The appropriate boundaries of legal privilege have been considered recently by senior appellate courts both here and in Europe, with markedly different outcomes. 

The judgments deal with different types of legal privilege - the European Court of Justice (ECJ) with legal professional privilege and the New Zealand Supreme Court with litigation privilege.  Taken together, however, they illustrate some important underlying differences in approach between the different jurisdictions.

Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (Case C 550/07 P)

Akzo Nobel arose as a consequence of an investigation of Akzo and Akcros by the European Commission (EC) for suspected breaches of European competition law. During inspections of the business premises of the two plastics companies in February 2003, the EC took copies of a number of communications between executives and in-house legal counsel.  Akzo and Akcros objected to the EC's subsequent use of those communications in its investigations on the grounds that they were covered by legal professional privilege.

In September 2007, the European Court of First Instance ruled that privilege did not apply to the communications. This finding was based on the longstanding precedent of AM & S v Commission [1982] ECR 1575, which established that privilege only applied to communications with a lawyer who is "not bound to the client by a relationship of employment".  In-house counsel, such as those employed by Akzo, were accordingly not entitled to claim privilege over their communications because they lacked the necessary independence.

Akzo and Akcros appealed to the ECJ. As part of that Court's process, the Advocate General provided an opinion to the Court (released in May this year and the subject of a previous Brief Counsel), which concluded that, notwithstanding the considerable growth in the use of in-house counsel since 1982, the distinction in AM & S ought to be maintained.

In its 14 September 2010 judgment, the 11-member ECJ substantially adopted the Advocate General's reasoning.  The ECJ held that "despite the fact that he may be enrolled with a Bar or Law Society and that he is subject to a certain number of professional ethical obligations, an in-house lawyer does not enjoy a level of professional independence equal to that of external lawyers".  This reasoning was based on the "economic dependence and personal identification of a lawyer in an employment relationship" in the in-house context. 

The EC'[s decision may come as a surprise in New Zealand, where little distinction is made between in-house and external counsel in terms of claims to privilege.  It does, however, reflect the approach taken in the domestic law of many of the primarily civil law legal systems of EU Member States.  While legal professional privilege is recognised by all 27 Members of the EU (protected at varying levels from case law through statute to state constitutions, as well as in the ECHR and Charter of Fundamental Rights of the European Union), a large number of Member States still exclude correspondence with in-house lawyers from this protection.  The ECJ could discern "no predominant trend" of change in this respect and therefore considered that "the legal situation in the Member States of the European Union has not evolved, since the judgment in AM & S v Commission was delivered, to an extent which would justify a change".

The judgment has predictably drawn strong criticism from those European jurisdictions in the minority, such as the UK and the Netherlands, where domestic laws allow claims to legal professional privilege on the basis of advice from in-house counsel.  As one prominent English competition lawyer has pointed out,1 the judgment maintains a situation in which an investigation of a British company carried out by the UK Office of Fair Trading, even where such an investigation is on behalf of the EC, will be bound to respect the privilege of in-house legal communications, yet an identical investigation carried out directly by the EC will not.

In New Zealand, claims to legal professional privilege on the basis of advice from in house counsel remain valid.  In our view, this position reflects the logic and consistency of our privilege laws.  Here, the purpose and subject matter of the communication is central – where information is provided for the purpose of obtaining legal advice, privilege will exist, including when legal advice is sought from in-house counsel.  Equally, non-legal communications or advice from a lawyer will not be privileged, even if that lawyer is external.  While the provision of such non-legal advice may occur more frequently in the in-house context, New Zealand law does not elevate this empirical generalisation into a blanket principle distinguishing the two forms of legal engagement.  Any attempt to relegate in-house counsel to 'second class status' along the lines of Akzo should, we consider, be firmly resisted in this jurisdiction.

Jeffries v Privacy Commissioner [2010] NZSC 99

In Jeffries, the New Zealand Supreme Court applied – albeit in a different context from Azko – a resolutely principled approach to defining the boundaries of legal privilege.

This case arose out of a commercial dispute in which Mr Jeffries was instructed to recover unpaid architect's fees.  During the course of the dispute it became apparent that Jeffries held considerable immigration information about the American couple from whom he was seeking payment.  The couple complained to the Privacy Commissioner, who instructed Jeffries to disclose the information he had obtained, and the circumstances of his coming into possession of it, under the Privacy Act 1993.

Jeffries judicially reviewed the Privacy Commissioner's instruction on a number of grounds in the High Court and Court of Appeal.  The claim of privilege was first raised in argument before the Court of Appeal, on the grounds that the information sought had been used in preparing an application to the District Court and was thus covered by litigation privilege.  Somewhat surprisingly, the Appeal Court ruled that because the communication was unsolicited, it could not have been received for the purpose of conducting litigation; thus, litigation privilege did not apply. 

That reasoning was rejected by the Supreme Court.

Questions of litigation privilege in New Zealand are now covered by s 56 of the Evidence Act 2006, which provides that the privilege applies whenever "the communication or information is made, received, compiled, or prepared for the dominant purpose of preparing for a proceeding or an apprehended proceeding".  This "dominant purpose" test codifies the previous common law position. 

The Supreme Court considered that imposing a condition that s 56 applied only to communications obtained as a result of a lawyer's investigation would erroneously "introduce a significant qualification to the language of the provision, which is neutral as to the manner in which the information is obtained".  Considering the authorities, the Supreme Court found none that "suggest a requirement that the lawyer or party has commissioned or otherwise sought the communication or information provided" for privilege to apply.  In fact, such authority as there was suggested the opposite conclusion.  On that basis, the Supreme Court held that so long as the "dominant purpose" test is met, privilege attaches to the relevant material "however obtained", in line with a policy of "broad protection for the preparation for litigation".
 
As to the particular information in this case, the Supreme Court noted that under s 94 of the Privacy Act, the proper person to assess claims of privilege over information requested by the Privacy Commissioner is, in the first instance, the Commissioner herself.  The late introduction of privilege as an additional ground of judicial review had not allowed such an assessment to occur.  The Supreme Court therefore dismissed Jeffries' appeal, requiring the information to be submitted to the Privacy Commissioner for a decision on privilege to be made.

The Supreme Court also held that the identity of the person communicating the information could be covered by privilege.  In remitting the question to the Privacy Commissioner for determination, however, the Supreme Court again expressed no view as to whether that was the case before it.

The Supreme Court's decision confirms the orthodox application of privilege principles in New Zealand and is, in our view, to be welcomed.

1. Julianne O'Leary, "Privilege judgment is an unjustified blow to in-house lawyers", The Guardian, 14 September 2010

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.