EU Court of Justice clarifies that all exchanges with external counsel are privileged – an important development amidst a dawn raid uptick in Europe
7 min read
The EU Court of Justice ("CJEU") has recently clarified the scope of legal professional privilege ("LPP") under EU law.1 The CJEU ruled that LPP applies to all communications between EEA-qualified external lawyers2 and their clients, and is not limited to advice relating to the exercise of the rights of defense. This ruling provides an important clarification at a time when there is a resurgence of dawn raids across Europe following the COVID-19 pandemic.
Background
The case concerned EU Directive 2011/16/EU on administrative cooperation against tax avoidance and evasion (the "Directive") that established a system of cooperation between Member States' national tax authorities. The Directive included a provision requiring all intermediaries (natural or legal persons assisting the taxpayer with cross-border tax arrangements) involved in potentially aggressive cross-border tax planning to report such arrangements to the competent tax authorities.
The Directive specified that Member States could exempt lawyer-intermediaries who provide assistance or advice in relation to such tax-planning from this reporting obligation where it would result in a breach of LPP, according to national rules. In those circumstances, lawyer-intermediaries would not directly notify the relevant tax authority but would still be required to notify any other intermediary (or, if there is no such intermediary, the relevant taxpayer) of their inability to comply with the reporting obligation. The other intermediary, or the relevant taxpayer, would then have to report the potentially aggressive cross-border tax planning directly to the competent tax authority. In other words, even where LPP is recognized by the Directive, the relevant tax authority would be informed, regardless of the involvement of a lawyer-intermediary.
Two lawyers' professional organisations challenged the validity of the Flemish decree transposing the Directive. They argued that the notification obligation intrinsically leads to a violation of LPP. The Belgian Constitutional Court referred the question to the CJEU and inquired as to the validity of the Directive in light of Articles 7 and 47 (i.e., respect for private life and right to a fair trial) of the Charter on Fundamental Rights of the European Union (the "Charter").
EU Law on LPP prior to the judgment
It is well-known that EU legislation, in particular Regulation 1/20033, does not provide for LPP. The same applied to its predecessor, Regulation 17/62. Legal privilege under EU law was recognized by the CJEU in 1982, in the seminal case AM&S Europe Ltd.4 The CJEU ruled that exchanges between external EEA-qualified lawyers and their clients were protected, provided that such communications were made for the purpose, and in the interests of, the client's rights of defense
The scope of LPP has been further clarified in subsequent judgments. More specifically, the courts clarified that LPP applies to internal notes reporting the content of legal advice received from an external legal counsel, and to internal documents that were exclusively prepared for the purposes of seeking legal advice from an external legal counsel,6 in the exercise of the rights of defense.7 The General Court specified that such preparatory documents may be privileged even if they were not actually exchanged with an external legal counsel or were not created for the purpose of being sent to him.8
In light of the principles set out in AM&S, there remained some uncertainty as to whether, under EU Law, LPP was limited to documents / communications concerning the exercise of the rights of defense or any legal advice, which gave rise to occasional disputes between the parties under investigation and the Commission.
LPP under the ECHR
The European Court of Human Rights (the "ECtHR") has found, on several occasions, that Article 8(1) ECHR affords a strengthened protection to all forms of exchanges between lawyers and their clients. The court has specified that professional secrecy is the basis of the relationship of confidence between a lawyer and its client, and that this specific protection "is justified by the fact that lawyers are assigned a fundamental role in a democratic society, that of defending litigants". The court has also found that this right could be limited, provided that the interference corresponds to a pressing social need and that it is proportionate to the legitimate aim pursued.9 In other words, it has been long clear that the LPP, under the ECtHR case law, applied to all legal advice and was not limited to the exercise of the rights of defense.
