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Spicers' restraint of trade draconian

A restraint of trade clause in a former Spicers financial adviser’s contract has been called draconian by a High Court judge.

Thursday, April 10th 2014, 6:00AM 5 Comments

Hawkes Bay adviser Les Cunningham left AMP-owned Spicers in September last year, after 30 years in the financial advice sector.

His contract as an independent contractor, believed to be standard among many advisers, included two key restraint of trade clauses – a six-month “no dealing” clause that prevents an adviser offering any services to Spicers clients after cutting ties with the firm, and a perpetual “no soliciting clause” which requires that they never approach any Spicers clients – ever.

When Cunningham resigned, he told Spicers that he had legal advice that the clauses were unenforceable.

Between October and December, five of his former clients – many of whom had relationships of longer than 20 years with him - requested their investments be transferred to Cunningham at his new role with Forsyth Barr.

Spicers filed proceedings on December 18, and an injunction was issued, prohibiting Cunningham from soliciting former Spicers’ clients or providing services to them until February 7, when the order was due to expire.

Spicers said it was worried that he had become extremely active in approaching clients – something Cunningham emphatically denied.

When the case returned to court in January,  Cunningham acknowledged he had  limited dealings with former Spicers’ clients who requested advice from him.

He said he had changed his initial view that all aspects of the restraint of trade provisions were unenforceable, and he would comply with the no dealing restriction until March 13.

But he said the perpetual no soliciting clause was not enforceable.

Spicers conceded that the perpetual restraint was unlikely to be upheld as reasonable  - but wanted the injunction extended until it had the chance to amend the clause to a term of two years.

It said it was entitled to have it modified under the Illegal Contracts Act.

But, in a reserved decision, Justice J Dobson ruled in the High Court at Napier that the order that was to expire on February 7 would not be extended.

“I consider that Spicers’ attempt to enforce broadly prohibitions in perpetuity is likely to make it more difficult for it to obtain relief to recast the restraint within what are now claimed to be reasonable bounds. The Court should not be seen to be condoning any practice of contracting parties stipulating for draconian restraints on the basis that the court will come to their rescue on a fallback position to modify the contract after the event.”

An AMP spokeswoman said the decision to go to court was not made lightly. She said Spicers was taking further action.

“We have now commenced a process to seek a further ruling on the enforcement of the additional restraints outlined in the contract and compensation due to Spicers as a result of the breach of the restraints. As the matter is before the High Court, we are unable to comment any further on the matter.”

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This story was briefly published earlier this week. It was rmoved from site while Good Returns waited for comment from AMP, which is now included.

« FMA invites Sheppard to share Hanover reportIFA working on pro-bono offering »

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Comments from our readers

On 10 April 2014 at 4:36 pm Pragmatic said:
And the moral of the story is be careful what you sign. He who signs the cheques will always determine your fate
On 11 April 2014 at 10:15 am Bill said:
FMA please take note

Please be careful not to kill off the non aligned smaller adviser

WHY ??

The people from this site wrote" You can be absolutely sure that the big organisations like banks and AMP will have their not insubstantial legal teams pro-offering their thoughts"

Are the heavies actually good for the industry ? ASB with a not-so-great bond issue and now AMP getting draconian

If the FMA wants the best for the consumer, it will make every effort to keep a good number of smaller non aligned smaller advisers

To AMP - clients don't belong to anyone - they have every right to choose who they deal with

On 11 April 2014 at 10:48 am Michael Donovan said:
Aha...the big bosses who write the cheques typically can treat their worker-bees as a form of doormat.

However, a restraint of trade clause as in this case is a very necessary item within a contract, otherwise a form of professional anarchy would eventuate and those leaving a rather substantial practice would effectively take the clients of the head company.
Maybe the current debate you are all experiencing with regard to the FMA which includes a very big point raised and well-written about by Carey Church, being the small versus big adviser practice is valid in this matter.

If you choose to belong to a large adviser body, then you should expect to have to abide by a fair and reasonable restraint of trade arrangement, because after all, the large parent-body you work under provides all of the back-up engine room stuff that you are able to enjoy working under.
Conversely, if you choose to work under your own banner (for "independence")then you remain totally clear of any restraint of trade.

Careful thought, advice and decisions need to be made at the genesis of your business.

Otherwise the courts take over to try and sort out the most fair outcome in the event of a dispute, and that mostly serves to simply feed the general justice system and of course the lawyers within?

I feel rather qualified to offer my opinions because someone said that I appeared to have been the only one to have won such a high court case against a specific former "big boss" ...and likely to be the only one ever?

You can read about it in Good Returns Archive, dated 10 October 2008 if you wish, it's titled "Ex MM Adviser wins payout."

I still own the branding & logos and so on, so who knows, maybe the twin big blue arches may arise from the archives again one day...if the "regulation" matter actually gets sorted satisfactorily?? Michael Donovan
On 11 April 2014 at 11:14 am Mac said:
I thought that the rule of thumb for a restraint of trade enforcement was only relevent in the case of a self employed contractor receiving a payment for the client base?
On 17 April 2014 at 5:00 pm Michael Donovan said:
Yes, a self employed contractor may be dealt with differently than a franchisee in regard to your point made where there was a payout for the client base.

However, this is not so different than the situation where an insurance agent leaves and sells his/her client portfolio, because unlike my earlier years in the profession where we lived solely on the up-front fees, I would assume that virtually all advisers (franchisees or contractors)would now base the core value of their business on the annual monitoring fees.

So if anyone leaves a head company, they should be paid out in a very similar manner that an insurance agent is paid out, and then they should abide by a restraint of trade mainly against the churning back to themselves of the client base that they sold to the parent company!

The debate then should be as to whether the adviser is allowed to continue in the same profession, and my view is that they should be allowed to without any restrictions of restraint of trade, or if any, it should only be a short period.
However, that situation becomes rather worthless and therefore any restraint of trade should not exist, except to restrict the adviser from churning the old sold clients back into his/her new practice.
That is then an acceptable and fair solution, if I have read the comment from Mac correctly?
As I said, the sorting out should be done at the beginning.Michael Donovan

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