Court File and Parties

COURT FILE NO.: CV-22-677485 DATE: 20220412 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CryptoStar Corp., Plaintiff AND: 611890 Alberta Inc. DBA Avila Energy, Avila Exploration & Development Canada Ltd. and Leonard Van Betuw, Defendants

BEFORE: W.D. Black J.

COUNSEL: Sara Erskine, Vincent DeMarco and Ian Literovich, for the Plaintiff Megan Shortreed, Danielle Glatt and Lauren Rainsford, for the Defendants

HEARD: March 11, 2022

Endorsement

Overview

[1] The plaintiff, CryptoStar Corp. (“CryptoStar”), seeks an interim Order for the preservation of specific funds or, in the alternative, for the preservation of assets purchased using the specific funds. CryptoStar originally sought, in addition, the preservation of certain property owned by it but by the time the matter came before me, that aspect of the case was essentially resolved. Finally, CryptoStar seeks a declaration that it has an interest in property, and an Order to facilitate the assistance of the Alberta Court in issuing a Certificate of Pending Litigation (“CPL”) or lis pendens over property located in Alberta, with the proviso that the declaration and CPL relief is now sought relative to only one of two properties identified in CryptoStar’s materials.

[2] CryptoStar is a cryptocurrency mining company that generates cryptocurrency using computer hardware that continuously runs complex algorithms. This continuous operation, also known as “mining”, requires substantial amounts of electric power. The dispute before me arises out of an agreement contained in contractual documents (the “Agreement”) between CryptoStar and the defendants (collectively “Avila”), pursuant to which Avila was to build and commission infrastructure and equipment at sites in rural Alberta where Avila would generate power to supply to CryptoStar.

[3] In the claim, it is alleged that Avila failed to provide services and power required under the Agreement, and CryptoStar seeks reimbursement of amounts it has paid. There are related allegations discussed to some extent below, but in its essence, this is a breach of contract claim.

[4] The stated basis for the motion is CryptoStar’s allegation that certain prepayments it made under the Agreement (the “Upfront Payments”) have been used in ways not contemplated by and in contravention of the Agreement. As a result, CryptoStar seeks to preserve the Upfront Payments, which it characterizes as a “specific fund” (for purposes of Rule 45.02), and/or any assets acquired using the Upfront Payments.

[5] Avila’s position is that there is no “specific fund” that can or should be preserved; that there is no right nor ability to trace funds and assets before trial; and that what CryptoStar is doing is seeking collection before judgment on what is in essence a damages claim (for a refund).

The Issues

[6] In order to decide the motion, I must determine whether or not the Upfront Payments constitute a “specific fund” for purposes of Rule 45.02. Relatedly, I must also decide whether the nature of preservation sought by CryptoStar (be it the alleged “specific fund” or assets purchased therewith) is appropriate and possible in the circumstances, as well as whether it is proportionate to the nature and extent of the alleged debt (a consideration that arises in the balance of convenience analysis required).

Relevant Background Facts

(a) Avila

[7] The Avila defendants are energy companies based and operating in Alberta. Avila is primarily engaged in the business of petroleum and natural gas exploration and development but in recent years has expanded into the power generation business to the limited extent encompassed by the Agreement. (In other words, CryptoStar was Avila’s first and only customer for electric power.) All of Avila’s funds, lands and assets are in Alberta.

(b) The Agreement

[8] On April 17, 2020, following from a letter of intent dated April 3, 2020 (the “LOI”), CryptoStar and Avila entered into an original version of the Agreement. On April 12, 2021, the parties executed an Amended and Restated Power Supply Agreement (which, together with the LOI and the original version of the Agreement, form the “Agreement”).

[9] In connection with the original Agreement, and as provided in ss. 2.7 and 2.8 of the amended and restated Agreement, there was a transfer to the defendants of 20,312,500 CryptoStar shares. (CryptoStar is publicly traded on the TSX Venture Exchange and the OTCQB Venture Market.) Section 2.7 provides that these shares can be transferred, after applicable lock-up periods, to any person Avila may direct, and that there are no restrictions on the shares or the proceeds of their sale. Avila maintains, consistent with these provisions, that the shares were transferred as an incentive for Avila to enter into the Agreement and were not part of the Upfront Payments.

