[JURIST] The European Court of Justice [official website] ruled [case materials; press release] Tuesday that communication between in-house lawyers and management is not protected by legal professional privilege during competition investigations by the European Commission (EC) [official website]. The ECJ found that, in order for the privilege to exist, the lawyer must be independent, which is not the case for in-house lawyers who rely on the company for employment. The court wrote:

An in-house lawyer, despite his enrollment with a Bar or Law Society and the professional ethical obligations to which he is, as a result, subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client. Consequently, an in-house lawyer is less able to deal effectively with any conflicts between his professional obligations and the aims of his client.

The ECJ limited its decision only to those cases involving competition investigations by the EC. Individual members state are still entitled to acknowledge the privilege for in-house counsel for cases that are limited to national competition. The ruling could result in a significant increase in legal expenses [The Register report] for companies that are now forced to hire external counsel.

The ECJ was established to ensure that EU legislation is applied consistently across all member states. However, many of the member states have struggled to enforce ECJ rulings, which could lead to future problems if member states continue to allow in-house counsel to enjoy privilege in national competition matters. Last month, the German Federal Constitutional Court [official website, in German] ruled [JURIST report] that German courts must follow precedent established by the ECJ unless it is clearly a violation of the court’s power. The court noted that minor violations of the ECJ’s authority would not be enough to disqualify a ruling and that a ruling can be disregarded only if European institutions clearly violate the authority granted to them at the expense of the authority of the member states. Earlier in August, the UK High Court suspended the enforcement [JURIST report] of an airline regulation requiring airlines to compensate passengers for flights that are delayed for more than three hours, until the ECJ releases a new ruling on the issue. The ECJ issued its original ruling [JURIST report] on the matter in November, but UK airlines indicated that they believe the ECJ’s 2009 ruling was incorrect [trade group report, PDF] and that they would not compensate passengers for delayed flights.