LM-2024-000175 - [2025] EWHC 2497 (Comm)

The Claimant was substituted by a consent order made on 4 August 2025 for the previously named claimant, MacIntyre Hudson LLP. The LLP was an accounting, auditing and business advisory firm of chartered accountants. The Defendant was until 31 July 2023 a member of the LLP. The terms of his membership were regulated by a Members Agreement (“the Agreement”) to which he subscribed on or about 1 October 2020 by way of a deed of adherence (“the Deed of Adherence”).

The Defendant entered the Deed of Adherenceupon being promoted to a role within the business operated by the LLP described as “Associate Partner”. Although the Defendant joined an LLP, I understand that there were distinctions between members that mirrored a traditional partnership, in particular between equity partners and other types of partner. I do not have a full copy of the Agreement but I understand that it purported, at least, to apply in the same manner to all members, regardless of whatever titles or rights they might have arising outside the terms of the Agreement.

The Agreement contained, at Clause 27, provisions purporting to restrict the Defendant from various activities for two years from the date he ceased to be a member. Each partner promised to the LLP and a group of companies owned or connected with it (“the Internal Group”) as follows:

For convenience, I refer hereafter to the restrictive covenants contained in these three clauses of the Agreement as “the Covenants”.

It is not a matter of controversy that after 31 July 2023, the Defendant solicited and dealt with clients of the LLP and sought to and did in fact recruit members of the LLP’s staff to join him at a new company, Haines Watts Audit EM Limited (“HWAEM”). The Defendant was a director of and shareholder in HWAEM, which was incorporated on 14 November 2023 and which engaged directly in competition with the LLP. It is not disputed that, if the Covenants were enforceable, then the Defendant was in breach of them. On 25 January 2024, the LLP applied to the High Court for an injunction restraining the Defendant from acting in the same manner; in response to the application, the Defendant gave undertakings to the Court to adhere to the Covenants (save in respect of a specific list of clients and staff).

Clause 30.1 of the Agreement provides as follows:

“If at any time any dispute or question shall arise between the Partners (including any Outgoing Partner) about MH LLP or a member of the Internal Group or its Accounts or transactions or its dissolution or arising out of or in connection with this Deed or its validity construction or performance then the same shall be referred to an arbitrator to be nominated at the request of any Partner by the President for the time being of the Chartered Institute of Arbitrators and according to the provisions of the Arbitration Act 1950-1996 and the decision of the arbitrator (including a decision that MH LLP or a member of the Internal Group shall be wound up) shall be final and binding on all the Partners and any Outgoing Partner”

On 8 February 2024, the LLP and Defendant made a request to the President of the Chartered Institute of Arbitrators to appoint an arbitrator to adjudicate upon the question whether the Covenants were enforceable restraints of trade and, if so, whether the Defendant had acted, or threatened to act, in breach of them. On 7 March 2024, the parties were notified that Mr Michael Cover FCIArb had been appointed.

Between 8 February 2024 and 12 March 2024, the parties prepared statements of case which raised numerous issues for determination. In summary, the Defendant contended first that in substance his status was that of employee rather than partner such that the Covenants could not be regarded as binding on him for various reasons. Second, and front and centre of the Defendant’s submissions, was the contention that the duration of the restrictions in the Covenants was “plainly and obviously unreasonable” (Points of Defence para 31, with particulars of unreasonableness at sub-paras 31.1 to 31.5). The Defendant’s case was that, if enforceable, the Covenants would prevent him from working in his chosen profession at all for two years (Points of Defence paras 28.3).

By its Reply, the LLP addressed various contentions of fact made by the Defendant, in particular disputing his assertion that he would not be able to follow his chosen profession for two years.

A preliminary meeting was held by Zoom on 12 March 2024, following which the Arbitrator made a procedural order on 20 March 2024. It seems that at the Zoom meeting it was agreed that, although witness evidence would be filed, the arbitration would not receive oral evidence and there would be no cross-examination. There was no formal direction made on 20 March 2024 that the hearing would comprise submissions only but in any event the parties were content to proceed on that basis. Understandably in view of the nature of the dispute, they wanted a decision as soon as possible and the hearing was scheduled to take place on 9 May 2024, with the final award to be handed down on 15 May 2024.

Before I consider the hearing and the Award, it is convenient to set out the complaint made by the LLP before me, as stated in the Claim Form:

“7.

