Knowing when you've novated: Musst Holdings v Astra Asset Management

Knowing when you've novated: Musst Holdings v Astra Asset Management

In Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128, the Court of Appeal provided helpful guidance on when a contract will be deemed to have been novated by conduct. It also clarified the effect of 'no dealing' and 'no oral variation' clauses in the original contract. Upholding the first instance decision, the Court of Appeal held that a 'no oral variation' clause had not been breached because a novation is not a variation. However, the court noted that it might be possible for a 'no dealing without consent' clause to prevent a novation (although on the facts, it did not prevent the novation in this case as there had in fact been consent). The judgment highlights the necessity of taking care when novating contracts and considers the effect of restrictions in the underlying contractual clauses and the parties' abilities to waive these requirements by their conduct.

Key takeaways:

  • Novation is not variation. It will not generally be caught by a 'no oral variation' clause.
  • Novation can be inferred by the conduct of the parties where necessary to give 'business efficacy'. However, it is crucial to document a novation properly to avoid disputes.
  • A 'no dealings' without prior consent may prevent a novation if not complied with. For this reason, it is crucial to review carefully any restrictions in the original contracts and to ensure compliance with any obligations (including obtaining consent).
  • Where obligations are being taken on by a new contracting party, best practice is to ensure that a formal novation agreement is drawn up, making clear the subject matter of the contract, the identities of the parties and their respective rights and obligations.
  • Specific to the asset management industry:
    • Care must be taken when drafting provisions in a contract which seek to regulate when 'introduction' fees will be payable. The less clear the provision, the more readily the court will depart from the natural meaning but where the natural meaning of a provision is clear, commercial common sense will not be applied to remedy a bad bargain.
    • The roles of the contractual parties should be clearly identified and reflected in all dealings. In particular, the distinction between the role of the Manager and the Investment Manager may not be given effect if, in practice, the parties do not differentiate between separate parties in their dealings.


The parties

Musst Holdings Ltd, an introducer, entered into a contract with, Octave Limited (as Manager) and Octave LLP (as Investment Manager), to share fees earned from investments in asset backed securities and collateralised debt obligations (the Octave Contract). Mr Siddiqi and Ms Galligan (the husband and wife team behind Musst) agreed to introduce clients to strategies managed by Mr Mathur under the regulatory umbrella of these entities. The principal vehicle for the investments was the Astra Special Situations Credit Fund Limited (although there were also separate managed accounts). At the time of the initial introductions, Mr Mathur was in the process of launching his own asset management business, Astra LLP, but it had not yet obtained its FCA approval. The court found that the parties had anticipated that Mr Mathur would start his business under the regulatory umbrella of the Octave group but that it would ultimately move over to the Astra group.

The contractual terms

Under the Octave Contract, Musst introduced two clients who invested US $60 million in total. Octave Ltd agreed to pay Musst a 20% share of fees received from clients introduced by them. The contract also contained a standard no oral modification clause (clause 16), and a 'no dealing' clause that provided that the contract was personal to the parties and that neither party could "assign, transfer… or deal in any other manner with any of its rights and obligations" without the prior written consent of the other party (clause 17).

The novation

Once Astra LLP obtained FCA authorisation, Astra LLP agreed to take over Octave LLP's investment management responsibilities (for a nominal sum), and fees payable to Octave Limited (and its obligations) were transferred to Astra Capital.  Revised agreements with the two clients introduced by Musst reflecting these new arrangements were put in place in February 2015. Invoices were subsequently rendered by Musst to, and were paid by, Astra LLP. Shortly thereafter, a revised version of the Octave Contract was sent to Ms Galligan, replacing Octave Limited and Octave LLP with Astra Capital and Astra LLP respectively. The documentation was described as "effectively a name changing exercise". Despite discussions, the revised contract was never signed. No further substantive communication took place until Astra UK explained it was going to take over the regulatory permissions and authorisations previously held by Astra LLP and that in consequence "contracts will be novated" to Astra UK. Astra LLP's business was then transferred to Astra UK and under the terms of the transfer Astra UK assumed the "Assumed Liabilities" of Astra LLP. While Astra UK paid Musst's next invoice (notwithstanding it was addressed to Astra LLP), subsequent invoices were not paid. Mr Mathur initially referred to having cashflow difficulties and made various proposals to settle the invoices, which were not accepted. While the court found that Mr Mathur had initially acknowledged the existence of a liability, this was subsequently denied and Astra UK disputed liability for any further payment.

The dispute

Musst brought a claim for breach of the Octave Contract, which it argued had been novated to Astra LLP and then to Astra UK. At first instance, Freedman J agreed. The court also found that Astra were estopped from disputing the novation, on the basis that the parties had proceeded on a common assumption that the contract had been novated. Astra appealed, arguing that the no oral modification clause or, alternatively, the no dealing clause had been breached, as written consent had not been obtained from Musst prior to Octave transferring responsibility to Astra LLP (and then on to Astra UK).

