properly qualified and is subject to adequate rules of professional ethics and discipline which are laid down and enforced in the general interest by the professional association to which the legal counsel belongs'.

CCBE official Agns Masquin explains: 'We have a common position on these amendments in the sense they are badly drafted, but not yet on the issue of in-house counsel and legal professional privilege.'

The CCBE's main objections are that the meaning of 'in-house counsel' varies across the member states and in itself gives no guarantee of adequate qualification.

The term 'professional association' poses the same problem, as in some countries in-house lawyers have formed their own.

The CCBE also maintains that such an important reform should not be introduced by the roundabout method of an amendment to regulations dealing with mergers, but as a thought-out measure in its own right.

'Implementation in the current form would cause great confusion because of lack of definition, different treatment in different member states, and inappropriate and inconsistent additions to a rule on merger control,' a CCBE statement said.

'It would undermine the current system of consumer protection in lawyer regulation.'

But the ECLA sees the impending vote as a potential break in the brick wall against which it has banged its head for many years.

Like Ms Oyesanya, it fears in-house lawyers may lose out to external ones unless at least the merger reform is achieved.

The association says rejection of the change would cause obvious damage to its members' positions, or else create a bizarre situation in which in-house lawyers routed communications to their employers through outside firms.

Newly appointed president Colin Anderson, a Scottish lawyer, says: 'Competition issues coming more to the fore recently have really upped the ante.

This is falling short of what we want but if things are moving a little bit that could be the start of a change.

ECLA has been trying to get privilege extended for some years and although the European Parliament vote would only extend this to merger regulation, it would be a start.'

Mr Anderson argues that it is inappropriate in a single market to have the position of in-house lawyers determined by the chance of how the profession has historically been organised in their country.

'It is not appropriate to this climate,' he says.

'It is a matter of the single market.'

The commission is not keen, even if the issues of definition and professional membership were solved, to see privilege extended because it contends that this would hamper its investigation of cases that may affect consumer protection.

This puts it on the same side of the argument, if for different reasons, as the CCBE.

'Our concerns are different from the commission's concerns, even if we both aim to see these amendments rejected on 8 October,' says Ms Masquin.

The commission has fears that if privilege were granted, it would be impossible to distinguish formal legal advice from purely company matters, creating the opportunity to conceal documents and impeding its ability to police standards.

Another key argument put by the commission against extending privilege is that it is bound by the European Court of Justice's decision in Australian Mining & Smelting Europe Ltd v EC Commission (case ISS/79 [1982] 2 CMLR 264), which held that in-house lawyers did not have privilege.

The case of Akzo Nobel Chemicals is currently seeking to challenge aspects of this in the European Court of First Instance (see [2003] Gazette, 4 September, 6).

But with the commission in determined mood, and professional bodies organised on such divergent bases across the EU, it may be a long haul for in-house lawyers even if the upcoming vote goes their way.

Mark Smulian is a freelance journalist