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
'A beautiful soul': Funeral held for baby boy killed in wrong-way crash on Highway 401
A funeral was held on Wednesday for a three-month-old boy who died after being involved in a wrong-way crash on Highway 401 in Whitby last week.
'Sophisticated' cyberattacks detected on B.C. government networks, premier says
There has been a "sophisticated" cybersecurity breach detected on B.C. government networks, Premier David Eby confirmed Wednesday evening.
Police handcuff man trying to enter Drake's Toronto mansion
Toronto police say a man was taken into custody outside Drake's Bridle Path mansion Wednesday afternoon after he tried to gain access to the residence.
Biden says he will stop sending bombs and artillery shells to Israel if they launch major invasion of Rafah
U.S. President Joe Biden said for the first time Wednesday he would halt shipments of American weapons to Israel, which he acknowledged have been used to kill civilians in Gaza, if Prime Minister Benjamin Netanyahu orders a major invasion of the city of Rafah.
Canucks claw out 5-4 comeback win over Oilers in Game 1
Dakota Joshua had a goal and two assists and the Vancouver Canucks scored three third-period goals to claw out a 5-4 comeback victory over the Edmonton Oilers in Game 1 of their second-round playoff series Wednesday.
Nijjar murder suspect says he had Canadian study permit in immigration firm's video
One of the Indian nationals accused of murdering British Columbia Sikh activist Hardeep Singh Nijjar says in a social media video that he received a Canadian study permit with the help of an Indian immigration consultancy.
Pfizer agrees to settle more than 10K lawsuits over Zantac cancer risk: Bloomberg News
Pfizer has agreed to settle more than 10,000 lawsuits about cancer risks related to the now discontinued heartburn drug Zantac, Bloomberg News reported on Wednesday, citing people familiar with the deal.
Quebec premier defends new museum on Quebecois nation after Indigenous criticism
Quebec Premier Francois Legault is defending his comments about a new history museum after he was accused by a prominent First Nations group of trying to erase their history.
U.S. presidential candidate RFK Jr. had a brain worm, has recovered, campaign says
Independent U.S. presidential candidate Robert F. Kennedy Jr. had a parasite in his brain more than a decade ago, but has fully recovered, his campaign said, after the New York Times reported about the ailment.