[10] CryptoStar characterizes the share transfer as “a portion of the consideration for Avila to enter into the Agreement and for rendering services under the Agreement”. While CryptoStar appears to make an issue of the fact that the shares never entered Avila’s books, and instead went directly into a company wholly owned by Avila’s principal Leonard Van Betuw, it does not appear to fundamentally challenge Avila’s position as to the reason for the share transfer and the ability of the defendants to direct the transfer and disposition of the shares as they saw fit.

(c) The Upfront Payments

[11] Under s. 2.1 of the Agreement, Avila agreed to provide CryptoStar with power upon the payment by CryptoStar of USD $1,481,010 plus GST per 10 megawatts (“MW”) of power (described in the Agreement as an “Upfront Payment”). Each Upfront Payment includes: (i) the cost of “prepaid power” for the “first 6 months of supply”, after which CryptoStar is to pay for power, invoiced monthly in advance; and (ii) the cost of “commissioning the required infrastructure and equipment”. Upfront Payments do not include the cost of building the containers required to host CryptoStar’s equipment (the “Hosting Containers”).

[12] There is no express requirement in the Agreement that Avila segregate or hold the Upfront Payments pending the provision of prepaid power. In fact, the Agreement is explicitly structured so that Avila can access capital from the Upfront Payments to build infrastructure for power generation facilities. This reflects the fact that, as both parties understood, prior to the Agreement Avila had no power generation business or infrastructure of any kind, such that power plants would have to be built in 10 MW increments.

[13] Section 2.8 of the Agreement states that in the event Avila fails to provide power within 120 days pursuant to s. 2.1(d), CryptoStar has the right to demand repayment of the Upfront Payments, “other than expenses actually incurred and paid by Avila for infrastructure and equipment”. It follows that if Avila has spent the entire amount of the Upfront Payments on infrastructure and equipment, no refund is owed.

(d) The Right of First Refusal

[14] Pursuant to s. 2.5 of the Agreement, CryptoStar is entitled to a right of first refusal in respect of “Avila’s power generation business or any portion thereof” on terms described in the Agreement (the “ROFR”). As noted above, Avila’s power generation business was limited to and consisted solely of the infrastructure and equipment that it installed to provide electrical power to CryptoStar. To date, Avila says (and ultimately there is no dispute) that infrastructure and equipment has been built exclusively on the so-called “4-20 site” and not on a second site referenced in the materials, the so-called “5-29 site”.

(e) The Petro Viking Transaction

[15] There is a suggestion in CryptoStar’s materials that Avila has sold or is selling part of its power generation business to an entity called Petro Viking Energy Inc. (“Petro Viking”). However, by the time the matter came before me, based on further exchange of documents, it appears to be common ground that the transaction with Petro Viking does not or will not involve Avila’s power generation assets, which, again, are exclusively housed at the 4-20 site.

[16] Indeed, when the matter was argued before me, based on this ongoing provision of information, it was agreed that the 5-29 and 4-20 sites were not part of Avila’s transaction with Petro Viking, such that CryptoStar was no longer seeking a CPL relative to the 5-29 site (as discussed below, it continues to seek a CPL over the 4-20 site). In addition, by the time of the motion before me, CryptoStar’s miners had been removed from the 4-20 site and removal of the Hosting Containers was planned and pending.

(f) Dealings Between the Parties Under the Agreement

[17] Pursuant to the Agreement, and owing to CryptoStar’s financial circumstances, Avila agreed to allow CryptoStar an indulgence whereby Avila would supply power in three small tranches of power totalling 4 MW, rather than the 10 MW contemplated in s. 2.1 of the Agreement. CryptoStar made the Upfront Payments for these smaller tranches between September 2020 and July of 2021.

[18] CryptoStar then requested an additional 10 MW of power, but could not immediately afford the entire associated Upfront Payment. Avila once again allowed CryptoStar an indulgence and agreed that CryptoStar could pay for the 10 MW in two instalments, payable on August 15 and September 15 of 2021.

[19] It appears to be common ground that CryptoStar paid for half of the power pursuant to this arrangement; in other words, it paid for 5 MW of power rather than the 10 MW for which it asked and was invoiced.

[20] In sum, the Upfront Payments at issue in this motion are those that CryptoStar paid to Avila for the 4 MW of power, and the 50% Upfront Payment that CryptoStar paid in respect of the 10 MW of power. Avila calculates these Upfront Payments to total USD $1,332,819 plus GST and CryptoStar does not appear to take significant issue with that calculation.

