In Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128 ('Musst 128'), Falk LJ (with whom Whipple LJ and Peter Jackson LJ agreed), under the heading 'Legal principles' and subheading 'Novation', said, at paragraphs 54 to 60:
'Astra do not dispute the judge's summary of the relevant legal principles to apply in determining whether a novation has occurred. They are well established.
As explained in Chitty on Contracts, 34th ed. ("Chitty ") at 22-089ff., a novation takes place where a new contract is substituted for an existing contract. This typically occurs where an existing contract between A and B is replaced by a contract between A and C, with C assuming B's rights and obligations. Consideration is provided by discharge of the old contract, specifically by A agreeing to release B, B providing C in its stead, and C agreeing to be bound.
The consent of all parties is required for a novation. Consent can either be provided expressly or can be inferred from conduct. Whether consent has been provided is a question of fact. For example, in Re Head [1894] 2 Ch 236 a transfer of funds from a current to a deposit account following the death of a partner in a banking partnership was held to amount to a novation of liability to the surviving partner.
However, a novation will only be inferred from conduct if that inference is required to give business efficacy to what happened. As Lightman J explained in Evans v SMG Television Ltd [2003] EWHC 1423 (Ch) at [181]:
"The proper approach to deciding whether a novation should be inferred is to decide whether that inference is necessary to give business efficacy to what actually happened (compare Miles v Clarke [1953] 1 WLR 537 at 540). The inference is necessary for this purpose if the implication is required to provide a lawful explanation or basis for the parties' conduct."
[Counsel] for Astra, relied on the Court of Appeal decision in MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The "Tychy" (No. 2)) [2001] 2 Lloyd's Rep 403. At [22] the court referred to the acceptance by the trial judge, David Steel J, of a submission that the terms of faxes between the parties were not clear enough to establish a novation, and instead the consent of all parties "must be clearly established on the evidence as being only consistent with the intent of achieving a novation". In fact, rather than accepting that statement quite in those terms, the Court of Appeal referred to it as indicating not that the judge was applying something other than the civil standard of proof, but that where there is an established contract in existence "clear evidence of an intention to produce a novation is likely to be needed if that standard of proof is to be discharged".
As Chitty explains, a novation differs from an assignment in a number of respects, including the requirement for consent by all parties, the feature that rights and obligations are extinguished and replaced, and the fact that not only rights but obligations are taken over by the new party.
Chitty also explains at 22-096 and 22-097 that a novation need not be of an entire contract, and that C might be substituted for B only in some respects. Some obligations may be novated and others remain...'[1]
In Magee v Crocker [2024] EWHC 1723 (Ch); [2025] BCC 84; [2025] 1 BCLC 216 ('Magee'), HHJ Cawson KC, sitting as a Judge of the High Court, put Falk LJ's summary in Musst 128 into a 5 point list[1a], and added 3 observations of his own. At paragraphs 311 and 312, under the heading 'Novation', the Judge in Magee said:
'311. A helpful summary of the principles behind novation is provided in the judgment of Falk LJ in Musst Holdings v Astra Asset Management (supra) at [55]-[59]. As set out therein:
(i) As explained in Chitty on Contacts, 35th Ed at para 23-089 et seq, a novation takes place where a new contract is substituted for an existing contract. This typically occurs where an existing contract between A and B is replaced by a contract between A and C, with C assuming B's rights and obligations under a new contract with the old contract being discharged. Consideration for both the discharge agreement and the new contact is required, and generally provided by A providing consideration for C's promise by agreeing to release B, and B providing consideration for being released by providing A with the obligations of the new counterparty, C.
(ii) On this basis, a novation differs from an assignment in a number of respects, including the requirement for consent by all parties (A, C and C), the feature that rights and obligations are extinguished and replaced, and the fact that not only rights but also obligations are taken over by the new party.
(iii) Whilst the consent of all parties is required for a novation, consent can either be provided expressly or can be inferred from conduct. Whether consent has been provided is a question of fact.
