Musst Holdings Ltd v Astra Asset Management UK Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Falk,Lady Justice Whipple,Lord Justice Peter Jackson |
| Judgment Date | 13 February 2023 |
| Neutral Citation | [2023] EWCA Civ 128 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-000381 |
Lord Justice Peter Jackson
Lady Justice Whipple
and
Lady Justice Falk
Case No: CA-2022-000381
CA-2022-000976
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
MR JUSTICE FREEDMAN
Royal Courts of Justice
Strand, London, WC2A 2LL
Christopher Boardman KC and Tom Beasley (instructed by Payne Hicks Beach LLP) for the Appellants
Peter Knox KC and Katharine Bailey (instructed by Taylor Wessing LLP) for the Respondent
Hearing dates: 17 & 18 January 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 13 February 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This is an appeal by Astra Asset Management UK Limited (“Astra UK”) and Astra Asset Management LLP (“Astra LLP”, and together “Astra”). They appeal against decisions by Freedman J that a contract originally entered into by the claimant Musst Holdings Limited (“Musst”) with two other entities (the “Octave Contract”) had been novated to Astra, that as a result Astra UK was obliged to share certain investment management fees with Musst, and further that it was required to do so on an ongoing basis. There are two relevant judgments, a principal judgment dated 17 December 2021 (the “Judgment”) and a further judgment dated 18 March 2022 which followed hearings of consequential matters (the “Consequentials Judgment”).
The Judgment, which runs to 200 pages, followed a 13-day trial in Spring 2021. It was circulated to the parties in draft in late October 2021, although as already indicated it was only formally handed down in December of that year. The judgment covers a number of issues that are not the subject of appeal. These include a claim for defamation by Astra UK and its parent company Astra Capital International Limited (“Astra Capital”) and a related counterclaim seeking termination of the Octave Contract for breach, both of which were dismissed. There is also no appeal against the judge's rejection of Astra's arguments that the fee sharing that had occurred was pursuant to a voluntary arrangement entered into in November 2012 (the “November Arrangement”) rather than pursuant to the Octave Contract, that the relevant introductions were in any event not made by Musst or alternatively were made before the “Effective Date” under that contract, or that Musst's claim for fees was precluded because it acted in breach of US securities law.
The two grounds on which the decision is challenged are, first, the judge's acceptance of Musst's arguments that the Octave Contract had been novated, initially to Astra LLP and then to Astra UK, or alternatively that there was an estoppel to like effect (the “Novation” issue) and, secondly, the judge's rejection of Astra's arguments that any ongoing liability to pay was dependent on certain strategic characteristics of the funds to which the fees related continuing to exist, rather than (as Musst claimed) the relevant characteristics being required to be in place solely at the point of investment (the “Strategy” issue). Astra claimed that the investment strategy had changed by 31 December 2014 or at the latest by 31 December 2015.
The Consequentials Judgment largely addressed issues related to costs but also dealt with the issue of interim payment in respect of the fees owed, and in doing so rejected Astra's argument that Musst's entitlement ceased with effect from 31 December 2015, when it says a fund restructuring occurred (the “Funds” issue). Astra challenges that conclusion. There is a significant overlap between the Strategy and Funds issues.
The total amount now in issue has been calculated by Astra as being around US$3.8m. If Astra succeeded on the Funds issue alone it says that figure would reduce to around US$2.3m.
References below in square brackets to paragraphs of the judge's decision are, unless otherwise indicated, references to paragraphs of the Judgment.
Factual background
The dispute arises out of business dealings between three individuals, Anish Mathur, Saleem Siddiqi and Mr Siddiqi's wife Alexandra Galligan. Mr Siddiqi is the owner of Musst and Mr Mathur is the ultimate owner of Astra UK and the controller at material times of Astra LLP.
Mr Siddiqi and Mr Mathur were introduced in 2011. They had discussions about the development of a new business which would attract investors to investing in “synthetic” asset backed securities (or “ABS”), a type of complex financial product which had been trading at very low prices following the financial crash in 2008. Mr Mathur, who at the time was working for Deutsche Bank, had considerable expertise in that area and believed that the value of synthetic ABS would increase substantially within a few years. Mr Siddiqi was able to provide contacts, coordinate distribution activity and bring his own technical expertise to bear in preparing documentation and making technical presentations to clients.
