This article was originally published in the August 2018 issue of ConsensusDocs Construction Law Newsletter (Vol. 4, Issue 4). It is reprinted here with permission.
In the United States, the attorney-client privilege exists to “encourage clients to make full disclosures to their attorneys.” American companies are considered “clients,” whose confidential communications with their attorneys, including both inside and outside counsel, are privileged. The privilege protects not only communications related to litigation, but applies more broadly to communications conveying any legal advice — for example, on such matters as potential workforce reductions, tax consequences, internal investigations and patent applications. It also protects communications made to and from attorneys’ “agents,” such as clerks and paralegals.
Internationally, most jurisdictions recognize the attorney-client privilege in some form, but the privilege protects a much narrower range of communications. Many jurisdictions, including the European Union, do not apply the privilege to communications between a company and its inside counsel, reasoning that inside attorneys are not sufficiently “independent” from their clients to entitle them to privilege protection.
Under European law, even communications between a company and its outside counsel may be vulnerable to discovery if the communication serves a purpose other than the defense of a company. For example, in July 2018, the German Constitutional Court ruled1 that German prosecutors may use materials seized in a raid of the Munich office of international law firm Jones Day, which had been assisting Volkswagen in conducting an internal investigation.
Similarly, in late 2017, the English High Court ruled2 that the UK Serious Fraud Office could obtain the Eurasian Natural Resources Corporation’s outside counsel’s notes on witness interviews it had conducted in connection with an internal investigation. The corporation’s appeal of the High Court’s decision is currently pending.
The differences in protection across jurisdictions means that multinational and transnational companies — particularly those that employ legal professionals in multiple jurisdictions — must take special precautions to protect sensitive communications.
Companies should first seek to understand which jurisdiction’s law is likely to apply to which of their communications. An American court is likely to apply a “touch base” test, in which the court applies the law of the country that “has the most compelling or predominant interest in whether the communications should remain confidential.” Typically, that is either “the place where the allegedly privileged relationship was entered into” or “the place in which that relationship was centered at the time the communication was sent.”
Courts have found that communications “touch base” with the United States and are protected by its privilege laws when they relate to legal proceedings in the United States or reflect advice on American law, even when they involve foreign attorneys. Communications that relate to foreign legal proceedings or foreign law are generally found to “touch base” with the foreign jurisdiction.
To increase the chance that American privilege law will apply to a company’s communications, the company should (1) direct the communications (or at least copy) to an American attorney; (2) limit distribution outside the legal department; (3) keep communications relating to American legal proceedings separate from those relating to foreign legal proceedings; and (4) clearly label the separate categories. In light of the recent German and UK rulings, companies should exercise caution in retaining records of internal legal advice in jurisdictions where the advice may not be deemed privileged. Inside counsel may be best advised to pick up the phone instead.
If American privilege law applies, the privilege protects communications between attorneys and their clients. Communications of foreign legal professionals whose jurisdictions do not license them as attorneys, or whose roles are not functionally equivalent to attorneys, are not protected unless they are acting as “agents” for licensed attorneys.
For example, in 2015, a federal judge in the Southern District of New York forced Bank of China Ltd. to produce documents3 related to an internal investigation conducted by its inside counsel and chief compliance officer, both of whom were based in China and neither of whom were licensed attorneys. In an earlier ruling, the judge explained4 that China does not require inside counsel to be members of the bar or hold a license that allows them to appear in court. The judge ruled that inside counsel are thus not “attorneys” and the attorney-client privilege does not apply to their communications.
In a 2010 case, however, the same court ruled5 that communications made by inside counsel for Gucci’s Italian affiliate were privileged to the extent they were made under the supervision of an attorney who was a member of the bar in New York, Italy and Belgium. For this reason, companies should consider structuring their legal departments with a bar-admitted attorney at the head. To the extent that a foreign legal professional is assisting or collaborating with American counsel, his or her communication should clearly indicate that fact.
When American law does not apply, attorney-client privilege law in the business context varies significantly. Spain specifically recognizes the attorney-client privilege for inside counsel. Romania and Denmark do not distinguish between inside and outside counsel. Portugal, Sweden and the Netherlands recognize a limited privilege for inside counsel. Italy, Austria, Belgium, Finland and France do not recognize privilege for inside counsel.
Some courts, including Chinese courts and the European Court of Justice, have implied that they do not recognize privilege for any counsel outside of their respective jurisdictions. Companies are thus well-advised to limit international access to electronic records of American counsel’s legal advice.
The variety in privilege law raises serious concerns for multinational and transnational companies. Companies that are forced to disclose documents in one jurisdiction may waive privilege protections in another. Sending communications in jurisdictions with limited privilege protection may cause a court to doubt whether a company intended the communication to be kept confidential.
Companies can protect themselves before the threat of legal action arises by making privilege protection the subject of contract negotiations. Companies can seek agreement from counterparties to any contract that, in the event of conflict between the parties, in-house counsel communications will not be subject to discovery. Or they can state that, in the event of any dispute, persons acting in the capacity of counsel will be accorded the highest form of privilege otherwise available to any party in the transaction.
Companies can approach the issue more indirectly by including language in contracts that specifies choice of law, referencing jurisdictions that offer the appropriate privilege protection to meet the company’s needs. They can also consider specifying the use of alternate dispute resolution, as ADR neutrals may have more flexibility than courts in applying privilege protection.
Once the threat of legal action arises, companies are well-advised to hire experienced outside counsel as early as possible to maximize the chances that American privilege law will apply to communications made in connection with that threat.
1 Bundesverfassungsgericht [BVerfG] [Federal Constitutional Court] Jul. 6, 2018, Az. 2 BvR 1405/17, Az. 2 BvR 1287/17, and Az. 2 BvR 1583/17 (Ger.).
2 SFO v. Eurasian Nat’l Res. Corp.,  EWHC 1017 (QB).
3 Wultz v. Bank of China, No. 11 Civ. 1266 (SAS) (GWG) (S.D.N.Y. Jan. 21, 2015).
4 Wultz v. Bank of China, 979 F. Supp. 2d 479 (S.D.N.Y. 2013).
5 Gucci Am. v. Guess?, Inc., 271 F.R.D. 58 (S.D.N.Y. 2010).
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.