[21] It is not contested that:

(a) Avila purchased, among other items, generators, turbines, transformers, breakers and cabling (“Power Generation Infrastructure”), and built a 3.5 MW power plant (the “Initial Power Plant”) that was commissioned and operated at the 4-20 site until the site shut down on December 22, 2021.

(b) Avila has provided to CryptoStar thousands of pages of third-party invoices and proof of payments in respect of the Power Generation Infrastructure, labour and other costs associated with building the Initial Power Plant on the 4-20 site.

(c) The Power Generation Infrastructure consists of semi‑permanent structures (in other words, structures that can be moved but only with specialized equipment and considerable effort), which are located on the 4-20 site. There is no substantive evidence in the record before me of any effort or intention by Avila to sell or move the Power Generation Infrastructure.

(d) CryptoStar received and consumed at least CAD $216,141 of power from the Initial Power Plant. CryptoStar acknowledges that any refund of the Upfront Payments would be “minus any power consumed”.

(e) Avila built eight Hosting Containers for CryptoStar. Seven of these Hosting Containers were delivered to the 4-20 site and six were in use when the site was ordered to be shut down on December 22, 2021. The Hosting Containers remain on the 4-20 site pending their removal by CryptoStar.

[22] There is no question, and Avila admits, that there were delays associated with the provision of the first tranche of 4 MW of power and the construction of the Initial Power Plant. Avila explains (without contrary evidence from CryptoStar) that these delays were caused by supply chain and labour shortage issues resulting from the COVID-19 pandemic. CryptoStar made no contemporaneous complaint about delay, and received power from Avila when it was ultimately generated.

[23] With respect to the 10 MW of power, Avila’s position is that it had no obligation to purchase or install any equipment to generate the 10 MW of power because CryptoStar did not pay for it in full. The Upfront Payment, Avila maintains, is a condition precedent to the provision of power. Avila was not obliged, it says, to become CryptoStar’s lender.

[24] Nonetheless, Avila did make significant capital expenditures to prepare for providing CryptoStar with the 10 MW of power, including paying CAD $536,592 in non-refundable deposits for two 5 MW generators.

(g) Treatment of the Upfront Payments

[25] It is agreed that CryptoStar transferred all of the Upfront Payments it made to Avila’s general bank accounts.

[26] Avila’s evidence, essentially unchallenged (subject to the legal argument discussed below), is that these funds were then co-mingled with Avila’s pre-existing funds, and that the co-mingled funds were used to pay for all of Avila’s operating expenses, which included the expenditures in connection with the power generation business. Avila did not and was not contractually obliged to set aside or hold the Upfront Payments in cash.

[27] The Agreement does not restrict Avila’s use of the Upfront Payments. Nevertheless, the evidence shows that Avila in fact used the funds to help defray the capital costs of building the power plants. This is consistent with what appears to be the intention of the Agreement and the very reason for the Upfront Payments.

[28] From an accounting perspective, Avila’s controller Jennifer Ottosen, a registered Chartered Professional Accountant, explained that the funds received by way of Upfront Payments were not held in a segregated fund. As such, it is not possible to determine whether withdrawals Avila made from its general accounts to pay expenses (whether related to the power generation project or not) were made using money from the Upfront Payments or money from another revenue source that came into the general accounts.

[29] Thus, Ms. Ottosen deposed, the Upfront Payments were indistinguishable from the other funds with which they were co-mingled from the moment they were deposited into Avila’s general accounts.

[30] Significantly for purposes of the argument discussed below, Avila did not use a bookkeeping entry or line-item descriptor to differentiate or track the cash from the Upfront Payments. The deposits are simply reflected in the general ledger correlating with the USD General Bank Account. This accords with s. 2.1(a) of the Agreement, which did not require or contemplate a holdback of separate funds to be earmarked within or apart from Avila’s general ledger in respect of cash received or expended.

[31] In other words, inasmuch as the Agreement did not place any restrictions on the use of the Upfront Payments, Avila could and did use the funds as it saw fit, and did not track the trajectory and depletion of these payments from the general bank account.

[32] The funds spent on installing and generating power — expenses Avila was obliged to incur regardless of the source of revenues received — were booked to a line item relative to an allowance for expenditures on the project.

