Musst Holdings Limited v Astra Asset Management UK Limited

A novation may be inferred from conduct where all parties consent and the inference is required to give business efficacy to what occurred. It may replace only part of an existing contractual relationship. A novation creates a new contract and is not a variation of the old contract.

Where a revenue-sharing agreement defines an eligible investment by reference to its characteristics when made, subsequent changes in investment strategy do not ordinarily terminate eligibility. Clear wording is required to impose continuing eligibility conditions. An introducer’s entitlement may therefore extend to an agreed share of fees actually earned and received throughout the investment’s life. The court will not invent an accrual-based mechanism absent contractual provision for one.

Musst Holdings Limited agreed with two Octave entities to receive 20% of management and performance fees arising from investors whom it introduced to investments following a specified strategy. Management of two introduced investors’ accounts later passed first to Astra Asset Management LLP and then to Astra Asset Management UK Limited. The High Court held that the agreement had been novated by conduct at each transfer, with estoppel by convention providing an alternative basis for liability.

The High Court also held that the investors’ accounts had to satisfy the contractual strategy and fund requirements only when the investments were made. Astra appealed against the principal judgment, [2021] EWHC 3432 (Ch), and the consequential judgment, [2022] EWHC 629 (Ch). The issues were whether novations occurred and whether later changes to the investment strategy or restructuring of another fund ended Musst’s entitlement to revenue sharing.

1. The appeal was dismissed on all grounds. Whether a novation can be inferred from conduct is an evaluative question of fact. The trial judge had applied the correct principles and was entitled to assess the documents in their full commercial context. The transfer of the relevant income streams, Astra’s replacement of Octave under the investment-management contracts, the parties’ invoicing and payment conduct, and Octave’s departure from the arrangements supported the finding that the only rational explanation was a novation first to Astra LLP and then to Astra UK.

2. The novated agreement necessarily treated references to Octave as references to Astra. Otherwise Astra would have assumed a theoretical liability that could never attach to fees because Octave no longer earned or received them. The novation could be limited to the two managed accounts. Consideration was supplied through the discharge of Octave’s liabilities.

3. A novation replaces an existing contract with a new contract between different parties. It is therefore not a contractual variation. The written-variation clause did not apply. Although the restriction on transfers potentially applied, Musst could waive its requirement for prior written consent by giving retrospective consent. The decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 did not alter that conclusion.

4. Alternatively, Astra LLP and Astra UK were estopped by convention from denying the novations. The shared assumption had crossed the line; Astra conveyed an expectation of reliance; Musst relied on the assumption in the parties’ mutual dealings; and it would have been unconscionable to permit Astra to deny liability.

5. Under clause 3.1, eligibility was tested when an investment was made. An investment made in a qualifying fund for the specified strategy remained eligible while held, despite a later change of strategy. Clauses 3.7 and 13.2 did not impose continuing strategy conditions. The definition of “Fund” likewise operated at the point of investment.

6. The later restructuring of ASSCFL did not terminate revenue sharing for the separate Crown and 2B managed accounts. The agreement contained no mechanism for calculating accrued performance fees upon a change of strategy or restructuring. Musst was entitled to 20% of the fees actually derived from qualifying investments, payable after receipt.

1. Court of Appeal (Civil Division): By [2023] EWCA Civ 128, dismissed Astra’s appeal on the novation, strategy and funds grounds. Falk LJ gave the judgment; Whipple LJ and Peter Jackson LJ agreed.

2. High Court, Business and Property Courts, Business List (ChD): In [2021] EWHC 3432 (Ch), Freedman J held that the agreement had been novated first to Astra LLP and then to Astra UK, alternatively that conventional estoppel applied, and that revenue-sharing entitlement survived later strategy changes.

3. High Court, consequential proceedings: In [2022] EWHC 629 (Ch), Freedman J rejected the contention that entitlement ended upon the asserted restructuring and addressed interim payment and costs.