Effect of the Akzo judgment

The European Court of Justice has, in the Akzo appeal (Case C-550/07 P, 14 September 2010), confirmed its previous case law on privilege. This gives us more information to take into account in reviewing the Legal Services (Scotland) Bill.

The effect of the Akzo judgment is that, in matters with an EU dimension (such as enforcement of EU competition law or the reporting of suspected money-laundering ), communications with clients are capable of being legally privileged only when the firm out of which the adviser operates is 100% owned, managed and controlled by:

• “lawyers”, as defined in the Lawyers’ Directives (including UK advocates, barristers and solicitors) – clearly;
• “lawyers”, together with “relevant professional advisers” within the meaning of section 333E of the Proceeds of Crime Act 2002, as amended (in terms of article 23(2) of Directive 2005/60/EC) by The Terrorism Act 2000 and Proceeds of Crime Act 2002 (Amendment) Regulations 2007 SI 2007/3398 – almost certainly (see AKZO, A-G Kokott at paragraph 112);
• “lawyers” and “relevant professional advisers”, together with members of a “regulated profession” within the meaning of section 37A of the Legal Services (Scotland) Bill (taken from article 3 of Directive 2005/36/EC on the recognition of professional qualifications and featuring in article 25 (Multi-Disciplinary Partnerships) of the Services Directive 2006/123/EC) – probably.

 With other kinds of licensed legal services provider, privilege in relation to matters such as EU competition law or the reporting of suspected money laundering cannot exist, notwithstanding section 60 of the Legal Services (Scotland) Bill and section 190 of the Legal Services Act 2007.

We should keep in mind that while Directive 2005/60/EC permits the extension of legal privilege to legal advice from non-lawyer “relevant professional advisers”, it does not require this. Consequently, the precise situation will remain unclear until the English Court of Appeal delivers judgment in the appeal from the High Court in Prudential PLC and Prudential (Gibraltar) Ltd v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes. That judgment will be very highly persuasive in Scotland, too, especially if it alludes to the directive.

The ability to give legal advice that the courts will treat as privileged is an objective characteristic that not only justifies, but arguably (when taken with article 25 of the Services Directive and the judgment of the House of Lords in Three Rivers [2004] UKHL 48) actually requires restrictions upon the ownership, management and control of law firms and which delineates the appropriate extent of such restrictions. This means that, although Akzo gives a clear pointer, it would be premature to legislate on the topic until we know what the Court of Appeal decides. The competition law assessment of legislative policy depended mainly on Akzo. But until we know the outcome of the Prudential case, we do not know whether there still is an objective justification for insisting upon 100% ownership, management and control by “lawyers”, to the exclusion even of “relevant professional advisers”.

Fortunately, Scotland is, unlike England & Wales (Legal Services Act 2007), in the position of not having already enacted legislation needing to be reviewed.