[33] In other words, Avila argues, the rationale for the Upfront Payments recognized that Avila would have to make a significant outlay of capital to fund the infrastructure and physical plant(s) for power generation, and contemplated that the Upfront Payments would assist in defraying those costs. It was not the case that the Upfront Payments were intended or expected to be the sole source of funding for these expenditures, nor to yield a dollar-for-dollar match for those costs. It was never contemplated nor required that Avila would have to specifically account for the particular use of those funds to CryptoStar.

[34] On the other hand, pursuant to s. 2.1(a) of the Agreement, CryptoStar was credited for its power consumption in the first six months of supply and was not to be charged per kilowatt hour over that timeframe. Consistent with that arrangement, and as required by International Financial Reporting Standards, Avila accrued the Upfront Payments as a liability in the form of deferred revenue.

[35] Ms. Ottosen explained that for revenue recognition purposes, revenue is then actually recognized when “performance is achieved” and that the deferral of revenue is thus not related to the cash received. There is considerable debate between the parties about the significance of the accounting treatment of the Upfront Payments. CryptoStar argues that, based on the deferral of Avila’s recognition of revenue in relation to the Upfront Payments, the Upfront Payments are properly understood as assets of CryptoStar. CryptoStar argues that as such, the Upfront Payments are properly accounted for as a “specific fund” for purposes of Rule 45.02.

(h) Information from Avila re Cash on Hand and Expenditures on Project

[36] On cross-examination, Avila confirmed that its cash on hand at that point in time was less than the approximately USD $1.333 million that it calculates as the amount of the “specific fund” alleged by CryptoStar. Avila explained that the amount of current cash on hand changes on an ongoing basis depending on revenues and expenses that flow in and out of Avila’s general accounts.

[37] Avila’s position is that it has spent an amount well in excess of the Upfront Payments received from CryptoStar to build the power plants. Avila says this position is supported by the voluminous material it has sent to CryptoStar showing Avila’s specific expenditures on the Power Generation Infrastructure, the Initial Power Plant, and expenditures relative to the 10 MW, including the $536,592 that Avila spent on two non-refundable deposits for generators.

Stated Basis for Motion and Discussion re Same

[38] The initial and primary stated basis for the freezing of funds sought in this motion is said to be the belief, as expressed in particular in the affidavit of CryptoStar’s President and CEO David Jellins, that Avila and/or Mr. Van Betuw have “converted CryptoStar’s Upfront Payments for [their] own use and/or spent these funds in contravention of the Original Agreement”.

[39] This belief is said to arise from Mr. Van Betuw “demanding” Upfront Payments “despite not having delivered amounts already paid for” and “Avila Energy’s refusal to provide evidence of money spent to acquire equipment to fulfill its obligations”. Mr. Jellins deposes that “Avila Energy has failed to properly respond to CryptoStar and to account for the amount of the Upfront Payments”.

[40] As discussed above, Avila has now provided CryptoStar with well over 1,000 pages of third-party invoices and proof of payments by way of accounting for its expenses relative to the power generation project. By reference to these materials, in her affidavit, Ms. Ottosen responds to each of the complaints asserted in CryptoStar’s affidavits. Avila argues that the damages assessment for any refund claimed would have to deduct, as the Agreement provides, Avila’s expenditures for infrastructure and equipment as well as amounts for commissioning and power consumed.

[41] As also noted above, Avila says that its materials confirm that it has spent amounts well in excess of the Prepayments relative to building the power plants, such that no refund can be owing. Avila argues that in any event, this matter is properly dealt with at trial.

[42] Avila points out that in the face of the voluminous evidence it has provided of its expenditures on the project, CryptoStar’s factum on this motion now conspicuously abandons the premise that Avila has “failed to account” for the amount of the Upfront Payments, and instead relies on more general assertions that Mr. Van Betuw is “not a credible witness” and “has diverted funds or converted them to his or Avila’s use”.

[43] Among the items CryptoStar points to as evidence in support of these general allegations is the suggestion that Mr. Van Betuw improperly directed the 20,312,500 CryptoStar shares discussed above to another Avila company. As noted above, the Agreement seems to contemplate this type of transfer.

