Bitmain Technologies Limited PLAINTIFF / DEFENDANT BY COUNTERCLAIM And: Great North Data Ltd. Defendant / PLAINTIFF BY COUNTERCLAIM, 2018 NLSC 130

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Bitmain Technologies Limited v. Great North Data Ltd. , 2018 NLSC 130 Date : June 13, 2018 Docket : 201701G2023 Between: Bitmain Technologies Limited PLAINTIFF / DEFENDANT BY COUNTERCLAIM And: Great North Data Ltd. Defendant / PLAINTIFF BY COUNTERCLAIM Before: Justice David B. Orsborn Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: May 28, 2018

Summary: Bitmain Technologies and Great North Data are embroiled in a contract dispute. Bitmain registered a notice of lis pendens against property of Great North. Great North applied to vacate the notice; Bitmain applied to amend its pleadings to include claims of unjust enrichment, wrongful conduct and a remedial constructive trust. The Court heard both applications together. Held; the application to amend the pleadings was in large part allowed. The application to vacate the notice of lis pendens was also allowed.

It could not be said that the claims of unjust enrichment or wrongful conduct had no reasonable prospect of success. Further, although the imposition of a constructive trust, following a finding of either unjust enrichment or wrongful conduct, was considered unlikely, the claim for the remedial constructive trust could not be struck out at this stage as having no reasonable prospect of success. But the fact that the litigation now included a claim for a remedial constructive trust did not mean that the litigation was now an in rem proceeding concerning a claim to an interest in land.

The remedial constructive trust is a discretionary remedy, consideration of which only arises

after the claims in issue have been adjudicated. Appearances: Darren D. O'Keefe and Patrick B. Power Appearing on behalf of the Plaintiff / Defendant by Counterclaim Daniel W. Simmons, Q.C. Appearing on behalf of the Defendant / Plaintiff by Counterclaim Authorities Cited: CASES CONSIDERED: Butler v. Kloster Cruise Ltd. (1992), (NL SC), 98 Nfld. & P.E.I.R. 138, 33 A.C.W.S. (3d)695 (Nfld. S.C.(T.D.)); Petten v. E.Y.E. Marine Consultants (1994), (NL SC), 120 Nfld. & P.E.I.R. 313, 373 A.P.R.313 (Nfld. S.C.(T.D.)); Knight. v. Imperial Tobacco Canada Ltd., 2011 SCC 4; Pro-Sys Consultants Ltd. v.

Microsoft Corporation, 2013SCC 57; Kerr v. Baranow, 2011 SCC 10; BNSF Railway Co. v. Teck Metals Ltd., 2016 BCCA 350; Soulos v. Korkontzilas, (SCC), [1997] 2 S.C.R. 217; Lac Minerals Ltd. v. International Corona Resources Limited, (SCC), [1989] 2 S.C.R.574; Paro Enterprises Ltd. v. Murphy, 2015 NLCA 33; Infini-T Holdings Ltd. v. Bell Aliant Regional Communications Inc., 2010NLTD(G) 205; Newfoundland and Labrador Housing Corp. v. Ennis (1987), (NL SC), 64 Nfld. & P.E.I.R. 22, 5A.C.W.S. (3d) 43 (Nfld. S.C.(T.D.)); Pettkus v. Becker, (SCC), [1980] 2 S.C.R. 834; Reardon v.

Whiffen, 2011NLTD(G) 127 STATUTES CONSIDERED: Family Law Act, R.S.N.L. 1990, c. F-2; Registration of Deeds Act, 2009, S.N.L. 2009, c. R-10.01 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sched. D TEXTS CONSIDERED: Black’s Law Dictionary, 9th ed. (United States: Thomson Reuters, 2009) REASONS FOR JUDGMENT Orsborn, J.: INTRODUCTION [1] Issues for Adjudication: 1. Bitmain Technologies’ application to amend the Statement of Claim. 2.

Great North Data’s application to vacate a notice of lis pendens. background [2] In June 2016, Bitmain Technologies Limited (Bitmain) and Great North Data Ltd. (GND) finalized an agreement underwhich Bitmain would place computers in a facility owned by GND in Labrador City to produce or “mine” the cryptocurrency bitcoin.Bitcoin mining consumes large quantities of electric power; GND has access to affordable power. The GND facility would “host” theBitmain hardware.

