Companies operating in different legal systems rely heavily on in-house counsel to explain the risks arising from different legal regimes. In some jurisdictions, these in-house counsel may not be members of a formal Bar and their internal communications may not, under local law, have a formally 'privileged' status.

On a day-to-day basis, the 'privileged' status of an in-house counsel's communications may be irrelevant – the internal counsel advises his or her client, who makes decisions based on that legal advice. The distinctions can become critical, however, when a multinational company finds itself engaged in litigation (or the subject of a regulatory investigation), particularly if the litigation occurs in a jurisdiction that allows liberal document disclosure.

Under the basic formulation of the privilege rule, confidential communications between a Bar-qualified attorney and his or her client for the purpose of seeking and providing legal advice, are generally subject to the 'attorney-client privilege' and therefore immune from disclosure (unless the client agrees to disclosure). In US litigation, mired in a trend of ever-increasing discovery, the attorney-client privilege (along with the work-product doctrine) is arguably the most powerful basis for resisting the production of documents.

For Bar-admitted attorneys, and for attorneys at law firms, the situation is settled – communications with these attorneys almost never see the light of day in litigation. Much less clear is the status of a request that a company produce communications between in-house counsel and his or her client. Based upon recent court decisions, businesses have reasons to be pessimistic about the confidentiality of communications with in-house counsel.

Two recent decisions illustrate this problem. In the first decision, Malletier v Dooney & Burke [2006], a magistrate judge in the US District Court for the Southern District of New York held that communications with French in-house counsel, who are not members of a Bar, are not covered by the attorney-client privilege. The company was therefore ordered to produce communications between its employees and its in-house counsel. There is no established rule in the US regarding whether the communications of foreign legal advisers who are not members of a Bar in their countries – but who would be members of a Bar if they were practising in the US – should be treated as privileged. If the reasoning behind the Malletier decision were to be generalised, however, it would mean that companies operating in jurisdictions that do not recognise the privilege would be at a distinct disadvantage before US courts.

More recently, in Akzo Nobel Chemicals and Akcros Chemicals v Commission of the European Communities, the Court of First Instance of the European Communities reconfirmed that in-house counsel do not enjoy the benefit of the 'legal professional privilege' and that documents reflecting communications with in-house counsel could therefore be produced. The Court of Justice had ruled in AM & S v Commission [1982] that communications with in-house counsel were not entitled to the privilege because they were not 'independent'. In the 25 years between the two decisions, the scope of the privilege had been expanded in certain European countries. The applicants had submitted that the evolving view of the role and independence of these lawyers should lead to a change on the European level. The Court of First Instance disagreed.

Both of these decisions examine whether communications of in-house counsel benefit from a formal privilege resulting from Bar membership. In support of the European Union (EU) rule that the privilege applies only to lawyers not employed by a company and admitted to a Bar of an EU member, the Akzo decision notes a lack of uniformity in Europe as to formal Bar membership and privilege as applied to in-house counsel. The Malletier decision also relied on a determination that, since formal membership in a Bar was lacking, the parties had no expectation that such communications would be privileged.

By focusing on the formality of Bar membership, courts allow the advice of internal counsel to be used against the company. One such notable case occurred in the 1980s when the European Commission opened an antitrust investigation into John Deere. During that investigation, the Commission used the legal advice of the company's in-house lawyers as proof that Deere 'knowingly' violated the antitrust laws; this 'knowing' violation served to justify harsher sanctions.

Yet corporate counsel are useful precisely because they help companies navigate legal risks. Indeed, it is the privilege's very purpose to allow clients to confer openly about legal issues with both in-house and external counsel. While there may not be an expectation that communications will be formally 'protected' in countries with no formal 'privilege' for in-house counsel, there is a general expectation that internal communications will remain confidential in most circumstances. In most European countries, there is no 'discovery' that would make the communications of in-house counsel subject to disclosure. The question of 'privilege' is simply less important in continental Europe than in the US, where the discovery system puts internal documents at risk of exposure.

This reasoning was acknowledged in Renfield v Remy Martin [1982] where a US district court considered whether to order the production of documents reflecting communications between employees of corporate defendants and French in-house counsel. The court recognised that there was a 'confidentiality' expectation and held the communications privileged.

Rather than deciding a disclosure issue based on Bar formalities, courts evaluating the privileged status of communications of in-house counsel would do well to take into account the real confidentiality expectations. As stated by a US district court (Duttle v Bandler & Kass [1989]): "A preferable approach would have included evaluation of the reasonableness of a foreign party's expectation that foreign communications would be privileged, taking into account the policies underlying foreign privilege law… failure to do so means that courts are paying only lip service to comity, but, in reality, ignoring it."

John Willems is a partner and Elizabeth Lefebvre-Gross an associate in both the commercial litigation and international arbitration practice groups at White & Case.