(iv) However, a novation will only be inferred from conduct if that inference is required to give business efficacy to what has happened. Falk LJ cited the following explanation of Lightman J in Evans v SMG Television Ltd [2003] EWHC 1423 (Ch) at [181]:
"The proper approach to deciding whether a novation should be inferred is to decide whether that inference is necessary to give business efficacy to what actually happened (compare Miles v Clarke [1953] 1 W.L.R. 537 at 540). The inference is necessary for this purpose if the implication is required to provide a lawful explanation or basis for the parties' conduct."
v) The Court of Appeal in MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The "Tychy" (No. 2)) [2001] 2 Lloyd's Rep. 403 at [22] emphasised that in applying the civil standard of proof to the question as to whether there had been a novation: "clear evidence of an intention to produce a novation is likely to be needed if that standard of proof is to be discharged.
312. I would make the following further observations derived from the authorities ... referred to in paragraph 191 above:
(i) The authorities emphasise that in considering whether novation is to be inferred from the continuing party's conduct, that conduct is to be judged objectively;
(ii) The continuing party may validly consent to a novation in advance; and
(iii) Evidence of subsequent actions is admissible to establish whether there has been a novation by conduct.'[2] [words underlined as in italics in original]
The Judge in Magee also noted that Falk LJ in Musst 128 also dealt with the relevance, to novation, of: (a) a no oral variation provision; and (b) non-assignment without consent provision (see Magee, paragraphs 316 to 318[3]).
Musst 128 was mentioned by Foxton J in Rolls-Royce Holdings Plc v Goodrich Corp [2023] EWHC 1637 (Comm), at paragraph 34[4].
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[1] Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128 ('Musst 128') was an unsuccessful appeal against the decision of Freedman J in Musst Holdings Ltd v Astra Asset Management UK Ltd [2021] EWHC 3432 (Ch) ('Musst 3432'). In Musst 3432, Freedman J had said, under the subheading 'The law', from paragraphs 324 to 332:
'A novation will occur when the parties to an existing contract agree that a third person, who also agrees, shall take the place of one of them in an existing contract. The principles applicable to the formation of contracts apply to the existence of any novation: Chitty on Contracts (33rd edition), para 19-0872, which also notes: "There is a new contract and it is therefore essential that the consent of all parties shall be obtained … in this necessity for consent lies the most important difference between novation and assignment.". Accordingly, the normal contractual rules as to offer and acceptance, the requirement of certainty of terms, consideration and the parties' intention to enter into legal relations all apply to novations as they do to the formation of any contract.
A contract can be novated by conduct. It can also be novated in part or in whole (see Chitty on Contracts 33rd Ed. paras. 19-088 and 19-090):
"19-088 Main examples of novation
Many of the reported cases in English law have arisen either out of the amalgamation of companies, or of changes in partnership firms, the question being whether as a matter of fact the party contracting with the company or the firm accepted the new company or the new firm as his debtor in the place of the old company or the old firm. That acceptance may be inferred from acts and conduct, but ordinarily it is not to be inferred from conduct without some distinct request. Thus where a banking firm consisted of two partners and one died, the acceptance by a customer from the surviving partner of a fresh deposit note for a balance of a debt due was held sufficient evidence of novation to discharge the estate of the deceased partner, as the customer took the money out of a current account and placed it on deposit at the request of the surviving partner.
…
19-090 Novation of part of a contract
In principle, there seems no reason why there cannot be a novation of part of a contract while leaving the rest of the contract to survive, although this may require some variation of the original surviving terms. Whether that is what is being achieved in any particular situation will largely turn on the intention of the parties. In principle, it further follows that there can be a novation of the whole or part of a multiparty contract with the original contract being left in place entirely as regards some parties while there is a whole or partial novation as regards other parties."
In CEP Holdings v Steni [2009] EWHC 2447 (QB) it was claimed that an exclusive distribution agreement with the defendant had been novated from one of the claimants to the other. The evidence included a notice sent by the claimants to the defendant informing it that the relevant cladding business had been transferred and that invoices should be addressed to the second claimant in place of the first claimant. Gloster J found that the evidence did not get "anywhere near to establishing that the DA was novated" (para 26) and endorsed an earlier version of the part of Chitty cited above at para 28: "Novation, which involves the extinguishing of the original contract and the creation of a new contract between different parties, requires the consent of all parties; see Chitty on Contracts (2008) paragraph 19-086."