The contract provided that Bitmain would pay a set amount per kilowatt hour of power consumed in the miningprocess. [3] As of September 2016, the GND facility was not yet ready for use and GND advised Bitmain that it needed funds fromBitmain in order to complete the work necessary to make the facility operational. [4] The contract was then amended such that Bitmain would provide a prepayment of $332,640 USD as an advance against the

hosting fees to be charged. [ 5 ] The facility eventually became operational in November but the relationship did not go well.

Bitmain’s Statement of Claim asserts that GND: wrongfully terminated the agreement in February – March 2017; wrongfully kept Bitmain’s computers, and indeed sold some to third parties; wrongfully used Bitmain’s computers to mine bitcoin for its own account; wrongfully kept “hosting fees” paid by purchasers who had bought Bitmain’s computers from GND and then purchased electricity from GND. [ 6 ] Bitmain filed a first amended Statement of Claim in April 2017 claiming: 33. … that the Defendant has acted in bad faith and states that the actions of the Defendant constitute breach of contract and the torts of conversion, detinue, breach of trust and fraudulent misrepresentation, as well as theft, the tort of civil fraud (deceit) and the tort of intimidation (extortion). [ 7 ] The primary requested relief: (

a) Return of the Property[Bitmain’s computers] and/or disgorgement of all profits made by the Defendant as a result of its sale of the Property; … (

c) Special damages in an amount to be determined, including all lost Bitcoin revenue, the balance of the trust monies and any further damages flowing from the Defendant’s breach of contract; (

d) General damages; … [ 8 ] In October 2017 Bitmain filed a notice of lis pendens at the provincial Registry of Deeds giving notice of its claim for an interest in GND’s property at 350 Avalon Drive, Labrador City, Newfoundland and Labrador. (It is common ground that this is the “Facility” referred to in the pleadings.) The notice says: 1.

The Plaintiffs hereby give notice to all concerned parties that they have commenced proceedings in the Supreme Court of Newfoundland and Labrador, General Division with respect to their interest in all those pieces and parcels of land situated 350 Avalon Dr., Labrador City, Newfoundland and Labrador, in the Province of Newfoundland and Labrador… 2.

The proceeding is grounded upon, inter alia , fraudulent misrepresentation, detinue and conversion committed by the Defendant in their performance of a certain Collocation Hosting Service Agreement (the “Agreement”), breach of the Defendants’ duty of care owed to the Plaintiff, and breach of its contractual duty owed to the Plaintiff in relation to the said Agreement, including but not limited to the acts converting the mining assets of the Plaintiff (“Miners”) to cash, converting bitcoin proceeds of those Miners to cash, and using that cash, along with other cash deposited with the Defendant “in trust” to pay for improvements to the Subject Property, where upon such payment, a constructive trust was created in favour of the Plaintiff which constitutes a legal claim as against the Subject Property. … [ 9 ] In March 2018, GND filed an application to vacate the notice of lis pendens asserting that: 6.

Pursuant to the Statement of Claim, Bitmain does not allege that it holds any rights entitling it to an interest in the Subject Property, nor does it request any relief whatsoever which would affect title in the Subject Property. Bitmain requests only a remedy in damages. 7.

Accordingly, the within action dies not involve an interest in land, as is required to give effect to a lis pendens , and the registration of the Lis Pendens in the present circumstances is improper. [ 10 ] On May 14, 2018, Bitmain applied to amend its Statement of Claim to better support its claim to an interest in land of GND. [ 11 ] The applications were heard concurrently. However, it is important they be considered separately.

I will first consider the application to amend, and then the appropriateness of maintaining the notice of lis pendens in light of any allowed amendments. amendments to Statement of Claim [ 12 ] The requested amendments: 36. The Plaintiff repeats the foregoing and states that the Defendant used the Prepayment, the proceeds of the sale of the Plaintiff’s Property, the approximately 75 bitcoins generated by the Defendant through the use of the Plaintiff’s Property and converted by the Defendant into cash, and the revenue from hosting fees paid to the Defendant by the purchasers of the Property (who were required to

enter into hosting arrangements with the Defendant as part of the unlawful sale transaction) (collectively, the “Funds”), to furthersignificantly improve the Facility by using the Funds to pay for goods, services, labour and materials used for additional renovationswhich were required at the Facility in order for it to remain operational. 37.

