AFH Independent Financial Services Limited & Anor v Samantha Jayne Baker & Anor

A self-employed contractor may still be a worker for statutory purposes. The worker-contract exclusion in the Contracts (Rights of Third Parties) Act 1999 prevents a third party from enforcing a worker’s contract under the Act, although separate rights in law or equity remain available. An intention to benefit a group company does not alone create a trust of a contractual promise. Restraint-of-trade covenants must be assessed separately, at the time they are made, for legitimate purpose and reasonable necessity. A time-limited non-solicitation covenant may protect an acquired client book, while an additional non-dealing covenant may go too far by preventing clients from choosing to follow their adviser. Solicitation requires active conduct and an intention to obtain the client’s custom; notice of departure or a response to a client’s existing wish to move is not enough by itself.

AFH Independent Financial Services Limited and its group parent sued Samantha Baker and Regentia Lifestyle Planning Limited after Baker left her self-employed financial-adviser engagement with AFH and joined Regentia. AFH alleged breaches of restrictive covenants and misuse of confidential information. The liability trial considered whether AFH group companies could enforce the contracts, whether a DRC carve-out covered former PCWM clients allocated to Baker, whether the restrictions were unenforceable restraints of trade, and whether Baker solicited clients who moved to Regentia. The breach-of-confidence issues were left for a further trial following an amendment to the claim.

1. Baker was a worker under section 230(3) of the Employment Rights Act 1996, although she was self-employed. Applying Pimlico Plumbers Ltd v Smith [2018] UKSC 29, section 6(3)(b) of the Contracts (Rights of Third Parties) Act 1999 prevented AFH group companies from using section 1 of that Act to enforce the worker’s contract against her. Section 7(1) preserved any right or remedy available outside section 1.

2. The clauses did not create a trust of a promise for the other group companies. An intention to benefit a third party is not enough: the contract must show an intention to create a trust. The clauses expressed an intention to contract for group companies’ benefit under the 1999 Act, and the court found no sufficient trust intention. AFH group companies therefore could not enforce the contracts on that basis; AFH FS, as contracting party, could.

3. The DRC and Variation Letter were construed objectively, giving primary weight to the words used and reading them in their factual and commercial context. Clause 2.2 exempted clients referred to Baker before the date of the deed. The parties had agreed to treat the deed as made on 1 May 2019, while the clients were allocated to Baker on 22 May. The carve-out therefore exempted none of those clients, and the restrictions applied to them subject to the restraint-of-trade analysis.

4. Applying the flexible restraint-of-trade approach in Herbert Morris v Saxelby [1916] AC 688 and Quantum Actuarial LLP v Quantum Advisory Ltd [2021] EWCA Civ 227, the court assessed each covenant at the time the contracts were made. AFH had to show that each restriction was no wider than reasonably necessary to protect its legitimate interests and consistent with the public interest. A 12-month non-solicitation restriction was justified: the acquired client bank needed protection while a replacement adviser had an opportunity to meet clients, who were ordinarily reviewed annually. A further non-dealing restriction was unnecessary and contrary to the public interest because it also prevented clients from choosing to follow Baker. The court applied the principle in Stenhouse Australia Ltd v Phillips [1974] 1 All ER 117 that the presence of one restraint increases the burden of justifying another.

5. Solicitation required an active approach with a positive intention to appropriate the client’s business. The court adopted and applied the formulation in Trego v Hunt [1897] AC 7 and QBE Management Services Ltd v Dymock [2012] EWHC 80 (QB). Merely telling clients that she was leaving, or responding after a client had already expressed a wish to move, did not establish solicitation. AFH FS proved breaches as to Helen Wright, Carolyn Riley, and Mr and Mrs Blakemore. The remaining allegations of solicitation were not established.

The claim was ordered to proceed as a split trial at a case management conference. This first-instance judgment determined liability on the contractual issues. The breach-of-confidence issues remain for a further trial.