[44] CryptoStar also initially relied on the Avila transaction with Petro Viking, alleging that the assets Avila was selling in that transaction arose from the Agreement and that CryptoStar therefore had an interest in them. The evidence in the record indicates that CryptoStar’s stated concerns about the transaction have been allayed, and CryptoStar has retreated from this allegation. Indeed the evidence shows that the Petro Viking transaction was announced well before the breakdown in the relationship between CryptoStar and Avila; that the transaction relates exclusively to Avila’s oil and gas assets; that the transaction has a value of over CAD $50 million; and that it does not include any of Avila’s power generation assets.

[45] The information provided has apparently satisfied CryptoStar that Avila is not selling the 4-20 site, that Avila does not own but is merely leasing the 5-29 site, and that in any event it is not selling its interest in the 5-29 site in the Petro Viking transaction.

[46] The other concerns expressed by CryptoStar as part of the basis for its allegation about Mr. Van Betuw’s credibility and conduct relate to the shutdown of the 4-20 site by the County of Stettler, Alberta, where the site is located.

[47] CryptoStar’s concerns in this regard are not related to the state of regulatory approvals or the stop order, which are not in issue on this motion. Its concerns relate more particularly to the timing and nature of Mr. Van Betuw’s disclosure of the stop order and the available information in advance of the stop order suggesting that the stop order might be pending.

[48] Suffice it to say that the record discloses a debate about the timing and nature of the disclosure in that regard. Whether there was delay in the disclosure, and whether the regulatory shutdown of the 4-20 site qualifies as a force majeure event or alternatively constitutes a breach of Avila’s obligations under the Agreement, are matters to be properly addressed by the trial judge. Moreover, this type of contested attack on a witness’s credibility, on a stand‑alone issue like this one, cannot, in my view, form the proper basis of the relief sought here pursuant to Rule 45.02. The timing of the disclosure does not relate to the question of whether there is a “specific fund” and, if so, whether it ought to be preserved pending trial.

Rule 45.02 and the Parties’ Arguments on “Specific Fund”

[49] With respect to Rule 45.02, both parties acknowledge that the Ontario Court of Appeal’s decision in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475, 111 O.R. (3d) 401 is the leading authority. The familiar test laid out in Sadie Moranis requires that:

(i) the plaintiff claims a right to a specific fund;

(ii) there is a serious issue to be tried regarding the plaintiff’s claim to that fund; and

(iii) the balance of convenience favours granting the relief sought by the plaintiff.

[50] In order to satisfy the first element of the test, CryptoStar must demonstrate that a specified and differentiated sum of money exists under the control of the defendants and that CryptoStar has a legal right to that fund and not just a claim for damages.

[51] CryptoStar argues that it has established a specified and differentiated sum of money, by virtue of Avila’s accounting treatment of the funds in question and specifically, the interpretation of that accounting treatment that CryptoStar urges the Court to adopt: that the Upfront Payments (which Avila has calculated as USD $1,332,819 plus GST) were and remained at all times assets of CryptoStar.

[52] Avila, on the other hand, argues that the Upfront Payments do not meet the test for a reasonably identifiable fund of money. It notes that it has provided extensive evidence that no specified and differentiated cash fund exists under the control of Avila. The Upfront Payments were received in Avila’s general account and co-mingled with other funds; from this account, Avila spent the amount of the Upfront Payments as well as amounts well in excess on power generation.

[53] In addition to Sadie Moranis, Avila relies in particular on this Court’s decision in Super A Hotels Investment and Management Group (Canada) Inc. v. 1205723 Ontario Inc., 2015 ONSC 4405. In that case, the plaintiff paid a $200,000 security deposit under a lease as well as advance rental payments and other amounts related to a rezoning application. Litigation ensued because the property involved was not properly zoned for the plaintiff’s intended use. The plaintiff took the position that its advance payments constituted specific funds for the purpose of Rule 45.02.

[54] Master Muir (as he then was) referred to Sadie Moranis and recited the three-part test. He concluded that the security deposit qualified as a specific fund for purposes of the Rule 45.02 analysis, inasmuch as the relevant “portion of the lease agreement” made it “clear that the defendant [was] to hold the deposit as security pending completion of the plaintiff’s leasehold improvements”. He noted that the defendant was in fact holding the security deposit in a separate trust account and that therefore, the security deposit was a “reasonably identifiable fund earmarked to the litigation”.

