Harcus Sinclair LLP & Anor v Your Lawyers Ltd [2021] UKSC 32

Two law firms disputed which could act for group claimants in Volkswagen diesel emissions litigation. The central issue was whether a non-compete undertaking given by one firm to the other was unenforceable as an unreasonable restraint of trade. The Supreme Court held the undertaking was enforceable and not an unreasonable restraint of trade.

Facts

Your Lawyers Ltd identified a potential group claim arising from the Volkswagen emissions scandal and began preparations for group litigation. In April 2016, Your Lawyers entered into a Non-Disclosure Agreement (NDA) with Harcus Sinclair LLP, a larger firm with experience in group actions. The NDA contained a non-compete undertaking whereby Harcus Sinclair agreed not to accept instructions from or act for any other group of claimants in the contemplated group action without Your Lawyers’ express permission. The undertaking was to last six years.

Following the NDA, the parties engaged in informal collaboration towards a collaboration agreement that was never finalised. Without Your Lawyers’ knowledge, Harcus Sinclair recruited its own claimants and issued proceedings on their behalf in October 2016, subsequently collaborating with another firm, Slater and Gordon.

Issues

Primary Issue

Was the non-compete undertaking unenforceable as an unreasonable restraint of trade?

Secondary Issues

Was the non-compete undertaking a solicitor’s undertaking? If so, does the court’s supervisory jurisdiction extend to incorporated law firms like Harcus Sinclair LLP?

Judgment

The Supreme Court allowed the appeal, holding that the non-compete undertaking was not an unreasonable restraint of trade and was therefore enforceable.

Legitimate Interests

The Court held that in determining a promisee’s legitimate interests, one can take into account not only contractual obligations but also the parties’ non-contractual intentions or what they contemplated at the time the contract was made. The Court stated:

“In our view, therefore, for essentially the same reasons that we have set out above in relation to the promisee’s legitimate interests, the benefits to the promisor can extend beyond the contractual consideration.”

The Court found that Your Lawyers had legitimate interests in protecting its proposed group claim from Harcus Sinclair setting up a rival group claim, flowing from the intended process of informal collaboration.

Reasonableness of the Restraint

The Court agreed with the trial judge that the six-year period was necessary to protect Your Lawyers’ legitimate interests, as it roughly equated to the limitation period for claims in the emissions litigation. The restriction was narrowly confined to the emissions litigation only.

Public Interest

The Court upheld the trial judge’s conclusion that the non-compete undertaking was not contrary to the public interest, noting that there were other firms willing and able to run group claims of this type.

Solicitor’s Undertaking

The Court concluded that the non-compete undertaking was not a solicitor’s undertaking. The subject matter involved a promise not to compete with another law firm, which does not involve work solicitors undertake as part of their ordinary professional practice. The Court observed:

“In summary, this was a business arrangement and in giving the undertaking Harcus Sinclair was acting in a business capacity rather than a professional capacity.”

Implications

This case provides important guidance on the restraint of trade doctrine, particularly in novel commercial contexts between law firms. The decision confirms that legitimate interests can extend beyond express contractual provisions to include what parties objectively intended or contemplated at the time of contracting. The case also clarifies the boundaries of the court’s supervisory jurisdiction over solicitors’ undertakings, confirming that it does not currently extend to incorporated law firms such as LLPs. The Court expressed hope that Parliament would address this lacuna.

Verdict: Appeal allowed. The non-compete undertaking was held to be enforceable and not an unreasonable restraint of trade. The Court of Appeal’s judgment was overturned.

Source: Harcus Sinclair LLP & Anor v Your Lawyers Ltd [2021] UKSC 32