A recent ruling by the EU Court of Justice (the CJEU) has brought clarity to the extent of legal professional privilege (LPP) under EU law and found that LPP applies to all communication between clients and EEA-qualified external lawyers.
Background
The case of Orde van Vlaamse Balies[1] pertains to EU Directive 2011/16/EU on administrative cooperation against tax avoidance and evasion (the Directive), which established a framework for cooperation between the national tax authorities of Member States. The Directive included a provision that mandated intermediaries - natural or legal persons aiding taxpayers in cross-border tax arrangements - to report potentially aggressive cross-border arrangements to the competent tax authorities.
The Directive allowed Member States to exempt lawyer-intermediaries providing assistance or advice concerning such tax planning from this reporting obligation if doing so would contravene national rules on LPP. In such cases, the lawyer-intermediary would not directly notify the tax authority of their inability to comply with the reporting obligation but instead, they would notify any other intermediary or the taxpayer involved, who would then have to report cross-border tax planning directly to the competent tax authority. This means that even if LPP is recognized by the Directive, the relevant tax authority would still be informed of the arrangements, irrespective of the involvement of a lawyer-intermediary.
The Flemish decree transposing the Directive was challenged by two professional lawyers' organisations on the grounds that the reporting obligation inherently violates LPP. As a result, the Belgian Constitutional Court referred the matter to the CJEU to examine the validity of the Directive under Articles 7 and 47 of the Charter on Fundamental Rights of the European Union (the Charter).
LPP under EU Law: Pre-Judgment Regulations
It is established that EU legislation[2] does not provide for LPP. However, in the 1982,[3] the CJEU recognized LPP under EU law, stating that communications between external EEA-qualified lawyers and their clients were protected, provided they were made for the purpose and in the interest of the client's defense rights.
Subsequent judgments further clarified the scope of LPP. They stated that it extends to internal notes reporting legal advice received from an external legal counsel and internal documents created exclusively to seek legal advice from an external legal counsel in the defense's exercise of their rights. The General Court also clarified that such preparatory documents could be privileged even if they were not exchanged with an external legal counsel or not created with the intent of being sent to them.
Despite the principles established in caselaw, ambiguity concerning whether LPP under EU law was limited to documents and communications related to the exercise of defense rights or any legal advice remained. This gave rise to occasional disputes between parties under investigation and the Commission.
LPP and the ECHR
The European Court of Human Rights (the ECtHR) has found that strong protection for all forms of exchanges between lawyers and clients is provided under Article 8(1) ECHR, citing professional secrecy as the foundation of confidence in their relationship. ECtHR also found that while this right can be limited in the event of a pressing social need, it must be proportionate to the aim.
ECtHR case law has long established that LPP applies to all legal advice, not just the exercise of defense rights. Recently, the French legislature aligned LPP protection with ECtHR case law after conflicting rulings from different chambers of the French Supreme Court. The new law extends LPP protection to legal advice provided by external counsel.
CJEU's ruling in Orde van Vlaamse Balies
The CJEU's Grand Chamber confirmed that Article 8(1) of the ECHR protects ‘not only the activity of defense but also legal advice’,[4] and that Article 7 of the Charter ensures the confidentiality of legal consultations, both with regard to its content and to its existence.[5]
The Directive's notification obligation could breach LPP, as it requires the disclosure to other intermediaries of the following information:
- the lawyer-intermediary's identity;
- the assessment of reportability of the tax arrangement; and
- the fact that the lawyer was consulted.
The CJEU found that such interference with communications between lawyers and their clients violated Article 7 of the Charter and was not strictly necessary to prevent tax avoidance and evasion.[6]
Implications of the Judgement on Competition Law Proceedings
During a dawn raid, the Commission's inspectors have extensive powers including power to copy large amounts of data related to their inspection, but documents covered by LPP cannot be seized, read or copied.
The Protection of Competition Law of 2021 in Cyprus,[7] also provides the Competition Protection Commission in Cyprus with wide authority to collect information that it deems necessary for the exercise of its competences, powers and duties provided under the law.
The CJEU's alignment with the ECtHR's case law now provides legal certainty for companies and avoids disputes with regulators regarding the scope and nature of external advice covered by LPP. It also allows companies to seek legal advice on compliance issues with confidence, knowing that such advice is protected and will not be seized by regulators.
This ruling is specially important given the technological developments and the use of sophisticated document search technology and the new regulatory frameworks adopted by the EU legislator granting the EU Commission wide enforcement powers, and the EU Commission's resumption of dawn raid activity after a COVID-induced pause.
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[1] Case C 694/20, Orde van Vlaamse Balies, EU:C:2022:963 can be found here.
[2] Regulation 1/2003 and its predecessor, Regulation 17/62.
[3] Case 155/79, AM&S Europe Limited. Judgement can be found here.
[4] Case C-694/20, Orde van Vlaamse Balies, para. 27.
[5] Ibid.
[6] Case C-694/20, Orde van Vlaamse Balies, para. 46.
[7] Law 13(I)/2022.
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