The Plaintiff states that the Defendant also used a portion of the Funds to purchase the following properties located within thevicinity of the Facility: • 133 Cabot Crescent, Labrador City, NL • 127 Cabot Crescent, Labrador City, NL • 129 Cabot Crescent, Labrador City, NL • 131 Cabot Crescent, Labrador City, NL • 125 Cabot Crescent, Labrador City, NL 38.

The Defendant needed to purchase the above noted properties (the “Neighbouring Properties”) because cryptocurrency mininggenerates a substantial amount of noise and the Defendant had been the subject of numerous and repeated noise complaints by certain ofits neighbours (the previous owners of the Neighbouring Properties) to the Municipality of Labrador City since the Facility becameoperational in November 2016. Had the Defendant not had access to the Funds, it would not have been able to purchase the neighbouringproperties and would not have been able to remain operational.

The Neighbouring Properties were placed into the names of certain of theDefendant’s officers, directors, shareholders and/or employees. 39. The Plaintiff repeats the foregoing and states that the Defendant was unjustly enriched as a result of its unlawful actions throughits unlawful use of the Funds.

The Plaintiff states that, as a result of this unjust enrichment, a constructive trust was created in favour ofthe Plaintiff which constitutes a legal claim against the piece and parcel of land upon which the Facility is situate, as well as a legal claimagainst all of those pieces and parcels of land on which the Neighbouring Properties are situate. 40. … (

b) A constructive trust over the Facility and over all of the Neighbouring Properties which were purchased through the use of theFunds. [13] The Court has discretion to allow amendments to pleadings. Judicial exercise of that discretion will consider whether theproposed amendments: (

i) will cause injustice to the other side; (ii) raise a triable issue; (iii) are embarrassing – reflecting mala fides orother inappropriate behaviour on the part of the plaintiff; and (iv) are pleaded with particularity. [14] See Butler v. Kloster Cruise Ltd. (1992), (NL SC), 98 Nfld. & P.E.I.R. 138, 33 A.C.W.S. (3d) 695 (Nfld.S.C.(T.D.)) and Petten v. E.Y.E. Marine Consultants (1994), (NL SC), 120 Nfld. & P.E.I.R. 313, 373 A.P.R. 313(Nfld.

S.C.(T.D.)). [15] In Petten, Green, J., as he then was, pointed out that a proposed amendment setting up a new cause of action must disclose areasonable cause of action in the sense that it is not certain to fail, or to use the phrase more recently used by Chief Justice McLachlin inKnight. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at paragraph 17 has “no reasonable prospect of success.” [16] In my view, the same analysis should be applied to a requested amendment setting out a new claim for relief. [17] The essence of the allegations in the proposed amendments, as I read them, is: (

i) GND used hardware, belonging to Bitmain,to mine bitcoin for its own account; (ii) GND sold hardware, belonging to Bitmain, to third parties; (iii) GND charged these third partieshosting fees for the Bitmain hardware it had sold to them; (iv) GND used funds from these unlawful activities (conversion), togetherwith the funds remaining from the prepayment to improve and renovate the Facility. [18] Bitmain says GND was unjustly enriched through its conversion of Bitmain’s property, that the conversion and use ofBitmain’s property was unlawful and that the funds derived from the unlawful conduct may be traced to the improvements in theFacility.

Bitmain says it is therefore entitled to claim a remedial constructive trust over the Facility. [19] Bitmain goes on to assert that the wrongfully acquired funds were also used to purchase five adjoining properties, thesepurchases being made in the name of Bitmain’s officers and employees (In argument, counsel for Bitmain acknowledged that three ofthe listed properties were, in fact, purchased in the name of GND, with only two being purchased in the names of others). [20] These are the allegations in support of the “legal claim” against the lands that house the Facility and adjoining properties; thislegal claim is based in turn on Bitmain’s claim for relief in the form of a constructive trust. analysis

[21] Unjust enrichment is an equitable claim. As Rothstein, J. said in Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC57 at paragraph 85: 85 The well-known elements required to establish an unjust enrichment are (1) an enrichment of the defendant; (2) a correspondingdeprivation of the plaintiff; and (3) an absence of juristic reason (such as a contract) for the enrichment (see Alberta Elders, at para. 82;Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629 (S.C.C.), at para. 30; Rathwell v. Rathwell, (SCC),[1978] 2 S.C.R. 436 (S.C.C.), at p. 455; Becker v.

