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
How quietly promised law changes in the 2024 federal budget could impact your day-to-day life
The 2024 federal budget released last week includes numerous big spending promises that have garnered headlines. But, tucked into the 416-page document are also series of smaller items, such as promising to amend the law regarding infant formula and to force banks to label government rebates, that you may have missed.
Which foods have the most plastics? You may be surprised
'How much plastic will you have for dinner, sir? And you, ma'am?' While that may seem like a line from a satirical skit on Saturday Night Live, research is showing it's much too close to reality.
opinion I've been a criminal attorney for decades. Here's what I think about the case against Trump
Joey Jackson, a criminal defence attorney and a legal analyst for CNN, outlines what he thinks about the criminal case against Donald Trump in the 'hush money trial.'
$3.8M home in B.C.'s Okanagan has steel shell for extra wildfire protection
A home in B.C.'s Okanagan that features a weathering steel shell designed to provide some protection against wildfires has been listed for sale at $3.8 million.
Diver pinned under water by an alligator figured he had choice. Lose his arm or lose his life
An alligator attacked a diver on April 15 as he surfaced from his dive, nearly out of air. His tank emptied with the gator's jaws crushing the arm he put up in defence.
Psychologist becomes first person in Peru to die by euthanasia after fighting in court for years
A Peruvian psychologist who suffered from an incurable disease that weakened her muscles and had her confined to her bed for several years, died by euthanasia, her lawyer said Monday, becoming the first person in the country to obtain the right to die with medical assistance.
Mystery surrounds giant custom Canucks jerseys worn by Lions Gate Bridge statues
The giant stone statues guarding the Lions Gate Bridge have been dressed in custom Vancouver Canucks jerseys as the NHL playoffs get underway.
Celebrity designer sentenced to 18 months in prison for smuggling crocodile handbags
A leading fashion designer whose accessories were used by celebrities from Britney Spears to the cast of the 'Sex and the City' TV series was sentenced Monday to 18 months in prison after pleading guilty in Miami federal court on charges of smuggling crocodile handbags from her native Colombia.
Wildfire leads to evacuation order issued for northeast Alberta community
An evacuation order was issued on Monday afternoon for homes in the area of Cold Lake First Nation.