Termination of services agreements

Wright Hassall was instructed by 27 independent financial advisers (“IFAs”) who had been told, on termination of their services agreements, that they could not advise their clients for 12 months.

The financial adviser group that they had been working for (Affinity) said that they were bound by restrictive covenants that prevented them from contacting or dealing with clients for 12 months. In effect this cut them off from, and unable to service and advise, their clients. In some cases these clients had been advised by them over several decades. All 27 advisers were threatened with injunctions if they did deal and five of them found themselves as Defendants to a claim for breach of covenant.

However, we considered those covenants were too wide to be enforceable. They were too wide in their terms and in length of time. If they were too wide they were unenforceable and neither Affinity nor the court was entitled simply to cut them down to suit.

Court proceedings were issued on 31 August 2016. Affinity sought an interim injunction preventing the 5 from soliciting or dealing with their clients until the full trial of the issue of enforceability. The other 22 IFAs affected wanted to be included in the action, but that was declined by the court, based on an acknowledgment that the outcome for the 5 would apply to them too.

A timetable was set to prepare the case for a ‘speedy trial’, since the question whether the covenants were enforceable needed to be dealt with urgently. It was not only vitally important to the livelihoods of the financial advisers, but also affected considerably the clients who needed financial advice, many of whom were pensioners and expressed a strident wish to be advised by their trusted IFA.

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About the author

Susan Hopcraft Partner

Susan advises on all aspects dispute resolution particularly in the financial services sector. She has extensive insurance, professional negligence and restrictive covenants experience. She deals with claims against solicitors, valuers, surveyors, brokers and accountants, fraud issues, recoveries for lenders and bank mis-selling.