Pettkus, (SCC), [1980] 2 S.C.R. 834 (S.C.C.)). Pro-Sys says thatMicrosoft was unjustly enriched by the overcharge to its direct purchasers that was passed through the chain of distribution to the classmembers. [22] See also the discussion in Kerr v. Baranow, 2011 SCC 10 at paragraphs 30 to 45. [23] The amendments to the Statement of Claim relating to unjust enrichment or conversion with respect to the prepayment cannotbe maintained (See para. 4 above). They have no reasonable chance of success.

Reading the Statement of Claim as a whole it is clear theprepayment was advanced by Bitmain under the terms of the September 2016 amendment to the contract. The purpose of the advancewas to give GND cash so it could make the Facility operational.

The prepayment – or loan – was to be repaid from the hosting feesperiodically charged by GND once operations started. [24] The Statement of Claim indicates Bitmain takes issue with some of the amounts charged against the prepayment but goes on toacknowledge that the prepayment (loan) remaining unpaid would be reduced by the “reasonable fees” for the months of operation afterNovember 2016 (at para. 32). There is clearly a juristic reason – the contract – for GND’s receipt of the prepayment; the purpose of theadvance was to provide cash to spend on the Facility (at paras. 17).

Any claim for repayment of any balance – if indeed one exists – is acontract-based debt claim. No unjust enrichment or ‘wrongful conduct’ equitable claim is involved. [25] Accordingly, any reference to the “Funds” as used in paragraph 36 of the Statement of Claim must be amended to exclude anyreference to any prepayment balance. [26] The other assertions offered by Bitmain to support claims of unjust enrichment and conversion – i.e. those assertions relating tothe use and sale of Bitmain hardware and to the collection of fees from the hosting of the ‘sold’ hardware meet the essential requirementsfor amendments.

Further, they cannot, in my view, be refused on the basis that they have no reasonable prospect of success. [27] While it is true, as said by counsel for GND, that all of Bitmain’s complaints are based in the context of a contractualrelationship, I cannot say at this stage that these ‘non-prepayment’ assertions may only be addressed as breaches of contract.

Forexample, I cannot conclude there is no reasonable prospect that the claim relating to the sale by GND of Bitmain hardware to thirdparties would be considered as engaging the tort of conversion rather than, or as well as, a breach of contract. [28] Accordingly, the amendments based on unjust enrichment and unlawful use of the Funds (not including any prepaymentbalance) should be allowed. [29] The amendments assert a legal claim to certain lands and seek a constructive trust over those lands.

In his submissions, and inresponse to my questions, counsel for Bitmain confirmed that what Bitmain is seeking is a remedial constructive trust. [30] However, when asked at what point any constructive trust arose, counsel said it was at the time of the conversion of Bitmain’sproperty into cash and the use of that cash by GND to improve its Facility and purchase (three) adjoining properties. This responsesuggests a trust arising by operation of law rather than through the exercise of judicial discretion when considering a remedy for eitherunjust enrichment or certain unlawful conduct.

On this point, see the discussion in BNSF Railway Co. v. Teck Metals Ltd., 2016 BCCA350. [31] Despite the decision in BNSF Railway, my assessment is that the decision of the Supreme Court of Canada in Soulos v.Korkontzilas, (SCC), [1997] 2 S.C.R. 217 and the subsequent decisions in Kerr and Pro-Sys, supra, have confirmedthat the constructive trust is a discretionary equitable remedy, a remedy that can only be imposed following a determination of unjustenrichment or, more broadly, a finding of wrongful conduct that is contrary to good conscience.

In other words, a constructive trust maybe imposed in situations other than unjust enrichment, but it remains, at bottom, a remedial tool for consideration after liability is found. [32] As McLachlin, J., as she then was, explained in Soulos at paragraph 43: 32 The New Zealand Court of Appeal also appears to have accepted good conscience as the basis for imposing a constructive trust inElders Pastoral Ltd. v. Bank of New Zealand (1989), 2 N.Z.L.R. 180 .

Cooke P., at pp. 185-86, cited the following passage fromBingham J.'s reasons in Neste Oy, supra , at p. 666: Given the situation of [the defendants] when the last payment was received, any reasonable and honest directors of that company (or theactual directors had they known of it) would, I feel sure, have arranged for the repayment of that sum to the plaintiffs without hesitationor delay.

