Bristows' SnippITs – Novation Dis-Astra: Agreement novated by conduct despite a requirement for written consent and NOM clause

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

In the recent case of Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128, the Court considered whether a novation was effective despite not having been formalised and the presence of a "no oral modification" (or "NOM") clause.

Key takeaways: 

An agreement may be novated by conduct despite an explicit requirement to obtain prior written consent from the other party (on the facts, this was waived) and a NOM clause that required variations to be in writing (as, technically, a novation is not a variation).

Parties drafting restrictions on novations may consider:

• Prescribing how any waiver of the novation requirements must be effected to ensure that a waiver is only effective when actually intended.
• Ensuring that any NOM clause applies to novations (to the extent possible). For instance, whilst somewhat artificial in view of the Court's decision, deeming a novation as a form of variation for the purposes of the NOM clause may give some scope to argue that a NOM clause should prevail if the contractual provisions are not adhered to.

Background: 

The case concerned an arrangement under which Musst introduced potential investors to an asset management fund and in return received a percentage of the fees paid by those investors. The businessman behind the fund always intended for it to be run by Astra. However, whilst Astra waited for its necessary regulatory approvals, he decided that the fund would temporarily be run by another of his companies, Octave, and an introduction agreement was concluded between Musst and Octave.

Eventually, Astra replaced Octave as fund manager. The employees carrying out the fund’s business were transferred from Octave to Astra and the fund's investors entered into replacement agreements with Astra. Musst was informed of the transfer and asked to invoice Astra going forward.

The dispute arose later when Astra ran into financial difficulty and stopped paying Musst its percentage of fees. Astra claimed that there was no agreement between Musst and Astra. Musst argued that the introduction agreement with Octave had been novated to Astra by the conduct of the parties, despite there being no executed documents effecting the novation.

The Court’s conclusions:

Novation by conduct

Astra relied on a fairly standard clause that said that: "… neither party shall assign, transfer … or deal in any other manner with any of its rights and obligations under this Agreement without the prior written consent of the other party". It argued that the requirement for prior written consent meant that the agreement could not be novated without it.

The Court disagreed and found that the agreement had been novated. All parties had anticipated a change of fund manager from Octave to Astra at the outset of their commercial relationship, Octave and Astra were effectively identical companies with the same employees and address but different names, and a commercial relationship between Musst and Astra started when Musst began addressing its invoices to Astra.

Further, it was “open to Musst to waive the requirement for prior written consent" and provide consent after the event, which is what happened here.

Effect of the NOM clause

At first glance, the conclusion is somewhat at odds with the position that, under NOM clauses, variations to an agreement – in this case, dis-application of the requirement to obtain prior written notice to the novation – are not effective unless made in writing. However, this assumes that there has been a "variation", which a waiver is arguably not.    

In any event, the Court decided that the NOM clause did not apply as a novation is not a variation but the ending of one agreement and the creation of another.