B.C.’s top court has rejected a Vancouver tech firm’s appeal of an order to repay more than $2 million it borrowed to build a cryptocurrency mining operation in Manitoba.
Skychain Technologies Inc. (TSXV: SCT.V) provides “power and energy solutions for large scale mining farms to help optimize mining power consumption,” according to its website.
It had plans to build a cryptocurrency mining farm in Birtle, Manitoba.
Shanghai-based online gaming firm The9 Ltd. (NASDAQ: NCTY) advanced $4 million in support for the company to do so, including $2 million in equity for Skychain shares and $2 million in convertible debentures – debt that can be converted into Skychain stock after a certain period.
But after Skychain failed to get the necessary approvals to build the mining farm in Manitoba, The9 sued the company to recuperate the debt – a lawsuit that landed on The9’s side in a B.C. Supreme Court decision in September last year.
Skychain had sought to change its location to Malita, Manitoba, if it could obtain further financing, after failing to build in Birtle.
CEO Donald Gordon swore in an affidavit that the company had spent more than the $4 million it received in financing on building and energizing the facility.
The B.C. Supreme Court decision found Skychain didn’t raise a “genuine issue of fact” requiring a full trial rather than a summary decision, ordering the company to repay the debt in full.
“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, Manitoba. Skychain has not delivered that facility. It will never deliver that facility. The loan has failed of its purpose,” wrote Justice Geoffrey Gomery.
Skychain appealed the decision, saying Gomery placed too much of his judgment on an assumption that the facility would need to be built in Birtle.
But The9 said its argument was never about location but about time – and Justice David Frankel noted in the appeal that the location wasn’t particularly important in his decision either, since the issue was primarily about The9’s ability to accelerate the loan’s repayment.
Skychain, however, argued The9 was only entitled to liquidated damages.
As part of the financing and general security agreements, Skychain was required to obtain the required permits and approvals to build a facility by June 30, 2021 and to complete the facility by Dec. 7 of that year.
If they failed to get the approvals, The9 was allowed under the financing agreement to demand liquidated damages of 0.1 per cent of the financing amount per day, up to five per cent, until the facility was completed or the agreement was terminated. But the agreement expressly didn’t preclude The9 from seeking further damages, including repayment of the debt, according to Frankel.
The9 was also allowed to seek accelerated repayment of the debt under the general security agreement if Skychain was in default of a provision of the financing agreement and remained in default for 10 days after The9 gave written notice to Skychain.
Frankel dismissed Skychain’s lawsuit with unanimous assent from the remaining two judges on the Appeal Court panel.