Judge rules against Vancouver cryptocurrency company in $2M debt case
A Vancouver-based cryptocurrency company has been ordered to pay its creditors more than $2 million after a judge found it had breached its contract by failing to build a hosting facility for cryptocurrency mining equipment in Manitoba.
Skychain Technologies, Inc. received an advance of $4 million from a company called The9 Limited for the purpose of constructing the facility in Birtle, Man., according to B.C. Supreme Court Justice Geoffrey B. Gomery's decision, which was issued Tuesday.
Of the $4 million, half was in the form of "convertible debentures" issued to The9's nominee, a company called 1111 Limited.
Under the agreement, Skychain – through its wholly owned subsidiary Miningsky Technologies (Manitoba) Inc. – was supposed to use the money for "the construction and energization" of the facility by Dec. 7, 2021, according to the court decision.
"Skychain was unable to obtain permits required to complete the project," Gomery wrote in his decision.
"It has abandoned the idea of building a facility in Birtle, Man. It now hopes to build a cryptocurrency hosting facility with a larger capacity in Melita, Man. In the meantime, equipment purchased by Miningsky at a cost of approximately $2.8 million for the facility in Birtle is stored at five different locations, mostly in British Columbia and Manitoba, but also in Saskatchewan and South Carolina."
The9 and 1111 sued in an effort to recover their funds, something Skychain argued was not allowed under the financing agreement. The9 also asked the court to appoint a receiver to manage all of Skychain's assets, which Skychain opposed.
On the first matter, Gomery sided with the plaintiffs, writing that Skychain's interpretation of a clause in the contract as prohibiting its creditors from seeking to recover their funds without first terminating the agreement was not "reasonably arguable."
The company tried to argue that the agreement required The9 and 1111 to pursue liquidated damages under a specific clause of the agreement, which were capped at $200,000.
"Even if Skychain’s interpretation of (the clause) were textually plausible, it is difficult to see how it could be considered as commercially sensible," the judge wrote. "The liquidated damages calculation contained in (the clause) is commercially appropriate to a situation in which performance has been delayed, but not to one in which the facility will never be delivered and the contract will never be performed."
Skychain also attempted to argue that it should not be considered to have failed to deliver the facility because it still hoped to deliver a replacement facility in a different town in Manitoba. Gomery found this submission "untenable."
"The indisputable fact of the matter is that Skychain has decided not to pursue development of the cryptocurrency hosting facility contemplated in the agreements, being a facility located in Birtle, Man.," he wrote. "Skychain has not delivered that facility. It will never deliver that facility. The loan has failed of its purpose."
For these reasons, the judge concluded that The9 and 1111 were entitled to judgment against Skychain for just over $2 million – the equivalent of the amount owing under the debentures plus interest.
On the question of receivership, however, Gomery sided with Skychain, albeit somewhat reluctantly.
The judge noted several considerations in favour of appointing a receiver, including that the company's finances "are in disarray" and that its explanations for what it did with the money it was loaned "are not wholly consistent."
He agreed with Skychain, however, that the plaintiffs had not exhausted the other avenues available to them for gathering information about the company's finances.
"Notwithstanding the legitimate grounds for concern identified by The9, I conclude that the circumstances of this case do not warrant the extraordinary remedy of a receivership at this time," Gomery concluded. "The plaintiffs should pursue their investigation and their claims through the ordinary avenues available to them under the Supreme Court Civil Rules."
CTVNews.ca Top Stories
Air Canada walks back new seat selection policy change after backlash
Air Canada has paused a new seat selection fee for travellers booked on the lowest fares just days after implementing it.
Province boots mayor and council in small northern Ont. town out of office
An ongoing municipal strike, court battles and revolt by half of council has prompted the province to oust the mayor and council in Black River-Matheson.
3 law officers serving warrant are killed, 5 wounded in shootout at North Carolina home, police say
Three officers on a U.S. Marshals Task Force serving a warrant for a felon wanted for possessing a firearm were killed and five other officers were wounded in a shootout Monday at a North Carolina home, police said.
'Shocked and concerned': Calgary principal charged with possession of child pornography
A Calgary elementary school principal has been charged with possession of child pornography, authorities announced Monday.
Health authority confirms cockroaches at B.C. hospital, insists they 'do not bite'
The Vancouver Island Health Authority is downplaying what staff describe as a cockroach infestation in a medical unit of Saanich Peninsula Hospital.
Toronto police arrest 12 people, lay 102 charges in major credit card fraud scheme
Toronto police say 12 people are facing a combined 102 charges in connection with an investigation into a major credit fraud scheme.
Winner of US$1.3 billion Powerball jackpot is an immigrant from Laos who has cancer
One of the winners of a historic US$1.3 billion Powerball jackpot last month is an immigrant from Laos who has had cancer for eight years and had his latest chemotherapy treatment last week.
Britney and Jamie Spears settlement avoids long, potentially ugly and revealing trial
Britney Spears and her father Jamie Spears will avoid what could have been a long, ugly and revealing trial with a settlement of the lingering issues in the court conservatorship that controlled her life and financial decisions for nearly 14 years.
WATCH 'Double whammy': What happens if you don't file your taxes by the deadline
The clock is ticking ahead of the deadline to file a 2023 income tax return. A personal finance expert explains why you should get them done -- even if you owe more than you can pay.