The reasonableness of the duration of the restrictions was the key issue in the claim and the basis upon which the claim was decided in the Defendant’s favour. It is dealt with at §§ 209 – 295 of the Award. At § 293, the Tribunal records its conclusion on the issue, viz. that the Tribunal had ‘decided, as a fact, that the 2 year restriction is too long and not reasonable and that therefore, in the result, the claim fails and is to be dismissed. I am also finding as a fact that a covenant of much less far reaching duration would have provided adequate protection to the Claimant.

8.

There are two sentences in the Award provided by way of analysis in support of that conclusion, at § 295: ‘With regard to the stickiness or otherwise of the client relationships and the length of the audit cycle, there is a conflict on the evidence and I am unable to decide that the 2 year Restrictions are reasonable on that basis, with the burden being, as agreed on the Claimant to establish that the Restrictions are reasonable. It is said that the Claimant and HWAEM are different firms, but on the evidence before me I am unable to make that distinction.’

9.

The Award was vitiated by serious irregularity in that… the Tribunal… declined to adjudicate upon the key conflict in the evidence led by the parties as to the reasonableness of the duration of the Restrictions relating to client solicitation, interference and dealing [and] there was no engagement with or conclusion reached as to the evidence justifying the duration of the restrictions relating to staff”

I return now to the evidence before and submissions made to the Arbitrator.

The LLP filed three witness statements: one each from Mr Neil Berry, Ms Shelley Harvey and Mr Martin Herron. The Defendant filed just the one statement, from himself. In outline, the contentions made by these three witnesses regarding the duration of the Covenants were that:

The evidence of the LLP’s witnesses on these questions comprised their personal observations on these topics, doubtless based on years of experience. In their statements they did not give any examples of specific factual situations that illustrated how both the LLP and Defendant would have appreciated at the time of the Deed of Adherence those facts that rendered the two-year period of the restrictions reasonable. The most they could do was point to what was said to be a consistency of approach across the LLP’s internal documentation (i.e., the succession planning and audit planning procedures). These internal procedures did not in themselves cast much light on whether the restrictions in the Covenants were reasonably necessary.

The Defendant’s evidence in support of his contention that the two-year period was simply too long to be reasonable was as follows:

As with the LLP’s evidence, the Defendant’s did not contain any specific examples of facts from practice that illustrated his assertions.

In short, the evidence for each party regarding the reasonableness of the time period in the Covenants was almost exclusively argument based on (prima facie plausible) assertions of fact. The arguments made by each were cogent, but none of the witnesses gave detailed particulars that might have supported their general assertions regarding why the two-year period was or was not necessary.

In the bundle before me was a transcript of the hearing on 9 May 2024. The transcript had been generated by Zoom and the parties accepted it was accurate enough for present purposes. Given that the only complaint made by the LLP before me concerned the Arbitrator’s approach to determining whether the period of time in the Covenants was reasonable, I refer in this judgment only to a selection of passages of the transcript dealing with the reasonableness of the period.

The transcript records Mr Leiper’s submissions on the weight to be given to Ms Harvey’s evidence that the LLP usually booked audits one year in advance. The evidence before the Arbitrator was that the Defendant was able to organise with almost no notice an audit of a client that had moved from the LLP to his new employer, and at one point the Arbitrator said to Mr Leiper:

“You can probably gather I am baffled as to why it takes a year when Mr Wynter appears to be able to do it in minus one month”

Mr Leiper’s argument was that the Defendant’s new firm, HWAEM, was in a completely different position to the LLP: the LLP could legitimately claim to need a year to organise an audit, where (he contended) HWAEM could, indeed was obliged to, if it wished to survive economically, organise an audit with much less notice.

When Mr Benzie opened his case before the Arbitrator, he made clear that “enforceability is the only issue”, and that “we restrict our objection solely to the two-year point… we do not say that the terms of the clauses of themselves are unreasonable. We just say the period is unreasonable”. During his submissions, he referred to the absence of decided cases concerning restrictive covenants in LLP agreements, saying this:

“Again, for that reason… the reality is that nothing you’ve heard really helps you very much with whether or not two years is reasonable or not. Everything Mr Leiper said about confidential information, about the cycle of so on – the cycle of audit and so on, they get you to the point of saying, ‘Yes, there’s a legitimate interest to protect, and yes, it’s reasonable to protect it”. We don’t challenge that; we agree with that. The only evidence you’ve heard, and I’ll have to come to it in great detail towards the end of my submissions, is this issue about the audit cycle and preparing a year in advance and everything, and I’ll address you on that in due course. But we say at best that goes nowhere.”

