Musst Holdings Ltd v Astra Asset Management UK Ltd & Anor [2023] EWCA Civ 128 provides useful guidance on contractual novation, fee-sharing arrangements and the interpretation of agreements following the transfer of an investment management business.

The case concerned a dispute between Musst Holdings Limited and two entities within the Astra group, including Astra Asset Management UK Ltd and Astra Asset Management LLP. At the centre of the dispute was whether an agreement originally entered into with another investment manager had been transferred to Astra and whether Astra remained liable to share certain management and performance fees with Musst.

The judgment of the Court of Appeal also considered when an investor’s investment could qualify as an “Eligible Investment” and whether subsequent changes to an investment strategy could bring the fee-sharing obligation to an end.

Background to Musst Holdings v Astra Asset Management

Musst Holdings had entered into an introduction agreement with entities within the Octave structure. The agreement, referred to as the Octave Contract, provided for Musst to receive a 20% share of certain management and performance fees generated from clients it had introduced.

The underlying investment arrangements involved asset-backed securities and managed accounts. Musst had introduced investors who subsequently made qualifying investments.

The investment management business later changed. Astra Asset Management LLP obtained regulatory authorisation and took over investment management responsibilities that had previously been carried out under the Octave structure. The arrangements subsequently moved to Astra Asset Management UK Ltd.

Had the contract been novated to Astra?

Astra argued that it had not assumed liability under the original agreement. Musst took the opposite position, relying on the way the parties had conducted themselves after the business transfer. The Court of Appeal agreed with Musst.

The court considered the evidence as a whole, including correspondence, invoices, payments and the actions of individuals acting on behalf of the relevant companies. Musst had been asked to invoice Astra LLP following the change in investment management arrangements, and those invoices were subsequently paid.

Later correspondence indicated that the contracts would be transferred to Astra UK. Musst continued to invoice the Astra entities and payments were made.

The Court of Appeal concluded that the Octave Contract had been novated, first to Astra LLP and subsequently to Astra UK. It also found that, alternatively, there was an estoppel by convention supporting the same conclusion.

The case therefore demonstrates that contractual obligations can potentially follow a business relationship even where the formal documentation surrounding a corporate transfer is incomplete or unclear.

Changes to the investment strategy

A second issue concerned whether Musst’s entitlement to fees continued after changes were made to investment strategy. Astra argued that Musst’s entitlement depended on the investments continuing to satisfy particular strategic requirements. If those requirements ceased to apply, Astra argued that its obligation to share future fees should also end. The court rejected that interpretation.

The court focused particularly on the wording of the agreement concerning eligible investments. It concluded that the relevant requirements were assessed when the investment was made.

Consequently, a later change in investment strategy did not automatically remove Musst’s entitlement to its contractual share of fees. This was particularly relevant to performance fees, which could arise significantly later than the original investment. The court considered that interpreting the agreement as allowing a later strategy change to remove the fee entitlement would produce an unsatisfactory commercial result.

Why the novation issue matters

The decision is particularly relevant to businesses involved in corporate restructuring, acquisitions, business transfers or changes in commercial relationships. A company taking over another business may also become involved in existing contractual arrangements. Whether those obligations have transferred can depend on the precise terms of the agreements and, importantly, what the parties subsequently did.

In Musst Holdings, the Court of Appeal emphasised that determining whether a novation can be inferred from conduct is a question of fact. The trial judge had considered the evidence in its wider context, including the parties’ correspondence, invoicing arrangements and payments.

This highlights why businesses should carefully document the transfer of contractual rights and obligations rather than relying solely on informal arrangements or assumptions between related companies.

Commercial disputes over contractual fees

The financial consequences of contractual disputes can be substantial. In this case, the amount in dispute was calculated by Astra at approximately US$3.8million, with Astra arguing that the amount would reduce to approximately US$2.3 million if its argument concerning the restructuring of the relevant funds succeeded. The Court of Appeal ultimately dismissed Astra’s appeal on all grounds.

For businesses involved in similar disputes, issues can include:

• Whether contractual rights survived a business transfer;
• Whether investments continued to meet contractual requirements;
• What evidence demonstrates the parties’ understanding; and
• Whether significant sums can be recovered through commercial litigation.

These disputes can require detailed examination of contracts, correspondence, invoices, payments, corporate structures and the conduct of the parties over several years.

Litigation funding for commercial disputes

Where a contractual dispute involves a substantial financial claim, litigation costs can become an important consideration.

Third party litigation funding can provide finance towards legal fees and other litigation expenses in return for an agreed share of any successful recovery. Depending on the circumstances, funding may contribute towards solicitors’ and barristers’ fees, expert reports, court fees and other associated costs.

After-the-event (ATE) legal insurance can also be considered where appropriate, potentially providing protection against certain adverse costs liabilities, as well as being used when security for costs is requested.

Commercial litigation funding can be relevant where a business has a potentially valuable claim but does not want, or is unable, to commit its existing working capital to a lengthy dispute. It may also allow a business to preserve cash flow and continue focusing on its operations while litigation progresses.

How Annecto Legal can assist

Annecto Legal helps businesses, solicitors and professional advisers explore funding options for commercial disputes where the costs of litigation may otherwise present a barrier to pursuing a claim.

We can consider a range of funding and risk-management solutions. The appropriate structure will depend on the circumstances of the dispute, the value of the claim, the evidence available and the potential recovery.

Annecto Legal can assist with identifying potential funding options and working with the relevant legal advisers to develop a suitable funding structure. This can help businesses understand how their legal costs could be financed while protecting available working capital.

Annecto Legal does not provide legal advice or conduct litigation. Instead, we work alongside solicitors, barristers and other professional advisers to help identify appropriate funding and insurance solutions for viable commercial claims.

If you are considering pursuing a commercial dispute, contact Annecto Legal at an early stage can help you understand the potential funding options available before significant litigation costs are incurred.