Supreme Court warns on enforceability of solicitors’ undertakings given by incorporated legal practices
Harcus Sinclair LLP v Your Lawyers Ltd [23.07.21]
Last week, the Supreme Court handed down judgment in Harcus Sinclair LLP (Harcus Sinclair) v Your Lawyers Ltd (Your Lawyers) [23.07.21], allowing Your Lawyers’ appeal against a decision of the Court of Appeal that the non-compete clause within a non-disclosure agreement between them was unreasonable as a restraint of trade. The decision clarified the approach to be taken in assessing the legitimate interests of the beneficiary of the restraint.
Of much greater importance to solicitors and their insurers, however, was the Supreme Court’s examination of the enforcement of solicitors’ undertakings given on behalf of incorporated law firms, such as LLPs (like Harcus Sinclair) and limited companies.
The parties entered into a non-disclosure agreement to allow the sharing of information to explore a collaboration in the VW Emissions Litigation (during the early stages of those claims). The NDA recorded that Harcus Sinclair ‘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 reached and Harcus Sinclair later acted for a group of VW emissions claimants.
At first instance, the High Court found that Harcus Sinclair was in breach of contract and imposed an injunction requiring it to cease acting for its group of claimants. The Court of Appeal then reversed that decision and set aside the injunction, holding that the clause was an unreasonable restraint of trade. The Supreme Court concluded that the Court of Appeal was wrong to do so, finding the clause to be reasonable and enforceable.
The Supreme Court held that when assessing reasonableness, it is legitimate to take into account not only the terms of the contract, but the parties’ objectives, intentions or contemplations of their future relationship (as at the date of the contract). It concluded that the Court of Appeal had been wrong to determine the legitimate interests of Your Lawyers by reference only to the terms of the contract (which did not oblige the parties to collaborate). Further, the first instance judge had been entitled to conclude that the clause was a reasonable protection of the firm’s legitimate interests.
The Supreme Court also emphasised that where two parties are of equal bargaining power, a court should approach the question on the basis that the parties can be expected to be able to protect their interests by agreeing terms that are reasonable between them.
More importantly for solicitors and their insurers, the Supreme Court also considered the enforcement of the clause as a solicitor’s undertaking and solicitor’s undertakings more widely. As to this:
The real importance of the case for solicitors and their insurers comes from the Supreme Court’s comments on limitation of the court’s supervisory jurisdiction and the nature of solicitors’ undertakings.
Whilst the Supreme Court’s comments on this issue are obiter, they highlight the potential lack of protection provided by undertakings given by LLPs or other incorporated entities (rather than individual solicitors). Whilst it is open to the recipient of a breached undertaking from an incorporated legal practice to report that practice to the SRA or bring a breach of contract claim, both remedies will take time to bring to conclusion. They will also be considerably slower than an application to the court to enforce an undertaking under its supervisory jurisdiction that would have been open to the recipient if the undertaking had been given by an individual solicitor.
For those law firms who are required to accept undertakings they would be wise, certainly until any change in the law is introduced, to seek personal undertakings from the individual solicitor with whom they are dealing on behalf of the relevant counterparty, as well as the partners/members of the corporate entity on whose behalf the undertaking would be given (perhaps rather than, but certainly in addition, to the entity itself). This, in turn, should lead those who are being asked to provide such undertakings to take increased care in respect of their wording, to minimise the chance of regulatory censure in the event that matters do not proceed as intended or contemplated when the undertaking is given.