Mr Mathur left Deutsche Bank in September 2012. Although the Astra entities had by then been established they did not at that stage have the necessary regulatory approvals to conduct business in their own right, so Mr Mathur had decided to trade under the regulatory umbrella of another organisation, Octave. In October 2012 he established Astra Special Situations Credit Fund Limited (“ASSCFL”). Pursuant to the arrangement with Octave, ASSCFL's initial manager was Octave Investment Management Limited (“Octave Limited”) and its investment manager was Octave Investment Management LLP (“Octave LLP”), an LLP of which Mr Mathur became a member. Astra LLP was described as the investment adviser.
The dispute relates primarily to two clients, The Observatory and LGT Capital Partners (“LGT”). The initial contacts with both were made via Matrix Money Management Limited (“Matrix”), an organisation that collapsed in late 2012. Ms Galligan, who had been working for Matrix, then moved to work for Musst. The Observatory ultimately agreed to invest US$20 million in February 2013, and LGT agreed to invest US$40 million in June 2013.
In each case the investment was made using a further entity, 2B LLC (“2B”) in the case of The Observatory and Crown Managed Accounts SPC (“Crown”) in the case of LGT. Rather than investing in synthetic ABS via ASSCFL, each of 2B and Crown entered into a contract with Octave LLP to manage, or (in the case of Crown) advise on the management of, the funds held or managed by 2B and Crown respectively. In practice, Astra LLP did the work on behalf of Octave under the umbrella arrangement.
The Octave Contract was entered into on 18 April 2013 between Octave Limited, Octave LLP and Musst. It is described as an Introduction Agreement. Its terms are considered in more detail below, but in outline Octave Limited agreed to pay Musst a 20% share of management fees and performance fees received from clients introduced by Musst who invested in a strategy focused on synthetic ABS, whether via ASSCFL or through another fund or managed account. In broad terms, management fees were payable on an ongoing basis and performance fees were payable on a successful realisation of the relevant investments. On the basis that Musst had introduced both 2B and Crown, management fees were initially shared as contemplated by the agreement, with Octave providing copies of its own invoices to 2B and Crown to enable the amounts due to be calculated and checked.
The judge found at [370] that it had been anticipated that Mr Mathur would “spin out” of Octave's regulatory umbrella and provide management services under his company's own authorisation. Astra LLP duly obtained FCA authorisation in July 2014, and it and Astra Capital became the investment manager and manager respectively of ASSCFL. The following month, in August 2014, Octave LLP and Astra LLP agreed in correspondence that, for a nominal amount, Astra LLP would take over Octave LLP's investment management responsibilities in relation to, among other things, ASSCFL, 2B and Crown, and that fees payable to, and obligations of, Octave Limited in respect of those arrangements would transfer to Astra Capital, subject to the agreement of the contracting parties. There was no specific mention of the arrangement with Musst. Further, the correspondence did not reflect the fact that the agreements with Crown and 2B had been entered into by Octave LLP and not Octave Limited, and it was therefore Octave LLP that was entitled to any fees.
The transfer to Astra LLP was formalised in relation to Crown by an amended agreement dated 5 September 2014 (with an effective date of 1 September) between Astra LLP and Crown, replacing the previous agreement that Crown had had with Octave LLP. On 5 November 2014 Michael Holdom, who worked for Octave and then Astra when the business transferred, emailed Ms Galligan to notify her that “due to the change of Trading Advisor from Octave to Astra Asset Management LLP effective on the 1st September” fees invoiced to LGT (that is, Crown) had been split between Octave and Astra, and asked that Musst “invoice us accordingly”. Mr Holdom signed the email as a partner of Octave LLP, but as discussed below the judge found that his authority extended to Astra LLP.
Invoices were sent as requested, and thereafter invoices in respect of Crown were issued by Musst to Astra LLP. These continued to be paid, with the exception of an invoice in respect of another account, “Crown AAM 2”, in respect of which Mr Holdom sent an email on 30 April 2015 apologising that he had sent a copy of Astra's invoice for...
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