[55] However, with respect to the other advance payments, Master Muir held, at para. 19:

“I do not view the other advance payments in the same light. Unlike the security deposit, there is nothing in the language of the agreements that requires the defendant to hold or segregate those payments pending some future event. The language of the agreements appears to allow the defendant to use those funds as it sees fit. In my view, the plaintiff’s advance payments of rent and its contribution to the rezoning expenses are not reasonably identifiable funds earmarked to this litigation. The plaintiff’s claims in this respect are more in the nature of a claim for damages rather than a claim for the return of a specific fund. Finally, it appears from the evidence that the defendant is no longer in possession of the advance rental payments in any event. In my view, the court cannot order the preservation of a fund under Rule 45.02 when the fund no longer exists.”

[56] Avila argues that the situation in Super A is substantially the same as the essential facts of the motion before me. From that point of departure, it suggests, by way of further analogy, that if a tenant prepays six months of advance rent to their landlord, it would be an asset to the tenant and a liability to the landlord. However, the fact that the tenant views the prepaid expenses as an asset does not create a requirement that the landlord segregate or hold the tenant’s rent advances in trust. Absent a specific agreement governing how the funds are to be held, the pre-payor can only claim damages.

[57] Avila argues that this conclusion is all the more clear in the circumstances at hand, in which the Agreement and the parties’ understanding specifically contemplated the payment of the funds into a general account, and in which the anticipated co-mingling and use of those funds to build power generation infrastructure and capacity has actually occurred.

[58] For its part, CryptoStar, after acknowledging the primacy of Sadie Moranis, relies in particular on the decision of Justice Belobaba in 3Genius Corp. v. Locationary Inc., 2016 ONSC 4092.

[59] In 3Genius, His Honour was dealing with a Rule 45.02 motion in an intellectual property dispute between two brothers. One brother’s company, the plaintiff in the action, claimed that the other brother’s company had misappropriated the plaintiff’s software to develop its own product and then sold that product to Apple Inc. for a significant sum.

[60] Notably, Justice Belobaba commenced his decision by quoting Sadie Moranis and acknowledging, as is well recognized, “that an order for the interim preservation of property pending judgment is a ‘limited exception to the law’s deep-seated aversion to providing a plaintiff with execution before trial’”. It therefore follows “that Rule 45.02, which allows a court to order that a ‘specific fund’ be paid into court pending trial, is an ‘extreme’ remedy that must be ‘exercised with caution’” (3Genius, at para. 1).

[61] Justice Belobaba suggested that the threshold question of whether there is a “specific fund” involves two sub-questions. First, is there a reasonably identifiable fund? Second, is the plaintiff claiming a legal right to the fund or just making a claim in damages? If the plaintiff’s claim is for damages, “then no order under Rule 45.02 will be made” (at para. 3).

[62] CryptoStar relies in particular on Justice Belobaba’s discussion of the accounting treatment of alleged specific funds (at para. 14). After colorfully explaining that the money “does not have to be bound in a rubber band and secured in a safety deposit box, or hidden under a mattress”, His Honour noted that most claims under Rule 45.02 “are for funds that are ‘sitting in’ a bank account”, and that “to accord with modern banking practices, it is enough if the specified amount is sufficiently differentiated by a book-keeping entry or line-item description in an accounting ledger or other related financial documentation. The key requirement is not actual or physical segregation but a sufficient differentiation”.

[63] Justice Belobaba goes on to say, and CryptoStar particularly emphasizes, “The point is not that the monies are not co-mingled or inter-mingled because they always are - whether in trust accounts or general bank accounts. The question is whether the claimed fund is reasonably identifiable (i.e. differentiated) by a bookkeeping entry or other line-item descriptor” (at para. 16).

[64] CryptoStar argues that whatever position ultimately prevails about the proper accounting treatment for the Upfront Payments, there are clearly accounting entries that identify and differentiate the funds in question.

[65] In my view, a fair reading of Justice Belobaba’s decision in 3Genius confirms that an accounting entry identification alone is insufficient to overcome the stringent threshold in Rule 45.02.

[66] CryptoStar’s argument ignores the important consideration of whether the defendant has an obligation to hold and segregate the funds in issue, as Master Muir noted in Super A. In saying “segregate” the funds, I do not mean to evoke Justice Belobaba’s sense of physical segregation by way of rubber band or under a mattress, but rather a clear obligation to hold the funds separately (like the security deposit in Super A).

