HomeInsightsSupreme Court holds that “legitimate interests” in a non-compete clause are not limited to the agreement’s provisions but can include the parties’ non-contractual intentions

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In January 2016, Your Lawyers LLP issued a claim in relation to diesel vehicle emissions against the Volkswagen Group with the intention of applying for a Group Litigation Order (GLO). Your Lawyers, approached Harcus Sinclair LLP, a firm that had more experience of undertaking group actions, to propose collaborating on the emissions litigation. Your Lawyers sent a draft non-disclosure agreement to Mr Parker, a solicitor at Harcus Sinclair, which he signed on behalf of his firm on 11 April 2016. The NDA included a non-compete clause through which Harcus Sinclair undertook, for a period of six years, “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. The two firms embarked upon an informal collaboration, though no formal collaboration agreement was ever reached.

During the course of this informal collaboration, Harcus Sinclair recruited claimants for its own group action. In October 2016 Harcus Sinclair issued its own claim form in the emissions litigation and filed its own application for a GLO. In December 2016 it agreed with another law firm, Slater and Gordon, to work together in the emissions litigation. In January 2017, Your Lawyers emailed Mr Parker asserting that Harcus Sinclair’s actions were in breach of the non-compete clause. Your Lawyers also later contended that the non-compete clause was a solicitor’s undertaking. The emissions litigation was put on hold while the dispute between the two firms was referred to trial.

The High Court found that the non-compete clause was enforceable and granted an injunction requiring Harcus Sinclair to cease acting in the emissions litigation for six years. The Court of Appeal allowed Harcus Sinclair’s appeal and held that the non-compete clause was unenforceable. Your Lawyers appealed to the Supreme Court.

On the issue of whether the non-compete clause was unenforceable as an unreasonable restraint of trade, the parties agreed that the clause was a restraint of trade, but disagreed as to its reasonableness. To be reasonable, it must be both: (i) reasonable between the parties, i.e. to protect the legitimate interests of the party seeking its protection, and go no further than is reasonably necessary to protect such legitimate interests; and (ii) not contrary to public interest.

The critical question of law on (i) was whether Your Lawyers’ legitimate interests were limited to the provisions (express or implied) in the NDA or whether the parties’ non-contractual intentions, or what they contemplated would occur as a consequence of entering into the contract, could also be considered. In other words, did the fact that the NDA did not include any legally binding obligations to collaborate mean that it was irrelevant, in deciding on Your Lawyers’ legitimate interests, that the parties intended, or contemplated, at the time the NDA was made, a process of informal collaboration consequent on the NDA?

The Court held that Your Lawyers’ legitimate interests were not limited to the NDA provisions. The fact that the parties intended or contemplated a process of informal collaboration could be taken into account even though the NDA did not include any obligation to do so. Your Lawyers had legitimate interests in protecting its own proposed group claim from Harcus Sinclair setting up a rival group claim and the non-compete clause was reasonably necessary to protect those legitimate interests. It was logical and necessary that it should last for a six-year period as that roughly equated to the limitation period for claims in the emissions litigation. The non-compete clause was therefore reasonable between the parties. As for (ii), the non-compete clause was not unreasonable as being contrary to the public interest.

As for whether the non-compete clause was a solicitor’s undertaking, the Court noted that to be a solicitor’s undertaking it must be given in their “capacity as a solicitor”. This assessment involved a two-stage test: (i) whether what the undertaking requires the solicitor to do (or not do) is something that solicitors regularly carry out (or refrain from carrying out) as part of their ordinary professional practice; and (ii) whether the matter to which the undertaking relates involves the sort of work which solicitors regularly carry out as part of their ordinary professional practice.

Harcus Sinclair’s promise not to compete with Your Lawyers in the emissions litigation did not involve the sort of work that solicitors undertake not to do as part of their ordinary professional practice. The promise related to a potential business opportunity and the reason for giving it was to further the parties’ business interests, rather than that of any client. In giving the undertaking, Harcus Sinclair was acting in a business capacity rather than in a professional capacity. The non-compete clause was not, therefore, a solicitor’s undertaking.

Although it was not necessary to decide whether, if the non-compete clause was a solicitor’s undertaking, the courts’ supervisory jurisdiction would apply to Harcus Sinclair and/or to Mr Parker, the Court explained that the courts’ inherent supervisory jurisdiction over solicitors applies because of their status as officers of the court. The question was whether that inherent jurisdiction should be extended to cover LLPs and limited companies providing legal services.

The Court held that this was not an appropriate occasion for answering that question because: (i) as the non-compete clause was not a solicitor’s undertaking, anything the Court said would not bind lower courts; (ii) a decision on this point would be assisted by submissions from professional and regulatory bodies, such as the Law Society; and (iii) the question was probably better dealt with by legislation. As matters stood, the non-compete clause would not have been enforceable against Harcus Sinclair as a solicitor’s undertaking because Harcus Sinclair, as an LLP, was not an officer of the court. It would also not have been enforceable against Mr Parker as he had given it on behalf of Harcus Sinclair.

The appeal was allowed. (Harcus Sinclair LLP v Your Lawyers Ltd [2021] UKSC 32 (23 July 2021) — to read the judgment in full, click here).

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