Later, Mr Benzie turned to the principle that no-one is entitled to protection against fair competition, saying this:

“… the point is no one is entitled to protection against competition, and so any protection against competition, and I accept these aren’t – there is no non-compete clause here – but they are in essence, protection against competition because they’re protecting clients. Nobody’s entitled to that, and, in those circumstances, it’s for the claimant to show to you that the protection is reasonable and only what is reasonable. I say where they fall down is showing two years is reasonable. I say when you look at the evidence, and you look at the reasons, Mr Berry’s witness statement… I’m looking at paragraph 133, and he lists the reasons why things might take two years. So, emotional factors, retiring partners, emotions, client nervousness. Then he goes on to lack of preparedness, succession planning, the personality assessment, and then last, and you’d have thought what maybe should have come first, client relationships:

‘Transitioning clients involves more than just transitioning files; it requires building trust and understanding. In understanding the unique needs of each client, the process cannot be rushed’

Well again, what that’s setting out in my submission is rather a wish list of what a partner in any services firm would like to have. That’s not necessarily what they’re entitled to when what they’re benefitting from protection is against competition. Whilst they are entitled to protect their client relationships, it certainly isn’t the case that they’re entitled to a period that allows them to build trust and understand the unique relationship to each client. So what I say is, when you look at Mr Berry’s evidence, what you’re faced with is a situation where the claimant is asking for something which goes way outside the basic purpose of allowing the enforceability of clauses which would otherwise be [un]enforceable for breach of public policy”

Mr Benzie made much the same submission later in relation to the evidence of Mr Herron. As is self-evident, Mr Benzie’s submissions focussed on the arguments made by the witnesses for the LLP, with his principal counter-argument on behalf of the Defendant being that what the LLP sought was an ideal environment in which to manage the effect of the departure of a member of the LLP; but what it was entitled to was only reasonable protection for its legitimate interests.

In relation to the reasonableness of the period provided for in the Covenants, Mr Benzie submitted this:

“I also say this, that a two-year restriction is exceptional and without very good justification it would be unreasonable. As I said, there is little guidance. The way things have been looked at is – I mean Carmichael [Pricewaterhousecoopers LLP v Carmichael [2019] EWHC 824 (Comm)] is – I say in terms of its legal content is of very little use to you, but it does give you an indication of a clause that was used by a major international professional services [firm]”.

Mr Benzie’s argument, again self-evidently, was that there was no justification to be found anywhere in the authorities for a period of protection as long as two years; and that if such a period were to be justifiable, there would need to be cogent and good reasons. In answer to that submission, the Arbitrator noted that the duration of the restrictive covenant in the Carmichael case was less than two years and concerned a much more senior person than the Defendant.

The final exchanges between Mr Benzie and the Arbitrator were as follows:

“Mr Benzie: We do not challenge anything other than the two years. I have given you the reasons, the purpose of the restrictions we accept is to protect legitimate interests. We do not challenge the interest in any way including confidential information, we just say two years is too long. Mr Berry talks about the client relationships, we have talked about that. We say what they are asking for, and the justifications they give for two years, are just – the evidence of Ms Berry and Mr Heron, and Ms Harvey all go too far. What they are asking for is the ideal commercial situation in which you have enough time to embed an absolutely rock-solid relationship with a client. not a situation where you just protect an initial relationship.

The Arbitrator: Actually, I suppose what you are saying, if I hear you right Mr Benzie, is two years is too long. You have made an open offer to accept a year but you have taken a view on that and you are not really saying a year’s ok, you just say you are prepared to accept as part of a negotiation conducted on an open basis, that you would settle there, right?

Mr Benzie: Yes… Duration is of great importance so unless the claimant can satisfy that two years is reasonable you should find –

The Arbitrator: Yes, that is my point there, isn’t it. The burden is on the claimant, yes, I think we are all agreed on that.”

At the end of Mr Leiper’s submissions in reply, the Arbitrator expressly checked with both counsel that each considered he had had a reasonable opportunity to present his case and deal with that made by his opponent; both counsel confirmed that they had. Had either of them wished to make further submissions, the whole of the following day had been set aside just in case, but in the circumstances that day was not needed.