In The Tychy (No.2), David Steel J also said:
"(a) Novation involves the creation of a new contract where an existing party is replaced by a new party. (b) Thus, novation requires the consent of all parties, including in particular the party which is thereby accepting a new person as his debtor or as his counterpart under an executory contract. (c) The consent may be apparent from express words or inferred from conduct. (d) The consent must be clearly established on the evidence as being only consistent with the intent of achieving a novation".
Steel J's decision on the facts was overturned on appeal, but the above quotation was referred to without criticism at paragraph 24 by the Court of Appeal. It added: "We believe that he [Steel J] was indicating that, where there is an established contract in existence, clear evidence of an intention to produce a novation is likely to be needed if that standard of proof is to be discharged. With that proposition we would agree."
The Court of Appeal also noted at paragraph 24 that Steel J had "declined to pay any regard to written and oral evidence of witnesses, as to their understanding of the implications of the contemporary correspondence. We have followed his example. Such evidence is of no assistance to the Court's task of making an objective assessment of the implications of what the representatives of the parties wrote at the time."
Further, at paragraph 29, the Court of Appeal emphasised the need to distinguish, as with all contracts, between the admissible background evidence concerning the nature and object of the novation and inadmissible evidence of the terms contended for. In particular, at paragraphs 33-34, the Court emphasised that while the conduct of parties after an alleged contract may be relevant to an estoppel, it was not legitimate to have regard to the subsequent conduct of the parties as an aid to construing the meaning of the words used.
After setting out the above points of principle, the Court of Appeal summarised the position in a manner apt to this case:
"i) If the exchange of faxes in March 1996 (a) did not, on their true construction, constitute an agreement to a novation or (b) were ambiguous as to whether or not such an agreement was reached, POL [the Appellant] can only establish that a novation occurred if they can demonstrate that the conduct of the parties after March 1996 has given rise to an estoppel by convention."
Further, as to the continued effect of any rectification and estoppel claims and the way consideration arises, Chitty at 19-089 states as follows:
"The effect of a novation is not to assign or transfer a right or liability, but rather to extinguish the original contract (between A and B) and replace it by another (between A and C). It is therefore necessary that consideration should be provided for the new contract. As novation is different from assignment, it follows that the rule that assignment is "subject to equities" does not apply to novation. Say, for example, a contract was induced by a misrepresentation and there has then been an assignment by the person making the misrepresentation: the debtor can rely on the misrepresentation vis-à-vis the assignee. In contrast, it is irrelevant to a novation that the original contract was induced by a misrepresentation. Once there has been a novation, the original contract has been extinguished and with it the power to rescind for the original misrepresentation. Note also that, under a novation, it would appear that the new party (C) cannot recover in an action for a pre-novation breach of contract against A for pre-novation losses that were suffered by the original contracting party (B)."'
[1a] Similarly, in Necarcu Ltd v Oldham Athletic (2004) Association Football Club Ltd [2023] EWHC 2096 (Comm), HHJ Hodge KC (sitting as a Judge of the High Court) said, at paragraph 72:
'I was referred to the recent statement of the law governing the novation of contracts to be found in the judgment of Falk LJ, with which Peter Jackson and Whipple LJJ both agreed, in the case of Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128 at paragraphs 54 through to 60. There was apparently no dispute as to the relevant legal principles to apply in determining whether a novation had occurred, which I would summarise as follows:
1. A novation takes place where a new contract is substituted for an existing contract. This typically occurs where an existing contract between A and B is replaced by a contract between A and C, with C assuming B's rights and obligations. Consideration is provided by the discharge of the old contract, specifically by A agreeing to release B, B providing C in its stead, and C agreeing to be bound.
2. The consent of all parties is required for a novation. Consent can either be provided expressly or can be inferred from conduct. Whether consent has been provided is a question of fact.
3. However, a novation will only be inferred from conduct if that inference is required to give business efficacy to what has happened.
4. Where there is an established contract in existence, clear evidence of an intention to produce a novation is likely to be needed if the civil standard of proof is to be discharged.
5. A novation differs from an assignment in a number of respects, including the requirement for consent by all parties, the feature that rights and obligations are extinguished and replaced, and the fact that not only rights but also obligations are taken over by the new party.
6. A novation need not be of an entire contract, and C may be substituted for B only in some respects, with some obligations being novated and others remaining.'
