Coinfloor Limited (in members' voluntary liquidation), Re

A novation may be inferred from conduct where the inference is necessary to provide a lawful explanation or basis for what the parties did and to give business efficacy to the transaction. Consent need not be express; it may be inferred as a question of fact from objectively evaluated conduct. Continued retention of assets after notice of proposed contractual changes may amount to deemed consent where the conduct is referable to the variation and inconsistent with there being no agreement. Silence and failure to engage may support those conclusions where customers were repeatedly notified of the proposed transfer and its consequences.

The joint liquidators of a cryptocurrency exchange in members’ voluntary liquidation applied for declarations concerning the effectiveness of the transfer and novation of customer contracts to the purchaser of the company’s business. Alternatively, they sought declarations that customers who had not positively engaged with the transfer had no proprietary rights or entitlements to assets held by the company.

The company had notified customers that their contracts and funds would transfer by conduct if they did not respond. Most customers engaged with the purchaser, but approximately 2,200 remained passive. The principal issues were whether novation had occurred by conduct and, alternatively, whether the contractual terms had been impliedly varied to provide for deemed consent.

1. The court was satisfied that the customer contracts had been novated by conduct. Applying the approach stated by Lightman J in Evans v SMG Television [2003] EWHC 1423 (Ch), the question was whether an inference of novation was necessary to give business efficacy to what had occurred, in the sense that it supplied a lawful explanation or basis for the parties’ conduct. Objectively, no other plausible conclusion was available on the evidence.

2. Consent to novation may be express or inferred from conduct, and whether consent has been given is a question of fact. The repeated notifications, the absence of complaints for more than two years, and the customers’ failure to respond despite being told that non-response would result in automatic novation supported the inference. The court also regarded the movement of assets as materially comparable to the conduct in Re Head [1894] 2 Ch 236.

3. Alternatively, the terms and conditions had been impliedly varied so that consent was deemed. The contract permitted unilateral changes on notice. By retaining their assets on the platform after notice of the transfer and amended terms, the passive customers had accepted the variation.

4. In applying the reasoning of Bingham LJ in The Aramis [1989] 1 Lloyds Rep 213, the conduct relied on had to be referable to the contract contended for, or at least inconsistent with there being no such contract. The passive customers’ conduct contained no inconsistency with the varied contract. The estoppel argument and the possible ineffectiveness of the novation therefore required no determination.

5. The court considered the FCA correspondence. The FCA had not been prepared to give its blessing, but this was because it considered that its approval was unnecessary. The application was granted on the novation and alternative implied-variation grounds.