The Supreme Court has handed down judgment in Harcus Sinclair LLP v Your Lawyers Ltd  UKSC 32, the third time in three years that it has considered the restraint of trade doctrine (see Egon Zehnder v Tillman  UKSC 32 and Peninsula Securities v Dunnes Stores  UKSC 36). It has allowed Your Lawyers’ appeal against a decision of the Court of Appeal that a non-compete clause in a non-disclosure agreement between law firms was unreasonable as a restraint of trade. The decision clarifies the approach to be taken in assessing the legitimate interests of the beneficiary of the restraint. The Supreme Court also examined the enforcement of solicitors’ undertakings given by solicitors practising in incorporated law firms such as Harcus Sinclair LLP.
Your Lawyers and Harcus Sinclair entered into a non-disclosure agreement in April 2016 to allow the sharing of information in order to discuss an intended collaboration between the firms in the VW Emissions Litigation, a large group litigation claim which was then in its very early stages. The NDA contained a provision that Harcus Sinclair LLP ‘undertakes not to accept instructions for or to act on behalf of any other group of Claimants in the contemplated Group Action’ without Your Lawyers’ permission. No agreement on collaboration was agreed between the firms and Harcus Sinclair LLP subsequently acted for its own group of claimants and entered into a collaboration agreement with another firm. At a trial in 2017, the High Court (Edwin Johnson QC sitting as a Deputy Judge) concluded that Harcus Sinclair was in breach of contract and imposed an injunction requiring the firm to cease acting for its group of claimants. In 2019, the Court of Appeal (Sir Geoffrey Vos, Chancellor and Henderson and Asplin LJJ) overturned that decision and set aside the injunction on the basis that the clause was an unreasonable restraint of trade. The Supreme Court has concluded that it was wrong to do so, and that the clause was reasonable and enforceable. The judgment of the Supreme Court was delivered by Lord Briggs, Lord Hamblen and Lord Burrows, with whom Lord Lloyd-Jones and Lady Arden agreed.
The Supreme Court has held that when assessing reasonableness, it is legitimate to take into account not only the terms of the contract, but also what the parties objectively intended or contemplated as to their future relationship, assessed as at the date of the contract. The Court therefore concluded that the Court of Appeal had been wrong to determine the legitimate interests of Your Lawyers solely by reference to the terms of the contract (which did not oblige the parties to collaborate), and that the trial judge had been entitled to conclude that the clause was a reasonable protection of Your Lawyers’ legitimate interests, in the context of the intended collaboration between the firms. The Court also emphasised that where two parties are of equal bargaining power, a court should approach the question of reasonableness on the basis that such parties can be expected to be able to look after their own interests in agreeing terms that are reasonable between themselves.
The Supreme Court also considered the enforcement of the clause as a solicitor’s undertaking. The courts have jurisdiction to supervise the conduct of solicitors as officers of the court, and exercise this jurisdiction to enforce undertakings given by solicitors in the course of their practice. The Court considered whether the clause was a solicitor’s undertaking which was binding as a matter of professional conduct, and concluded that the undertaking in question was purely contractual. In doing so, the Supreme Court gave guidance on when an undertaking is likely to be a solicitor’s undertaking which the solicitor is bound to honour as a matter of professional conduct. The Court accepted that it would have been open to it to extend the supervisory jurisdiction in respect of solicitors to cover undertakings given by incorporated law firms, but declined to do so in this case because any decision would be obiter, the Court had not received submissions from professional bodies or regulators, and because the issue may be better dealt with by legislation.
A copy of the judgment can be found here.