Harcus Sinclair LLP v Harcus Sinclair UK Lte

A contractual non-compete restriction in a non-disclosure agreement must be construed objectively, using admissible factual background, but its validity is assessed separately. A restriction is enforceable only if reasonably necessary to protect the covenantee’s legitimate interests under the agreement and commensurate with the benefits secured to the covenantor. A blanket six-year prohibition on a solicitor acting for other claimant groups in group litigation was unreasonable where the agreement concerned disclosure of confidential information for legal advice, not collaboration. Later informal collaboration could not supply the missing justification. Clear words may produce a broad construction even though that construction is unenforceable.

Your Lawyers Limited engaged Harcus Sinclair LLP under a non-disclosure agreement to obtain legal advice concerning proposed Volkswagen emissions group litigation. The agreement prevented Harcus Sinclair LLP from acting for another claimant group in the contemplated group action without permission. The High Court construed the restriction broadly, found breaches, rejected the restraint of trade defence and granted a six-year injunction. The Court of Appeal considered construction, restraint of trade, implied obligations involving Harcus Sinclair UK Limited, permission and estoppel, confidentiality, and supervisory jurisdiction. It upheld the broad construction but held the restriction unenforceable and discharged the injunction. The remaining issues were dismissed or treated as non-determinative.

1. Disposition. The appeal was allowed in part. The Court admitted new evidence and declined to hear the appeal in private. It upheld the construction of the Restriction but held it unenforceable as an unreasonable restraint of trade, so the six-year injunction was discharged. The finding concerning disclosure of confidential information to Harcus Sinclair UK Limited was upheld. Permission to appeal the factual permission and estoppel conclusions was refused.
2. Construction. The proper construction and effect of the non-disclosure agreement was a question of law, informed by the admissible factual matrix and assessed objectively at the date of contracting. The court must first decide whether the words genuinely admit of more than one meaning. Only then can the possible invalidity of one construction assist in choosing another. Applying the principles from Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Limited [2017] UKSC 24, the phrase “the contemplated Group Action” referred broadly to the contemplated emissions group litigation. It was not limited to the January action, VWUK, or claims based on the disclosed information. The words were clear.
3. Restraint of trade. The Restriction was in restraint of trade. The applicable test required reasonable necessity to protect the promisee’s legitimate interests and commensurateness with the benefits secured to the promisor, together with consideration of the public interest: Macaulay v Schroeder Publishing [1974] 1 W.L.R. 1308. Validity had to be assessed when the Restriction was imposed, by reference to the bare non-disclosure agreement and its admissible factual matrix. The agreement concerned disclosure of confidential information for legal advice, not collaboration. A blanket six-year prohibition on acting for other claimant groups was neither reasonably necessary to protect the interests arising under that agreement nor commensurate with the benefit received. It was therefore unenforceable.
4. Subsidiary issues. Because the Restriction was unenforceable, the implied-term and secondment issues were not determinative. If the Restriction had been valid, Harcus Sinclair LLP would have breached it by providing its partners and employees to Harcus Sinclair UK Limited to perform prohibited work. The court reserved whether a term could properly be implied to extend the Restriction to the related company. The court was bound by Kanat Assaubayev v Michael Wilson & Partners [2014] EWCA Civ 149 on supervisory jurisdiction, dismissed the challenge on that basis, but granted permission for the issue to be raised in the Supreme Court.

• Court of Appeal (Civil Division) allowed the appeal in part, holding the Restriction broadly construed but unenforceable and discharging the injunction: [2019] EWCA Civ 335.
• High Court of Justice, Business and Property Courts, Business List (ChD), Mr Edwin Johnson QC sitting as deputy judge, construed the Restriction broadly, found breaches and granted a six-year injunction. The lower judgment’s citation is not stated in the judgment.