The battle to extend privilege for in-house lawyers in Europe has suffered a major blow after a ruling from the European Court of Justice (ECJ) today (14 September) stated that company legal teams are not protected in competition cases.

The ECJ rejected arguments made by Dutch chemicals group Akzo Nobel that a lower court was wrong to find that communications involving in-house legal counsel are not covered by lawyer-client confidentiality.

The long-running legal battle, which was supported by the Law Society of England and Wales and a number of European legal groups, has sparked controversy in the legal sector. The decision will be strongly opposed by in-house lawyers, which have long resented the lack of full professional privilege they face in some European countries.

The judgment follows a 2007 ruling handed down by EU's General Court and a preliminary opinion earlier this year by ECJ Advocate General Juliane Kokott, which both rejected the case for extending privilege.

Stephenson Harwood competition partner Julianne O'Leary (pictured) commented: "Unfortunately, the decision reinforces the view that the EU and its institutions are out-of-touch with the reality of day-to-day commercial life and a genuine desire of in-house counsel and business to be legally compliant.

"By handicapping in-house lawyers from having full freedom to have open and frank exchanges with their internal clients the current EU position is counterproductive."

The conflict arose during a 2003 European Commission onsite investigation seeking evidence of anti-competitive practices at Akzo Nobel's UK offices in Manchester. The Commission's search led to disagreements about whether it could copy five documents that Akzo Nobel claimed were covered by lawyer-client privilege.

Association of Corporate Counsel general counsel Susan Hackett said:"We are dismayed that the ECJ did not seize the opportunity to recognise the independent judgment and value of the in-house profession.

"The idea that professional independence stems from the type of office a lawyer works in, rather than from their moral and professional compass, evidences a deep misunderstanding of legal professionalism and lawyers."

Pannone head of dispute resolution Paul Jonson said: "Today's ruling is the end of the road for Akzo Nobel's endeavour to secure for in-house lawyers the same rights to privilege as external lawyers.

"There may be also renewed concerns that where regulation develops in other areas, such as bribery and money laundering, if EU law applies to any investigatory powers in question the extent to which privilege can be relied upon could also be restricted."

Law Society chief executive Des Hudson said: "In-house lawyers are the front-line guarantor of compliance. It is sad that while the EU strives to legislate for higher standards of corporate governance and risk management, the decision of the Court in effect rejects this key tool in achieving this aim."

Click here to view the ECJ ruling.

Related Legal Week Law briefing: ECJ confirms privilege does not apply to in-house lawyers under EU competition law