Civil Procedure Code (CPC) revision: In-house Counsel Privilege – Granting the Right to Refuse Cooperation

21 November 2024

The Need for a Revision

In Switzerland, under the Civil Procedure Code (CPC) only independent attorneys currently enjoy the protection of attorney-client privilege, which grants the right to refuse cooperation in legal proceedings by withholding documents or refraining from testifying (see art. 166 para. 1 lit. b CPC). In-house counsels employed by a company, have historically not been granted this privilege, meaning that their employers could be compelled to disclose internal legal advice provided by in-house counsel during legal proceedings.

The Swiss approach is not compatible with the practice in various other jurisdictions, particularly the United States, Canada, and England. In these jurisdictions, companies can invoke privilege to protect internal legal advice from disclosure, whereas Swiss companies have, to date, potentially faced the obligation to reveal the details of such advice in court. This disparity has led to unequal treatment, particularly in cross-border cases, and placed Switzerland, as well Swiss companies, at a competitive disadvantage.

To enhance Switzerland's attractiveness as a business location on the global stage, the CPC revision introduces privilege rights for companies' in-house counsel..

The Requirements

The new rule applies to companies registered in a commercial register in Switzerland or abroad. Moreover, the company must have a separate legal "service", but it remains unclear whether it is supposed to be organised as a separate business unit. Furthermore, it is questionable how group structures with a joint legal department will be treated, and whether a standalone compliance department can invoke the in-house counsel privilege as well. The head of the legal department must be a person admitted to the Swiss or a foreign bar. In addition, the tasks in question must qualify as typical activities of an attorney, such as the representation of clients before courts and authorities, providing legal advice, negotiating legal transactions, and drafting legal documents.

The Swiss Federal Supreme Court recently constrained the scope of typical activities of an attorney in the context of the attorney-client privilege. According to this case law, tasks that are, for example, performed during internal investigations, are not necessarily considered typical legal activities. Similarly, operational or ancillary activities, such as property and asset management, acting as a financial intermediary, serving as a board member, or providing trustee services, are not considered as typical legal services.

In cases where legal services overlap with ancillary activities, attorney-client privilege — and likely the in-house counsel privilege — does not apply comprehensively. There is an urgent need for clarification through academic discourse and judicial decisions.

The Implications

If the conditions for invoking the in-house counsel privilege are met, companies can refuse to disclose documents in civil proceedings (see art. 167a para. 1 CPC). Additionally, employees of the legal department can refuse to testify as third parties (see art. 167a para. 2 CPC).

While the in-house counsel privilege primarily applies to civil proceedings in Switzerland, it may strengthen the position of Swiss companies in foreign civil cases as well.

It is important to note, however, that the in-house counsel privilege does not extend to criminal or administrative proceedings, such as cases before the Competition Commission or regulatory authorities like FINMA.

Unresolved Issues and Potential Cost Implications

Several aspects of the new privilege remain unresolved. This includes the structural requirements to qualify as a "legal service," particularly whether such service must constitute a separate unit within the company. It is also uncertain whether the privilege extends to the company's compliance department. Moreover, the application of the privilege in cases where legal activities overlap with ancillary tasks — a frequent occurrence in in-house legal teams — remains equally unresolved.

It is desirable that the authorities, courts, and practitioners clarify these issues in due course. For the time being, parties invoking privilege in disputed circumstances must bear in mind that they may incur costs if the existence of the privilege is disputed and ultimately denied (see art. 167 para. 4 CPC).

The VISCHER litigation team will be happy to answer any questions you may have in connection with the in-house counsel privilege, the revision of the CPC or civil procedure law in general.

Here you will find the overview of the CPC blog series.

Author: Janine Häsler