[67] By way of illustration, in 3Genius, Justice Belobaba found that the first part of the “specific fund” requirement was satisfied for the following reasons, at para. 18:

“[T]here is a reasonably identifiable fund of money — namely the payments that Apple has held back and is now ready to pay out to the defendants. The holdback amounts are specified and undisputed, and they are due and owing… Apple’s legal counsel has explicitly confirmed both the existence of the holdback funds and the fact that ‘the holdback monies will not be paid pending the Court’s disposition of [this] motion.’”

[68] In my view, those facts are readily distinguishable from the facts before me. There is no clear contractual obligation for Avila to segregate or set aside - notionally or otherwise - the funds alleged to form the “specific funds” for purposes of Rule 45.02. In fact, as discussed above, the understanding of the parties was that those funds, once co-mingled with other funds in Avila’s general account, would be deployed together with those other funds on the power generation project.

[69] Moreover, in its reliance on 3Genius, CryptoStar skirts over the fact that Justice Belobaba found that the plaintiff did not meet the second sub-question of the “specific fund” threshold. That is, Justice Belobaba found that the claim before him was in essence a claim for damages.

[70] In the case before me, CryptoStar’s claim is in essence a claim based on the potential refund available pursuant to s. 2.8 of the Agreement. That provision contemplates the right to an amount, but does not specify that the amount, if owed, should be paid from the actual proceeds of the Upfront Payments.

[71] Section 2.8 has a condition precedent that power has not been supplied under s. 2.1(d). Where, as is undisputedly the case here, the Upfront Payments for the 4 MW led to most of that power capacity being delivered to and consumed by CryptoStar, that condition precedent is not met.

[72] Moreover s. 2.8 does not stipulate that monies owing in repayment, if any, are to be paid out of a specific fund, but rather provides how the amount of refund is to be calculated. The provision contemplates the possibility that the Upfront Payments could be spent and, if they are, contemplates a corresponding reduction to the amount owing.

[73] As noted above and in keeping with what the Agreement contemplated, Avila is no longer in possession of the Upfront Payments. It has spent in excess of the Upfront Payments on the items necessary to generate and deliver power to CryptoStar.

[74] The mere fact that the payments were made in advance is not sufficient to establish that they comprise a “specific fund”. In Super A, Master Muir specifically held that the advance payments at issue - those made to cover anticipated expenses associated with a rezoning application, as well as advance rent payments - did not comprise a “specific fund”.

Conclusion re “Specific Fund”

[75] I therefore find that CryptoStar has failed to establish a “specific fund” as required for the “extreme remedy” under Rule 45.02.

Discussion of Other Elements of Test

[76] In terms of the second question, whether there is a serious issue to be tried relative to the return and preservation of the approximately USD $1.333 million claimed, I am again not persuaded that the test is met. CryptoStar may only rely on s. 2.8 of the Agreement if no power is delivered. In this case, the parties agree that Avila built power plants and delivered power.

[77] The value of the power so delivered, and the additional potential set-off of the expenses itemized and quantified in the thousands of pages of invoices and proof of payments delivered by Avila in advance of this motion, will have to be considered at trial. Avila asserts that it has spent over CAD $4.3 million in that regard. Whatever the amount, CryptoStar’s purported resort to s. 2.8 seems problematic.

[78] With respect to balance of convenience, there is no substantive evidence before me to suggest that Avila is attempting to place assets beyond the reach of the Court. It appears that Avila is solvent and continuing to carry on business. I see nothing to justify tying up Avila’s assets at this stage nor any risk that those assets will leave Alberta between now and trial.

[79] Finally, in this regard, I note that CryptoStar has not provided an undertaking as to damages in a proper form. Instead, it has attached a proposed undertaking in a schedule to its reply factum on this motion (which Avila argues is inadmissible). Although I have concerns about this late-breaking and unconventional approach to the requirement of an undertaking, given my conclusion that relief under Rule 45.02 is unavailable, I need not discuss those concerns further.

Discussion of Alternative Claim to Freeze Assets

[80] Many of the same observations made in relation to Rule 45.02 apply equally to CryptoStar’s alternative request to freeze assets allegedly purchased from the “specific fund”.

