26. Mai 2022
Lending Focus - May 2022 – 5 von 6 Insights
In Harcus Sinclair LLP v Your Lawyers Ltd, the Supreme Court considered whether a non-compete undertaking given by one law firm to another was unenforceable as an unreasonable restraint of trade.
The Court also commented on another issue which has generated much interest amongst lawyers, by way of obiter. This related to the nature of the undertaking and whether and how it could be enforced in circumstances where the giver worked for an LLP. The Supreme Court commented on the unsatisfactory position regarding the court's supervisory jurisdiction to enforce solicitors' undertakings over incorporated law firms and expressed the wish that Parliament intervene.
Your Lawyers Ltd (YL) and Harcus Sinclair LLP (HS) contemplated working together on a group action relating to diesel emissions from Volkswagen vehicles. Pursuant to the potential collaboration, in April 2016, YL sent a non-disclosure agreement to Mr Parker (a member of HS at the relevant time) who signed this for and on behalf of HS. The non-disclosure agreement contained the following non-compete undertaking stated to last for six years:
"[HS] further undertakes 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 [YL]."
In the end, despite working together for several months, no binding collaboration agreement was reached. HS partnered with another law firm and recruited its own claimants. The dispute concerned the HS litigation vehicle seeking to be named as the lead law firm, with YL contesting the right of the HS entity to represent these claimants at all.
The Supreme Court overturned the Court of Appeal's decision in favour of HS, holding that the non-compete undertaking was not an unreasonable restraint on trade. As such, it was enforceable as a matter of contract between YL and HS.
Perhaps of more interest to the legal market was the consideration of whether the non-compete undertaking was a solicitor's undertaking and whether the court's inherent supervisory jurisdiction applied to incorporated law firms, particularly so given the number of firms operating as limited liability partnerships (LLPs).
Solicitors' undertakings are frequently utilised in transactional work, including finance and real estate, and are supported by powers of summary enforcement. These enforcement powers are rooted in the court's inherent jurisdiction over solicitors (though not LLPs) as officers of the court.
The Supreme Court held that the non-compete undertaking was not a solicitor's undertaking, overturning the High Court. The critical question here was whether the undertaking was given by the solicitor in their capacity as a solicitor – did the subject matter involve the sort of work which solicitors undertake as part of their ordinary professional practice? According to the Supreme Court, the non-compete undertaking had nothing to do with the provision of legal advice. Rather, it related to YL's business interests. A business relationship between YL and HS, even if related to the provision of legal services, was not the sort of work solicitors undertake in the ordinary course of practice.
Given this conclusion, the following consideration was obiter, but the Supreme Court noted that the boundary of the court's supervisory jurisdiction was a point of public importance due to the role solicitors' undertakings play in practice. Incorporated law firms are not officers of the court – neither legislation nor case law recognises them as such.
The Supreme Court considered the arguments for extending the supervisory jurisdiction to cover LLPs, the main reason being to treat legal services providers on an even footing, but reluctantly considered this an inappropriate forum to make such a decision:
The Supreme Court also considered that had this been a solicitor's undertaking, it would not have been enforceable against Mr Parker, who did not give the undertaking in a personal capacity but rather for and on behalf of HS.
It seems then that the court has no jurisdiction to enforce an undertaking given by or on behalf of an incorporated law firm, unless that undertaking is also enforceable as a contractual claim. Given the increasing preference to practice through an incorporated law firm, most commonly an LLP, the position with respect to solicitors' undertakings is hard to reason. The Supreme Court recognised this, noting that a temporary solution could be to ensure the undertaking is given by the solicitor in their personal capacity, but calling on Parliament to address this inconsistency of treatment between legal services providers.
The current position seems to be an (unsatisfactory) consequence of treating an LLP as a separate legal entity distinct from its members. Where an 'undertaking' is given on behalf of an LLP, it lacks the bite of a true solicitors' undertaking. The decision in Harcus Sinclair may make solicitors think twice about the value of undertakings when dealing with incorporated law firms. However, the alternative suggested by the Supreme Court, of requesting that solicitors give undertakings in their personal capacity, is likely to be viewed as unduly onerous. The possibility of this gaining traction in the legal market is therefore remote.
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