[2] In Magee v Crocker [2024] EWHC 1723 (Ch); [2025] BCC 84; [2025] 1 BCLC 216, paragraph 191 reads:
'Novation involves a new contract between a continuing party and a new party, generally on the same terms as the pre-existing contract. The Fitzpatrick Parties recognise that the agreement or consent of the continuing party to such a new contract is required. However, so far as this is concerned, it is the Fitzpatrick Parties' case that:
(i) Such agreement or consent can be in writing, oral or inferred from the continuing party's conduct which is to be judged objectively – see Evans v SMG Television Ltd [2003] EWHC 1423 (Ch); Seakom Ltd v Knowledgepool Group Ltd [2013] EWHC 4007 (Ch) at [145]-[147], and Rolls-Royce Holdings Plc v Goodrich Corp [2023] EWHC 1637 Comm at [34]-[35]. Novation can therefore be effected whether or not there was any understanding on the part of those involved that what was being effected was what the law calls a novation – Evans (supra) at [181] and [186];
(ii) The continuing party may validly consent to a novation in advance - Habibsons Bank Ltd v Standard Chartered Bank (Hong Kong) Bank Ltd [2011] Q.B. 943;
(iii) Evidence of subsequent actions is admissible to establish whether there has been a novation by conduct - Capita ATL Pension Trustees Ltd v Sedgwick Financial Services Ltd [2016] EWHC 214 at [21] and Credico Marketing Ltd v Lambert [2021] EWHC 1504 (QB) at [216]; and
(iv) So far as consideration for the new contract is concerned, the various promises between the parties to the novation agreement will generally be regarded as adequate consideration, and consideration was provided in this way in the present case.'
[3] In Magee v Crocker [2024] EWHC 1723 (Ch); [2025] BCC 84; [2025] 1 BCLC 216, the Judge said, paragraphs 316 to 318:
'In Musst Holdings (supra) at [82], Falk LJ accepted that a no oral variation provision in similar terms to clause 19.1 could not apply to a novation because whilst a varied contract remains in place, a novation is the replacement of a contract by a new contract between different parties and thus not encompassed by a no oral variation provision. However, Falk LJ went on, at [83], to consider a non-assignment without written consent provision in similar terms to clause 18.1 of the 2010 SHA as being of potentially greater relevance. As to this she went on to say: "Arguably what occurred in this case could be construed as some form of attempted dealing by Octave [one of the original contracting parties] when it agreed with Astra LLP [a third party] that the latter should take over Octave's investment management role and thereafter dropped out of the picture." In the event, in that case, the point fell away because the other contracting party had (in writing) waived the requirement for prior consent and instead provided consent after the relevant dealing occurred. However, this analysis does raise the possibility that clause 18.1 may be of significance in the present case, particularly if there has been no written waiver as there was in Musst Holdings.
However, I am not persuaded that clause 18.1 of the 2010 SHA, as a matter of true construction thereof, does apply to a novation, at least as effected in the circumstances of the present case. I note that in contrast to the present case, the novation in question in Musst Holdings was not of the whole contract, but only of certain obligations under it.
The effect of a provision such as clause 18.1 is that if the prior written consent is not obtained, the relevant dealing will be ineffective against the other party. However, as Falk LJ observed in Musst Holdings at [86] by reference to what had been said by Millett LJ in Hendry v Chartsearch [1998] C.L.C. 1382 at 1394, "a breach of a provision requiring prior consent to a transfer is capable of waiver by the other contracting party, in the form of retrospective consent, albeit that that consent would not be the prior consent contemplated by the clause."'
[4] In Rolls-Royce Holdings Plc v Goodrich Corp [2023] EWHC 1637 (Comm) ('Rolls-Royce'), Foxton J, under the heading 'Was There a Novation?' said, at paragraph 34:
'It is agreed that the court can conclude from the parties' conduct that there has been a novation, the test being "whether that inference is necessary … to provide a lawful explanation or basis for the parties' conduct" ( Chitty on Contracts (34th), [22-089]; Evans v SMG Television Limited [2003] EWHC 1423, [181] ). The test is objective, and does not depend on the subjective intention of the parties (ibid, [186]). I was also referred to the decision of the Court of Appeal in Musst Holdings Limited v Astra Asset Management UK Limited [2023] EWCA Civ 128, [57] to similar effect.'
Readers could read further in Rolls-Royce, to paragraph 45.