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In this post, Sarah Day, a senior associate with CMS, previews the decision awaited from the UK Supreme Court in the matter of Harcus Sinclair LLP v Your Lawyers Limited. This case concerns a non-compete clause contained within a non-disclosure agreement between two firms of solicitors. It is an important case in the sphere of solicitors’ professional indemnity insurance as it sees the issues of (i) the Court’s inherent jurisdiction over solicitors as officers of the Court, (ii) the interaction of that jurisdiction with the restraint of trade doctrine and (iii) the interpretation and enforcement of solicitors’ undertakings, now being considered at the highest level since 1940.

On 24 and 25 March 2021, the Supreme Court heard the appeal in Harcus Sinclair LLP v Your Lawyers Limited: a case arising from the so-called ‘Volkswagen diesel emissions scandal’ on September 2015. This case is expected to clarify the extent of the Court’s inherent supervisory jurisdiction over solicitors and whether this can be said to extend to body corporates (i.e. law firms). This case also considers the scope of a solicitor’s undertaking and whether, for an undertaking to be considered a solicitor’s undertaking, the subject matter or the context in which it was given is more relevant. Finally, this judgment will also consider how the Court’s inherent supervisory jurisdiction, if it applies, interacts with the doctrine of restraint of trade, considering issues of public policy and competition.

Background

In 2015, The United States Environmental Protection Agency issued a notice of violation alleging that certain Volkswagen vehicles had been fitted with a device which could detect when that vehicle was being tested for emissions compliance and could manipulate the results. Your Lawyers Limited “YLL”, the defendant in the claim and the party bringing the appeal to the Supreme Court, saw an opportunity to bring a group action in respect of vehicles sold in the UK. YLL (a small firm) sought the assistance of Harcus Sinclair LLP “HSLLP”, the first claimant and the respondent in the appeal. On 11 April 2016, Damon Parker of HSLLP signed a non-disclosure agreement “the NDA” which included a non-compete clause, which stated that HSLLP undertook “not to accept instructions for or to act on behalf of any other group of Claimants in the contemplated Group  Action” without the express permission of YLL (“the Undertaking”). Mr Parker signed the NDA “for and on behalf of” HSLLP, without reading it and YLL then shared confidential information with HSLLP and Mr Parker. The NDA, the Undertaking therein, and the interpretation of the same, are at the heart of this litigation.

After Mr Parker had signed the NDA, HSLLP accepted instructions from and acted on behalf of a group of claimants and issued a group action concerning the emissions of Volkswagen diesel vehicles without obtaining YLL’s express permission. Mr Parker shared confidential information with another firm of solicitors, in breach of the Undertaking. YLL threatened to enforce the Undertaking and apply for injunctive relief.

Appellate History

The case was originally heard in the Chancery Division of the High Court where HSLLP sought a declaration that the court should not exercise its jurisdiction to enforce the Undertaking, which had been given by Mr Parker on the firm’s behalf. The Chancery decision went in favour of HSLLP, determining that whilst it was a recognised corporate body that could lawfully provide legal services, HSLLP was not subject to the court’s supervisory jurisdiction and therefore would not exercise its discretion to enforce the Undertaking. A counterclaim was allowed in part on the basis that HSLLP was in breach of the Undertaking and so YLL was entitled to seek appropriate restraint of the breach (i.e. an injunction).

HSLLP appealed the judge’s interpretation of the Undertaking to the Court of Appeal. The appeal was successful in part; it was agreed that the Chancery judge had been correct to construe the Undertaking broadly – that “the contemplated group action” meant any group action arising from the emissions scandal, not merely the group action in contemplation when the agreement was signed. However, it was determined that the Chancery judge had erred in finding that the Undertaking was not a restraint of trade. The Court of Appeal found that the Undertaking was in fact an unreasonable restraint of trade, and YLL’s injunction against HSLLP was subsequently discharged.

YLL appealed to the Supreme Court.

