Restrictive Covenants - "One For All and All for One" - Or Not as the Case May Be

Affinity Financial Awareness Limited & Anor  -v-  Andrew Ferguson & Ors [2016] EWHC 2319 (QB)

Strength in numbers, particularly in franchise disputes, can significantly shift a balance of power and bring about equality of arms in litigation which may otherwise be absent. Broadly, a franchisor is better resourced than a franchisee to deal with the pressures of litigation, in terms of funding, management time and experience. In part to combat this, it is not uncommon to see discontented franchisees group together, especially when terminating a franchise agreement, to take advantage of a collective strength which they would otherwise not have if acting alone. Helen Keller (aptly for these purposes) said: "Alone we can do so little, together we can do so much."

Whilst the recent judgment set out above is not a franchise dispute, it is perhaps not surprising, that when faced with a claim for breaching the restrictive covenants, a group of former consultants (five of whom proceedings were issued against) sought to add to the proceedings a further 22 of the consultants, who were also subject to the same restrictive covenants.

At the hearing, it was argued for the additional 22 potential defendants that:

"Each of them wants to secure a finding that the restrictive covenants are unenforceable. Each wants to be in a position to influence the course of these proceedings by being in a position to instruct solicitors and counsel who are acting for the 5 [existing] defendants. Some may even have a far greater financial interest in the outcome of the proceedings than those 5".

The Court declined the invitation to add the further 22 potential defendants. Among other reasons cited, it was held that:

"There is no general obligation on a claimant … to join as a defendant every person who is or may be affected by the issues determined by the claim. A claimant seeking to enforce a contract to which several individuals are party may decide, for his own reasons – tactical, evidential or otherwise – to bring a claim against some of those individuals and not others. He does not have to justify his decision".

This judgment should give franchisors and other contracting parties who deal on the same or similar terms with a group of individual counterparties, comfort that they will remain in control of the parties they choose to sue. Contracting counterparties cannot "gang-up" in defence whatever their stake in the outcome of such proceedings may be if they are not made party to the proceedings by the Claimant.