Legal dispute pits Labrador data centre against Chinese bitcoin mining equipment supplier

A St. John's-based company that received nearly $1 million in government assistance to help expand its data centre operations in Labrador is now locked in a legal dispute with its business partner, a Hong Kong-based bitcoin mining firm.

Bitmain Technologies sued Great North Data last month, alleging problems pretty much from the start of the agreement between the two companies.

Great North Data denies those allegations, and points the finger at the Chinese firm for not holding up its end of the bargain.

Court documents filed by both sides indicate that Great North Data has experienced financial difficulties since last year.

The company received infusions of $500,000 from the Atlantic Canada Opportunities Agency in December 2015, and another $420,000 from the Newfoundland and Labrador government between January and August 2016.

Neither Bitmain nor Great North Data is doing interviews, but their lawyers both issued statements.

Daniel Simmons, the lawyer representing Great North Data, noted in an email to CBC News that the company "continues to carry on business as usual without interruption at its facilities in Labrador."

Meanwhile, Megan Taylor, who represents Bitmain, says her client "has no direct knowledge of the current status of their equipment," and Great North is no longer hosting for Bitmain.

Bitcoin 'mining farm' in Labrador

Bitmain Technologies develops and produces computers to mine the bitcoin cryptocurrency. It operates some of its hardware out of third-party "mining farms."

Great North Data provides space to companies like Bitmain to install and run their bitcoin mining equipment.

Basically, those computers churn through complex calculations to validate bitcoin transactions. In return, they earn payments that are also made in bitcoin.

In the past, Great North officials have publicly touted Labrador's cold climate and surplus electricity as a perfect combination for the industry.

• 'It's the new emerging thing': Mining for data in western Labrador

Bitmain signed a deal with Great North last June to have its bitcoin mining equipment hostedat the Labrador City facility.

But problems soon became apparent.

By August, Great North Data "was unable to continue with its construction program to ready the facility for hosting computer equipment due to higher than anticipated construction costs," the St. John's-based company said in court filings.

Great North Data says it told Bitmain "it was considering halting the project."

In an email Bitmain included with its court filings, Great North director James Goodwin wrote Aug. 30 that "we have had significant cost overruns and have failed to find financing to cover them."

Goodwin wrote: "If Bitmain can prepay for the 4 MW three months in advance then we could finish the project."

They ultimately agreed to a prepayment of just over US$330,000.

Great North says in court documents it could use the money to pay outstanding construction costs. Bitmain says it was supposed to remain in trust.

Bitmain shipped computer hardware and power supplies to Labrador last fall.

The Chinese company alleges in court documents that "operational issues" continued.

Then financial problems again came to the forefront, and the ownership of that equipment is now in dispute.

'We are having huge difficulties'

On Feb. 14, 2017, Goodwin again wrote to Bitmain officials, who included the message in their court filings.

"Obviously, we are having huge difficulties which I hope we can resolve as quickly as possible," Goodwin's email noted.

"Selling the miners is the best way forward for both of us. It will allow Bitmain to divest from the mine with your funds, and it will allow me to have clients who pay a much higher rate. Otherwise I will not be able to pay my employees or power bills. While we have cheap power in Labrador, our cost of employees and labour is very high, much higher than we had expected."

The two sides now disagree over who actually owns the equipment.

Bitmain acknowledges creating an invoice "based on Goodwin's advice" that purported to transfer the equipment.

But Bitmain says that invoice was"solely for use with Canadian customs" so Goodwin could pay import duties and taxes.

"There was no consideration exchanged between the parties," Bitmain noted in court documents.

"Bitmain states that GND's use of the invoice as a means to sell Bitmain's property without permission was unlawful and constitutes civil fraud, theft and conversion."

Bitmain sued to get its equipment and trust account money back, and for damages.

Meanwhile, Great North has filed a countersuit alleging breach of contract and seeking US$1.4 million in damages.

The company says it can sell the equipment, and alleges that some of it was defective.

Great North indicated in court filings that it "arranged the sale to third parties of 424 working bitcoin miners and power supplies. That equipment remains located at the facility and is operated under hosting agreements with the buyers."

Last month, Newfoundland and Labrador Supreme Court Justice Deborah Paquette issued a temporary restraining order stopping the equipment from being sold or moved until its fate is decided at a later hearing.

Status of federal, provincial funding

While Great North Data is in conflict with a major business partner, it has no such issues with its government funding agencies.

In an emailedstatement to CBC News, ACOA says Great North Data is in good standing, and is on schedule in paying back the $500,000 investment to the agency.

The Newfoundland and Labrador government, which provided a $420,000 contribution, also indicatedthat Great North Data is in good standing.

In an email last Wednesday night, the Department of Tourism, Culture, Industry and Innovationsaid the current balance owing on repayment is about $386,000.

The department said all securities are in place, and all terms and conditions are current and compliant.