The Parties’ Submissions

The case summary set out six issues to be considered by the Supreme Court but in essence these could be considered under two headline points:-

  • was the Undertaking an unlawful restraint of trade; and
  • is the Undertaking enforceable as a solicitor’s undertaking?

Appellant (YLL)

The appellant set out its submissions on the issues as follows:-

  • Mr Parker was acting in his capacity as a solicitor when he signed the NDA and when he gave the Undertaking. The inherent supervisory jurisdiction is concerned with professional conduct, not with legal rights and liabilities. A court of professional conduct should therefore not recognise any distinction between HSLLP and Mr Parker in relation to the Undertaking.
  • If the decisions of the courts below are correct, then the Court’s power to enforce undertakings under the inherent jurisdiction has been seriously undermined.
  • The nature and scope of the inherent jurisdiction supports the existence of the power to make an order against the body corporate to enforce an undertaking given by a solicitor acting on its behalf. The exercise of the jurisdiction in respect of HSLLP in that way is not inconsistent with the statutory framework.
  • Justice supports the existence of the power for which YLL contends – “the contours of the jurisdiction are shaped by considerations of pragmatism and justice”.
  • The courts below held that they were bound by the decision in Assaubayev v Michael Wilson and Partners Ltd [2014] EWCA Civ 1491, that they had no inherent jurisdiction to make an order against HSLLP to enforce the Undertaking. The reason given by the lower courts was that HSLLP, as a body corporate, was not an ‘officer of the Court’. The appellant argued that that argument confuses the reason why the Court’s supervisory jurisdiction over solicitors exists with the scope of the Court’s powers when it is engaged. The reason for the jurisdiction is the Court’s interest in controlling its officers. It does not follow that the Court cannot make orders against the body corporate through which the solicitor practices.
  • The scope of the inherent jurisdiction as it applies to solicitors’ undertakings does not lack the coherence and the unity implied by the decisions of the courts below. Courts below have confused the issues of contract and agency with the issue of conduct.
  • The argument that the Undertaking was not reasonable by reference to the parties’ interests is not a valid reason to breach a solicitor’s undertaking.
  • In respect of restraint of trade, this was a bargain freely struck by parties with equal negotiating power. If anything, HSLLP was in the stronger position as the larger firm. As a firm of solicitors, HSLLP should know whether an undertaking is an appropriate one for it to give. The first instance judge found that the Undertaking made perfect commercial sense.
  • The restraint of trade doctrine should not come to the rescue of a party enjoying equal bargaining power, let alone someone who might be seen as the stronger party (here, HSLLP).
  • If the Undertaking is a solicitor’s undertaking, then the public interest in solicitors complying with their undertakings, and in maintaining public trust, outweighs any consideration of policy (such as freedom of trade and freedom of contract) that in an ordinary case might arise from the unreasonableness of the restraint as between the parties.
  • YLL has no effective remedy for a serious breach of an agreement between two firms of solicitors. A complaint has been made by YLL about HSLLP to the SRA, but neither the SRA nor the SDT can grant injunctions to enforce a solicitor’s undertaking.
  • The success that HSLLP achieved in the Court of Appeal “does no credit” to an honourable profession. The subject of the undertaking does not have to be a professional service in order to be classified as a solicitor’s undertaking. Mr Parker’s conduct caused the firm to give the Undertaking and his conduct caused them to breach it.
  • The dominant public policy point is that solicitors should keep their word and honour their undertakings. That did not happen in this case. Somewhere between the firm and Mr Parker there must be a suitable target for the court’s inherent jurisdiction.

