The Court of Appeal has allowed an appeal by group action specialists Harcus Sinclair challenging the enforceability of a non-disclosure agreement it entered into with a Derbyshire firm regarding the Volkswagen group litigation.

In Harcus Sinclair LLP v Your Lawyers Limited handed down yesteray, the court said the agreement with Chesterfield-based Your Lawyers (YL) was ‘unenforceable as being in unreasonable restraint of trade’, and that an injunction should not have been granted.

In November 2017, the High Court ruled that Harcus Sinclair should stop representing claimants in the VW case. The court said a ‘non-compete clause’ meant Harcus Sinclair had agreed not to represent claimants without the express permission of YL.

But in yesterday’s judgment, Sir Geoffrey Vos, Lord Justice Henderson and Lady Justice Asplin, ruled: ‘We take the view that a broad restriction preventing [Harcus Sinclair] ever acting for other claimants in the emissions litigation, inserted into an otherwise unobjectionable NDA, cannot possibly be reasonably necessary to protect YL’s legitimate interests.’

Aman Johal, director at YL, said a primary purpose in the litigation was to ensure that Harcus Sinclair did not breach a solicitors’ undertaking not to act for clients without the firm’s permission and by doing so, hinder the progress of the group action and tarnish the litigation.

Johal said the judgment reflects a ‘resounding win’ for YL on all of the substantive issues that Harcus Sinclair sought to appeal, except on the question of whether the agreement not to compete was enforceable in contract. 

‘Whilst the Court of Appeal found that the non-compete clause was an unreasonable restraint of trade, that decision has no bearing on one of the primary purposes of what we set out to achieve in the litigation with Harcus Sinclair. The discharge of the injunction will have no practical effect whatsoever on the VW emissions litigation because Harcus Sinclair owes a regulatory obligation to comply with the undertaking in accordance with the solicitors’ Code of Conduct.’

YL said it would appeal the court’s decision that the non-compete clause was an unreasonable restraint of trade.

The VW claim, one of the largest group action cases yet, arose out of revelations that motor giant VW fitted diesel cars with software that could manipulate the results of emissions tests.

In the early stages of the case, YL gathered thousands of clients before approaching a third-party funding broker, Gregory Fairley, a director of Capital Interchange Ltd, to obtain funding. Fairley, according to yesterday’s judgment, suggested a collaboration with a larger firm of solicitors with more experience of financing and undertaking major group actions.

YL teamed up with Harcus Sinclair and signed the agreement in April 2016.

However, Harcus Sinclair eventually joined forces with Slater and Gordon to organise another group. That claim has around 87,000 claimants and is being funded by Therium Capital Management. After the 2017 judgment Slater and Gordon assumed control of the litigation and Harcus Sinclair withdrew. Leigh Day and YL are also representing claimants.

Harcus Sinclair has been conatcted for comment.

Jawdat Khurshid QC and Josephine Higgs at 7KBW, together with David Foxton QC of Essex Court Chambers, appeared for Harcus Sinclair; Richard Coleman QC and Philip Ahlquist of Fountain Court Chambers for YL.