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Guest Editorial: In-House and Privileged

Guest Editorial: In-House and Privileged

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Last year the Hungarian Ministry of Justice prepared a new Attorney Act that would radically re-structure the current regulatory approach to in-house counsel. GCs of leading companies in Hungary were given the opportunity to share their views in the process, giving them a rare occasion to pause and collectively consider the nature of this branch of the legal profession which in its few decades of existence has grown so much in significance.

We found that the most distinctive characteristic of our activity is that it is deeply embedded into the business of our only client: our employer. Leading companies tend to employ lawyers at all levels of the organization, including the c-suite. We believe that this intimate alignment with corporate decision-making is our biggest value to business and society since we bring the aspect of legality to every significant corporate decision.

In the Communist Hungary of the 1950s, in-house counsel were referred to as “corporate prosecutors” – a concept overemphasizing their role as guardians of legality at the expense of counselling and advocacy. Because fundamentally in-house counsel are trusted legal advisors.

However, the European Court of Justice, in its Akzo Nobel decision, was skeptical of the ability of in-house counsel to strike a balance between legality and our employers’ interests when it held that as employees we lack professional independence. Consequently, the ECJ refused to extend the legal professional privilege enjoyed by private practitioners to our advice, exempting it from discovery. Our relationship of trust with our employers was viewed as complicity. In reality, however, an in-house counsel is neither a cop nor an accomplice, but – as I said – a trusted advisor. This perspective is gaining ground as the Akzo Nobel logic is being challenged.

Indeed, courts in Belgium, the Netherlands, and Australia are beginning to recognize that when it comes to legal professional privilege our role is not that different from private practitioners after all, as both of us are sources of legal guidance when it comes to defending client positions against the all-powerful state. Some courts recognize this even in the absence of bar association membership of in-house counsel that would provide a separate disciplinary liability – which, many believe, provides an institutional guarantee of independence. I think that being liable under two separate regimes – your employment contract and the disciplinary powers of the bar – creates many challenges. For example, how can the bar establish facts if most of the necessary data is with an employer reluctant to disclose it?

Another aspect to look at is the relationship between in-house counsel and private practitioners. A superficial observation would suggest that the two should be in intense competition for the corporate legal budget. In reality, their roles are complementary and large organizations cannot function without both: In-house counsel provide day-to-day advice and have subject-matter expertise specific to the business, while private practitioners take on large-scale litigations, restructurings, internal investigations, M&As, and similar assignments. Of course, in-house counsel retain (or play a key role in retaining), instruct, and approve the performance and invoices of law firms, which does create the potential for friction, for example in a high profile billing dispute.

While Belgium opted for a standalone in-house counsel bar association, recognizing in a very consistent way the distinct nature of this branch of the legal profession, Hungarian lawmakers have chosen a somewhat different approach. In-house counsel in this country now have the option to apply to the Hungarian Bar Association for membership, and those admitted will share the institution with private practitioners. As a result, they will be subject both to the Bar’s disciplinary authority (although disciplinary councils composed of private practitioners must have an in-house counsel member whenever hearing in-house cases) and their employee liability. Most importantly, Hungary’s new Attorney Act extends the legal professional privilege to in-house attorneys who join the Bar, while those who do not join will not have it and cannot represent their employer in court or countersign documents (a formal requirement in Court of Registration and Land Registry proceedings, among others). The Ministry argues that these activities make the role of in-house counsel and private practitioners essentially the same. 

While I agree with the Hungarian Ministry that in many essential ways the roles of private practitioners and in-house counsel are similar and that both should be protected by the attorney-client privilege, I’m not sure I agree that the roles are in all important ways identical – thus I prefer the Belgian version. Still, I think the moves made by the Belgians and the Hungarians represent a welcome step forward and an overdue recognition of the important role in-house counsel play.

By Daniel Szabo, South-East Europe Legal Counsel, HPE

This Article was originally published in Issue 4.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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