Respondent (HSLLP)

In response, HSLLP submitted:-

  • The Undertaking is not a solicitor’s undertaking – not every agreement made by a person who is a solicitor is a solicitor’s undertaking which attracts the Court’s inherent jurisdiction.
  • The key to recognising a solicitor’s undertaking are the questions:- i) are solicitors in practice to do the acts which are subject matter of the undertaking; and ii) were those acts done in the course of a transaction which itself was the sort of work which solicitors carry out as part of their professional practice.
  • There must be a distinction between business undertakings which a solicitor, as a commercial entity, may enter into for business reasons and, on the other hand, an undertaking given in the delivery of professional services.
  • That one is a solicitor isn’t the answer to the question as to whether an undertaking is a solicitor’s undertaking. It is necessary to consider whether what is what is being agreed to be done by the solicitor, is being agreed by him in his capacity as a solicitor delivering professional services. The substance of the Undertaking is not the provision of professional services, the substance is a business arrangement between competing commercial entities. It is not a contract to give legal advice, no commitment by YLL to collaborate or to negotiate.
  • By the definition as set out in s.50 of the Solicitors Act 1974, HSLLP is not an officer of the Court. In order to be successful, the appellant has to evidence that there is a supervisory jurisdiction which exists other than that preserved by s.50 of the Solicitors Act. There is no source or justification for that proposition.
  • Where Parliament has chosen to put in place a regime under which there is a regulator who is empowered to make regulations and enforce them for the professional conduct of body corporates, and the s.50 power is not expressly extended, it would be wrong for the Court to say that the inherent jurisdiction can occupy the same territory as the regulator.
  • Even if the supervisory jurisdiction applies in principle to the Undertaking, it should not apply to Mr Parker personally. Under contract, there is no dispute. Mr Parker signed the NDA as the agent of a disclosed principal and assumed no contractual liability personally. The court should not have inherent supervisory jurisdiction to enforce an undertaking against a person who is not contractually bound by it.
  • Parliament has determined that ‘limited liability’ legal entities are able to deliver legal services. If the inherent supervisory jurisdiction is said to be exercisable against an individual where the ‘legal person’ that gave the undertaking is a ‘limited liability’ entity, then the Court would be undercutting the new legislative regime put in place by Parliament.
  • If the inherent jurisdiction is available, it cannot be exercised against Mr Parker personally.
  • It is common ground that the non-compete clause in the NDA is a restraint of trade. The question is whether the Court of Appeal was entitled to reach the conclusion that it was an unreasonable restraint of trade.
  • The Respondent submitted that a 6 year non-compete period was unreasonable in circumstances where only a few firms acted in this market. The Respondent submitted that the clause was a ‘naked’ non-compete clause without proper consideration and relied on arguments of freedom of contract, freedom of trade and freedom of choice for consumers of legal services to evidence that the restraint of trade was not reasonable.
  • Whether or not something is a reasonable restraint of trade is a matter of law. That the clause may have been negotiated between the parties is not the answer – only the Court may determine whether or not the restraint is reasonable.
  • The status of the Undertaking as a solicitor’s undertaking, if it is one, should not affect the application by the Court of the doctrine of restraint of trade. One must also consider points of free choice and competition.

Significance

The Supreme Court’s judgment will certainly be an interesting one, as it will provide clarity for the legal profession as to the scope of the Court’s inherent supervisory jurisdiction and potentially guidance on how this sits alongside the SRA’s regulatory function. A rare chance to see how the Court delineates its own power to enforce the conduct of solicitors. It will likely inform how, and in what format, solicitors should seek and give undertakings as between firms. If the Court has no power to enforce a solicitor’s undertaking given on behalf of a limited liability body corporate (i.e. an LLP) then it may be that solicitors are asked to give personal undertakings in circumstances when dealing with an LLP.

It will also offer an interesting insight into the hierarchy and interplay of the various doctrines of freedom – trade, contract, competition – and how and whether these take precedence over public policy where solicitors’ conduct is concerned.

Finally, it will cause the Supreme Court to consider the intention of Parliament as regard to body corporate ‘legal persons’. Parliament has not expressly provided whether body corporates are intended to fall within the scope of the court’s inherent supervisory jurisdiction as set out in s.50 of the Solicitors Act. The respondent relies on this absence of expression to evidence that body corporates must not fall within the scope of the jurisdiction. On the contrary, the appellant argues that, because Parliament has not expressly excluded body corporates from the scope of the jurisdiction, that must fall within the scope of the same.