As an aside, in 2021, the French legislator aligned legal privilege protection to the ECtHR's case law after a few years of conflicting case law between different chambers of the French Supreme Court (Cour de Cassation), in particular on the question of whether LPP applied only to documents / communications relating to the exercise of the rights of defense. The new law makes it clear that LPP applies not only to the rights of defense, but also to legal advice provided by external counsel.10
CJEU's ruling
The Grand Chamber of the CJEU observed that the protection applying under Article 8(1) of the ECHR to exchanges between lawyers and their clients "covers not only the activity of defense but also legal advice".11 The CJEU found that, likewise, Article 7 of the Charter (the equivalent of Article 8(1)) "guarantees the secrecy of that legal consultation, both with regard to its content and to its existence."12 Referring again to the case law of the ECtHR, the CJEU indicated that "individuals who consult a lawyer can reasonably expect that their communication is private and confidential" and that "those persons must have a legitimate expectation that their lawyer will not disclose to anyone, without their consent, that they are consulting him or her".13
The notification obligation provided in the Directive could lead to a breach of LPP, since it implied the disclosure to other intermediaries of (i) the identity of the lawyer-intermediary, (ii) the assessment of reportability of the tax arrangement, and (iii) the fact that they have been consulted.
The CJEU concluded that this interference with communications between lawyers and their clients violated Article 7 of the Charter, and that it was not strictly necessary for the attainment of the objective (i.e., the prevention of tax avoidance and evasion).14
Impact on EU competition law proceedings
The Commission's inspectors have extensive investigative powers during a dawn raid. This includes power to copy large amounts of data relevant to the scope of their inspection decision. They are, however, not allowed to read, copy or seize documents which are covered by LPP.
The CJEU's alignment with the ECtHR's case law is a welcome development. Recent technological developments and the use of sophisticated document search technology during inspections, alongside extensive information requests, have increased the risk of copying of privileged information. A wider notion of LPP with a clearer scope provides predictability and legal certainty for companies, as it will avoid disputes with regulators on the scope and nature of external advice received to determine whether it is covered by LPP. Specifically, companies will no longer have to demonstrate that external legal advice relates to the rights of defense to claim protection. It will also allow companies to seek legal advice on compliance issues with the confidence that such advice will not be seized by the European regulators.
This ruling represents an important development at a critical time when the EU legislator has adopted new regulatory frameworks giving the Commission wide enforcement powers (Digital Market Act, Digital Services Act, Foreign Subsidies Regulation), and when the Commission, after a long COVID-induced hiatus, is picking up its dawn raid activity. Read alongside the CJEU's findings in Intermarché Casino Achats earlier this month, this ruling brings another welcome reinforcement of the rights of defense of companies subjected to investigation, and in particular dawn raids.
Daphne Emvalomenos (White & Case, Associate, Brussels) co-authored this publication.
1 Case C 694/20, Orde van Vlaamse Balies, EU:C:2022:963 (available here).
2 The EEA (European Economic Area) consists of all EU Member States as well as Norway, Iceland and Liechtenstein.
3 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.
4 Case C-155/79, AM&S Europe Ltd v Commission, EU:C:1982:157.
5 See Case T-30/89, Hilti, EU:T:1991:70 and Joined Cases T-125/03 and T-253/03, Akzo Nobel Chemicals and Akcros Chemicals v Commission, EU:T:2007:58.
6 Hilti, para. 18.
7 Akzo para. 123.
8 Idem.
9 See Judgment of 6 December 2012, Michaud v. France, CE:ECHR:2012:1206JUD001232311, paras. 117-120 and cited case-law.
10 Law n°2021-1729 of 22 December 2021 to promote trust in judicial institutions modifying paragraph III of the preliminary article of the Code of Criminal Procedure.
11 Orde van Vlaamse Balies, para. 27.
12 Ibid.
13 Ibid.
14 Orde van Vlaamse Balies, para. 46.
15 Case C-693/-20P, Intermarché Casino Achats v Commission, EU:C:2023:172. For further information, please refer to our client alert (available here).
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