[81] In addition, CryptoStar has failed to identify the specific assets it seeks to preserve. Moreover, it seems clear that the assets CryptoStar seeks to preserve, even described in general terms, are not the genuine subject matter of the dispute, given that the resort to such assets is claimed only as an alternative to the alleged specific funds.

[82] CryptoStar has not identified or particularized the assets it alleges were purchased with the Upfront Payments. Given that the Upfront Payments were co-mingled with other funds in Avila’s general accounts, and used in concert with those funds to purchase various equipment at a cost far exceeding the amount of the Upfront Payments, it seems impossible to distinguish particular assets to attach, and CryptoStar has made no attempt to do so. As such, I am not prepared to grant this alternative relief.

[83] As noted, CryptoStar’s miners, which are clearly and undisputedly the property of CryptoStar, have already been retrieved from the 4-20 site (on consent). There was some discussion about how to deal with the Hosting Containers pending their retrieval. The removal of the Hosting Containers, I am advised, is a difficult exercise necessarily involving heavy equipment. To this point, Avila has continued to provide 24/7 security services to ensure that CryptoStar’s equipment has been preserved.

Agreement and Direction re Hosting Containers

[84] Avila suggested, without significant contest from CryptoStar, that the Hosting Containers can remain on the 4-20 site until April 10, 2022 (one month from the date the motion was argued), on the conditions that ongoing security is at the expense of CryptoStar and that insurance on the chattels be arranged and provided by CryptoStar. This strikes me as sensible and I so order.

Claim for CPL

[85] With respect to the CPL CryptoStar seeks, as an initial matter, Avila agrees that the Ontario Superior Court has jurisdiction over the dispute with respect to the Agreement. The Agreement contains language confirming that Ontario law governs it and that disputes are to be dealt with by the Ontario Court. Avila argues that this precludes CryptoStar from seeking in rem or other relief that requires a court order in another jurisdiction (i.e. Alberta), and/or from seeking the assistance of courts of another jurisdiction.

[86] Avila also argues, as a related proposition, that the Ontario Court has no jurisdiction to grant a CPL or make any determination regarding an interest in land in Alberta. It notes that CryptoStar has provided no evidence that an Alberta Court would enforce a CPL granted in Ontario, and argues that CryptoStar’s reliance on the Reciprocal Enforcement of Judgments Act, R.S.O. 1990, c. R.5 is misplaced, in that it applies only to the enforcement of monetary judgments from another jurisdiction and does not apply to proprietary remedies.

[87] Apart from these threshold jurisdictional issues, Avila maintains that CryptoStar has failed to establish an interest in land.

[88] In that regard, CryptoStar relies on the ROFR in s. 2.5 of the Agreement and on a constructive trust it asserts over improvements made to the 4-20 site and assets affixed to that site.

[89] A ROFR only creates an interest in land where the landowner receives and is prepared to accept an offer to purchase (2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, 130 O.R. (3d) 641). There is no evidence of any buyer or even an offer for either the 4-20 site or the 5-29 site (the latter of which I understand CryptoStar now concedes is not owned by Avila but only leased by it). Consequently, no ROFR is triggered.

[90] With respect to the alleged constructive trust, CryptoStar has not demonstrated any link between the Upfront Payments and land improvements or fixtures. It in fact does not identify any land improvements at issue. Assets affixed to the land do not create an interest in land (20009827 Ontario Inc. v. Burlington Retail Power Centre Ltd., at para. 11 (S.C.)); in turn, neither do moveable assets like the ones on the 4-20 site.

[91] Moreover, there is no evidence to suggest that the land in issue is unique. It appears to be commercial land without personal or sentimental value. Again, damages would seem to be a satisfactory remedy in this case.

Conclusion and Costs

[92] For all of these reasons, CryptoStar’s motion is dismissed. Avila is entitled to its costs. Neither party has filed a costs outline as required under the Rules. In the circumstances the parties are to attempt to agree on the costs of this motion. If they cannot agree within 20 days, I am prepared to receive Avila’s bill of costs and brief submissions (no more than five pages) as to its costs. CryptoStar may respond, also in no more than five pages (plus its bill of costs if it wishes to include it for comparison or reference), within ten days following Avila’s delivery of its costs submissions.

W.D. Black J. Date: April 12, 2022