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
'They needed people inside Air Canada:' Police announce arrests in Pearson gold heist
Police say one former and one current employee of Air Canada are among the nine suspects that are facing charges in connection with the gold heist at Pearson International Airport last year.
House admonishes ArriveCan contractor in rare parliamentary show of power
MPs enacted an extraordinary, rarely used parliamentary power on Wednesday, summonsing an ArriveCan contractor to appear before the House of Commons where he was admonished publicly and forced to provide answers to the questions MPs said he'd previously evaded.
Leafs star Auston Matthews finishes season with 69 goals
Auston Matthews won't be joining the NHL's 70-goal club this season.
Trump lawyers say Stormy Daniels refused subpoena outside a Brooklyn bar, papers left 'at her feet'
Donald Trump's legal team says it tried serving Stormy Daniels a subpoena as she arrived for an event at a bar in Brooklyn last month, but the porn actor, who is expected to be a witness at the former president's criminal trial, refused to take it and walked away.
Why drivers in Eastern Canada could see big gas price spikes, and other Canadians won't
Drivers in Eastern Canada face a big increase in gas prices because of various factors, especially the higher cost of the summer blend, industry analysts say.
Doug Ford calls on Ontario Speaker to reverse Queen's Park keffiyeh ban
Ontario Premier Doug Ford is calling on Speaker Ted Arnott to reverse a ban on keffiyehs at Queen's Park, describing the move as “needlessly” divisive.
'A living nightmare': Winnipeg woman sentenced following campaign of harassment against man after online date
A Winnipeg woman was sentenced to house arrest after a single date with a man she met online culminated in her harassing him for years, and spurred false allegations which resulted in the innocent man being arrested three times.
Woman who pressured boyfriend to kill his ex in 2000s granted absences from prison
A woman who pressured her boyfriend into killing his teenage ex more than a decade ago will be allowed to leave prison for weeks at a time.
Customers disappointed after email listing $60K Tim Hortons prize sent in error
Several Tim Horton’s customers are feeling great disappointment after being told by the company that an email stating they won a boat worth nearly $60,000 was sent in error.