On 31 May 2024, the Arbitrator issued the Award, which covered 42 pages of single-spaced type. As the LLP’s solicitor explains in her statement in support of the current application, the reason for the change in date from 15 May 2024 was the time taken to produce the transcript of the hearing from which I have quoted extracts above.

In the Award, the Arbitrator recited the background facts and identified the issues in the arbitration. At paragraph 128, he recorded:

“By the time that it came to the Hearing, the Issue for the tribunal at this point had been narrowed down to: Are each of the Restrictions in Clauses 27.1.1, 27.1.2 and 27.1.3 enforceable, as the Respondent had agreed to provide suitable Undertakings, should the Restrictions be found to be enforceable”

He then recorded the submissions of the parties. There is no complaint that this record was in any way inaccurate having regard to the written and oral submissions made to him.

Section J of the Award was titled “Discussion and Findings on the Issues”. At paragraphs 272 – 276, the Arbitrator set out areas of common ground: that he had to consider the enforceability of the Covenants as at the date of the Deed of Adherence; that there was no dispute the LLP had a legitimate interest in protecting the interests particularised in the Covenants; and that he had to decide whether the restrictions contained in the Covenants were reasonable. As to resolving that latter dispute, he said there were two stages:

The Arbitrator considered the first of those stages between paragraphs 277 and 288. After a careful analysis of the evidence, the Arbitrator expressly found as a fact that the Defendant was indeed of such position and status within the LLP’s organisation that the Covenants could prima facie apply to him.

Between paragraphs 289 and 296, the Arbitrator addressed the reasonableness of the duration of the restrictions contained in the Covenants. It is convenient to set out those paragraphs in full:

“The reasonableness or otherwise of the Duration of the Restrictions

290.

The tribunal now turns to the reasonableness or otherwise of the duration of the Restrictions. I note in passing that the Restrictions are not what might be called non-competes: they are restrictions on dealing with certain clients of the Claimant and also not soliciting staff of the Claimant and also relating to the confidential information. The last point has been dealt with by the [Defendant] giving undertakings.

291.

The [Defendant] submits that the Restrictions prevent him from earning a living in his chosen profession. There is no evidence to that effect. For example, there is no evidence from the [Defendant’s] new firm that the Restrictions are damaging the part of its business with which the [Defendant] is involved. I therefore find as a fact that the Restrictions have not prevented the [Defendant] from earning a living in his chosen profession.

292.

It is common ground that the tribunal’s task is now to decide whether the 2-year period in the Restrictions is reasonable. I am unable to decide whether, for example, a shorter period might be reasonable and hence enforceable. It is also common ground that I make the above decision in my discretion.

293.

Taking that into account, I have decided, as a fact, that the 2 year restriction is too long and not reasonable and that therefore, in the result the claim fails and is to be dismissed. I am also finding as a fact that a covenant of much less far reaching duration would have provided adequate protection to the Claimant.

294.

In reaching that conclusion, I have not found the Department of Business and Trade Report on Non-Compete Clauses of much assistance, as this Report, which recommended a maximum restriction of 3 months, related only to contracts of employment, which is not what we have here, and to non-competes, which is also what we do not have here.

295.

I have also not found much assistance in the authorities, which have been very [ably?] presented to me. It is common ground that there are really no authorities on restrictions in LLPs. The only exception is the PWC v Carmichael case… which was of course an interim decision of the Court. Even there, the restriction was at most 15 months, being 9 months garden leave and 6 months restriction, in aggregate less than the 2 years that are sought to be enforced in this arbitration. With regard to the stickiness or otherwise of the client relationships and the length of the audit cycle, there is a conflict on the evidence and I am unable to decide that the 2 year Restrictions are reasonable on that basis, with the burden being, as agreed, on the Claimant to establish that the Restrictions are reasonable. It is said that the Claimant and HWAEM are different firms but, on the evidence before me, I am unable to make that distinction.

296.

At the Hearing, Mr Benzie for the [Defendant] indicated that the [Defendant] was requesting a Declaration that the Restrictions were unenforceable. As this was not in the [Defendant’s] Points of Defence, I am not giving such a Declaration, but in what are described as the Holdings of this Award, I am setting out what amounts to a recital to that effect.”

The claim form in these proceedings was issued on 28 June 2024.