London law firm Harcus Sinclair has overturned an injunction at the Court of Appeal preventing it from representing claimants in the VW emissions group action.
Sir Geoffrey Vos said a six-year “blanket restriction” imposed on Harcus under a non-disclosure agreement (NDA) with Chesterfield firm Your Lawyers (YL) “cannot possibly be reasonably necessary” to protect YL’s interests and was unenforceable as an unreasonable restraint of trade.
Sir Geoffrey, chancellor of the High Court, said that while there were many firms of solicitors, there were “not so many” with expertise in major group litigation, which was why YL got in touch with Harcus in the first place.
“Moreover, we think that it is relevant also that it is commonplace, as the judge also explained, in litigation of this kind for different groups of claimants to be represented by different solicitors.
“In other words, the market is small and highly competitive and group litigation solicitors fight hard for clients, no doubt because the potential rewards are great.”
The Court of Appeal heard in Harcus Sinclair v Your Lawyers  EWCA Civ 335 that YL “quickly saw the opportunity to bring a group action” in the UK on behalf of the owners of VW diesel vehicles after the VW emissions scandal became public in the USA in September 2015.
YL “gathered some thousands of clients together” before looking for a larger law firm, more experienced with major group actions. As a first step, Harcus was required to sign a non-disclosure agreement (NDA).
The NDA included a ‘non-compete’ clause, which provided that Harcus 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 YL.
Sir Geoffrey said that after signing the NDA, the parties collaborated informally, with Harcus recruiting its own claimants, described by the court as ‘the HS Group’, and issuing a claim form on their behalf in October 2016.
Edwin Johnson QC, sitting as a deputy High Court judge, found that the October action derived from Harcus’s work and not from YL’s confidential information.
However, Mr Johnson ruled that Harcus was in breach of the restriction in the NDA from September 2016, and granted an injunction preventing it from acting for the HS Group for six years.
Last year, Harcus was found to have issued proceedings against VW “prematurely” and was ordered to pay indemnity costs.
Sir Geoffrey said Mr Johnson was right to give the restriction in the NDA a “broad meaning”, including any actual or intended group action, but wrong not to apply the doctrine of restraint of trade.
He said the judge placed too much reliance on Harcus’s interests as party to an informal collaboration, when the NDA was “not about collaboration” but confidential information.
“Had the NDA included a collaboration agreement, it might well have been reasonable to prevent [Harcus Sinclair] from acting for other claimants outside that collaboration. But that was not what the NDA was about.”
Sir Geoffrey said it had not been suggested that YL’s objective was to exclude competitors, but had YL approached a number of law firms and persuaded them to sign an NDA, “and if the restriction was valid, the clients’ choice of solicitors would quickly be significantly curtailed”.
The Court of Appeal discharged the injunction granted to YL. However, it dismissed Harcus’s appeal against the judge’s finding of fact that Harcus Sinclair LLP had passed confidential information to Harcus Sinclair UK.
The court rejected a further appeal from Harcus over a finding that its staff secondment arrangements between the two entities would themselves have amounted to a breach of the NDA, on the grounds that HS would not have been at liberty to provide that kind of service in the first place under the NDA.
Appeal judges refused Harcus permission to appeal the High Court’s factual conclusions that YL had not agreed that it would not enforce the restriction in the NDA and no estoppel by convention or otherwise prevented YL from relying on the restriction.
Harcus Sinclair had no comment until the appeal court had ruled on consequential matters.
YL director Aman Johal told Litigation Futures that he intended to appeal, but added that “a primary purpose” of the litigation was to ensure that Harcus Sinclair “did not breach a solicitor’s undertaking” and hinder the progress of the action.
He described the Court of Appeal ruling as “a resounding win for Your Lawyers on all of the substantive issues that Harcus Sinclair sought to appeal, except on the question of whether the agreement not to compete with my firm was enforceable in contract”.
Mr Johal said: “It also does not change the critical finding at first instance that the agreement not to compete was breached and that the solicitor’s undertaking provided by Harcus Sinclair was not honoured by them.”