Chris Quinn discusses the collapse of £10 million Restrictive Covenant Speedy Trial: Part 1
In May this year a discretionary firm called Wealth at Work acquired Affinity, an independent financial advisory firm. Affinity is a well-known firm whose IFAs have for many years given seminars to the employees of numerous public sector employers including staff at the Royal Courts of Justice themselves. Its marketing effort has always highlighted the fact that as IFAs, its advisers offer advice as to the ‘whole of the market’.
Wealth at Work styles itself as being an ‘independent wealth manager’. It operates a discretionary portfolio service. Excluding its recent acquisition of Affinity and other firms, over 95% of its customers’ investments are contained in this service. It chooses to have employed advisers as opposed to self-employed IFAs. Following a recent investment by a private equity house, Wealth at Work is building its way to a potential IPO in 2019. It incentivizes its employees to convert customers’ investments into its discretionary portfolio service by way of a bonus scheme.
At the time of the acquisition, Affinity had 37 IFAs. Wealth at Work intended to terminate their existing Affinity Adviser Agreements and replace them with employment contracts. Following meetings at which Wealth at Work explained its business model, service offering and philosophy to the IFAs, 32 of the 37 left rather than join Wealth at Work as employees. 4 of the 32 were based in Scotland.
The court dispute arose when Affinity then tried to enforce 12 month non-dealing and non-solicitation covenants against the IFAs. Eventually it commenced proceedings against 5 of the IFAs and, at a contested first hearing on 9th September 2016 before Mr Martin Chamberlain QC sitting as a Judge of the High Court, directions were made for there to be a speedy trial commencing on 14th November. At a subsequent hearing Affinity applied unsuccessfully to Sir David Eady sitting as a Judge of the High Court for the speedy trial to be adjourned until January and for permission to call an expert, William Blair QC, to give evidence as to the law relating to financial services.
The speedy trial came on before Mr Justice Jay. At the end of Affinity’s evidence he struck out the claim against 2 of the IFAs. After a further two days of evidence Affinity then withdrew its claim against the remaining IFAs. It was ordered to pay the Defendants’ costs on the indemnity basis with a payment on account in the sum of £300,000 within 14 days. It was also ordered to release £571,000 that it had withheld from the 27 IFAs on the ground of breach of contract.
In a future two articles, Chris Quinn (who was instructed by a team of Susan Hopcraft, Andrew Spooner and Rebecca Green at Wright Hassall LLP on behalf of the successful defendants) will set out the lessons to be learned by practitioners: (i) as to the pitfalls of the speedy trial process and (ii) as to the current state of the law relating to restrictive covenants.