Commercially, the reason for the dispute was the ongoing requirement to pay introduction fees to Musst. As an alternative to the primary arguments about novation and waiver, Astra sought to argue that the obligation to pay introduction fees was limited to historic investments notwithstanding that the concept of 'Introduction' as defined in the contract, captured not only initial introductions but also any circumstance where an investment was made at the instigation or on the initiative of the introducer. There was also a related line of argument on the facts, to the effect that the definition of "Eligible Investments" excluded certain classes of investment which it was alleged no longer followed the 'Current Strategy' (as defined) including because the relevant investments had not been made in a 'Fund'. Astra sought to argue that the interpretation favoured by Musst, which captured a wider range of investments, would produce an uncommercial result. 

The Court of Appeal's decision

Novation by conduct

Generally, the consent of all parties is required for a novation. The Court of Appeal confirmed that a novation will only be inferred from conduct if that inference is required to give business efficacy to what happened. In this case, the court considered the following factors as indicative that the existence of a novation was 'the only rational explanation' for the parties' conduct:

  1. The anticipation that Mr Mathur would "spin out" of the Octave umbrella.
  2. The fact that Astra and Octave were closely related, working from the same address and with an overlap of staff – in reality this was not a new commercial counterparty with which Musst would need to become comfortable.
  3. The fact that Astra presented the change from Octave to Astra as a name changing exercise, which in commercial terms it was.
  4. The fact that the income stream transferred to Astra LLP and Octave "dropped out of the picture".

The Court of Appeal determined that Freedman J at first instance was entitled to take these matters into account in determining, as a matter of fact, whether the parties' conduct indicated that they considered that the contract had been novated. The Court of Appeal also found, on the facts, that Astra LLP had taken over from both Octave LLP and Octave Limited notwithstanding the differences in their roles as Manager and Investment Manager respectively.

Breach of the no variation/no dealings clauses

The Court of Appeal determined that the no oral modification clause did not bite as a novation is not a variation, rather the replacement of a contract by a new contract with different parties.  

On the "no dealing" obligation, the Court of Appeal recognised that Octave's agreement with Astra that it would take over Octave's investment management role could be construed as a 'form of attempted dealing', for which no prior written consent was provided. However, it determined that Musst was able to waive the requirement for prior consent and instead provide consent after the dealing occurred, following Millett LJ in Hendry v Chartsearch [198] CLC 1382 (at page 1394).

The court also determined that the first instance judge was entitled to conclude that there was an estoppel by convention as an alternative to novation. It held that there was an 'understanding that had crossed the line', and that all the other requisite elements including unconscionability had been established.

The Strategy and Funds Issues

In summary, on the facts, the Court of Appeal found that once a client had been persuaded to invest in the Current Strategy (as defined), Musst's work as introducer had been done and any subsequent changes to the strategy would not preclude Musst from being entitled to a share of fees generated by such investments. The Court of Appeal found that, had any alternative approach been intended, there would have to have been clear provisions to this effect which was not the case. As to the Funds issue, the Court of Appeal found that if a managed account fell within the definition of 'Fund' at the point of investment, the investment would remain an 'Eligible Investment' even if a subsequent change in strategy would take it outside of the definition (if measured at that point in time).  In reaching its decision, the Court of Appeal focused on the fact that the mechanism for calculating introduction fees in the contract was a straightforward one and was not willing to give an alternative reading (which relied on complicated issues which were not expressly set out in the contract) in the absence of express language.


Astra's argument that it had no liability to pay Musst's invoices because Musst had not provided its prior written consent to the novation (despite Astra having informed Musst of the novation, and having, at an earlier stage, acknowledged its liability to pay), was plainly an unattractive one. However, the judgment raises a complex question about the interaction between no oral modification clauses and the parties' ability to waive contractual requirements. In this case, the court held that Musst was entitled to waive the obligation to provide prior written consent to the transfer by its conduct (as opposed to in writing). However, if prior written consent is a contractual requirement and the contract prevents any oral variation, it is arguably difficult to see how that requirement can be waived orally, not to mention retrospectively (see MWB v Rock1). Here, the Court of Appeal appears to have determined that not only is a novation not a variation but also that waiving the requirement for prior written consent to novation is not a variation.  

Ultimately, while the Court of Appeal agreed with the first instance decision that a contractual novation (or alternatively an estoppel by convention) rendered Astra liable to pay Musst's invoices, there are salutary lessons for contracting parties in documenting novations.

Overall, the decision demonstrates the importance of using clear and specific language in the contract, including when addressing complex issues such as the calculations of fees which may involve multiple factors which could change over time. Whilst generalised or unclear wording may provide more room for argument, if the preferred outcome is known at the time of drafting the contract, detailed express provisions should be included.


1 MWB Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24