It would have seemed little short of sharp practice for [the defendants] to take any benefit from the payment, and it would haveseemed contrary to any ordinary notion of fairness that the general body of creditors should profit from the accident of a payment madeat a time when there was bound to be a total failure of consideration. Of course it is true that insolvency always causes loss and perfectfairness is unattainable. The bank, and other creditors, have their legitimate claims.

It nonetheless seems to me that at the time of itsreceipt [the defendants] could not in good conscience retain this payment and that accordingly a constructive trust is to be inferred .[Emphasis added.]

Cooke P. concluded simply (at p. 186): "I do not think that in conscience the stock agents can retain this money." Elders has been takento stand for the proposition that even in the absence of a fiduciary relationship or unjust enrichment, conduct contrary to good consciencemay give rise to a remedial constructive trust: see Mogal Corp. v. Australasia Investment Co. (In Liquidation) (1990), 3 N.Z.B.L.C. 101 ,783; J. Dixon, "The Remedial Constructive Trust Based on Unconscionability in the New Zealand Commercial Environment" (1995), 7Auck. U. L. Rev. 147, at pp. 157-58.

Although the Judicial Committee of the Privy Council rejected the creation of a constructive trust ongrounds of good conscience in Goldcorp Exchange Ltd., Re, [1994] 2 All E.R. 806 (New Zealand P.C.) , the fact remains that goodconscience is a theme underlying constructive trust from its earliest times. [33] She went on to delineate the four conditions that should be met before considering the imposition of a ‘wrongful conduct’constructive trust – at paragraph 45: 45 This case requires us to explore the prerequisites for a constructive trust based on wrongful conduct.

Extrapolating from the caseswhere courts of equity have imposed constructive trusts for wrongful conduct, and from a discussion of the criteria considered in anessay by Roy Goode, "Property and Unjust Enrichment", in Andrew Burrows ed., Essays on the Law of Restitution (1991), I wouldidentify four conditions which generally should be satisfied:

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, inrelation to the activities giving rise to the assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant inbreach of his equitable obligation to the plaintiff;

(3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure thatothers like the defendant remain faithful to their duties and;

(4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., theinterests of intervening creditors must be protected. [34] I note in particular the reference to intervening creditors. [35] I take from Soulos and the subsequent decisions that the constructive trust is a remedy open to the courts to impose whendemanded by good conscience.

Whether or not a trust arises by operation of law is a separate issue entirely, not involving a question ofremedy or judicial discretion, but rather involving general trust and other law. [36] But as noted, counsel for Bitmain clearly confirmed that Bitmain is seeking the imposition of a remedial constructive trustbased on unjust enrichment or wrongful conduct (primarily conversion) or both. [37] It is clear from the authorities that the imposition of a remedial constructive trust, particularly in commercial situations, will berare. See Lac Minerals Ltd. v.

International Corona Resources Limited, (SCC), [1989] 2 S.C.R. 574 at paragraph 78. [38] It is also clear the exercise of judicial discretion in deciding whether or not to impose a constructive trust as a remedy involvesconsideration of all of the circumstances of the case and of the parties, including: 1. The linkage or causal connection between the plaintiff’s ‘contribution’ and the acquisition preservation, maintenance orimprovement of the property in question (see Kerr at para. 50); 2. The inadequacy of a damages award and the probability of recovery (see Kerr at para. 51); 3.

In the case of a “wrongful conduct” claim, whether there is a need to deter others from abusing positions of trust and loyalty (seeSoulos at para. 33); 4. Whether the policy reasons for imposing a constructive trust in a domestic dispute should be carried over into a commercial disputebased in whole, or in part, on contract; 5. Whether third parties such as intervening creditors would be adversely affected (see Soulos at para. 45). [39] I am not prepared to say, at this stage, that there is no reasonable chance of success of Bitmain’s claim for a remedialconstructive trust over the Facility.

In the case of the claim for a constructive trust based on unjust enrichment – if established – it mayindeed be unlikely the claim for a proprietary remedy will succeed. But that is not enough to warrant striking the requested relief at thisstage. [40] It may be even more unlikely, given the pre-conditions set out in Soulos, that a constructive trust based on any establishedwrongful conduct claim will succeed. But again, I am not prepared to conclude that GND has met the high threshold for striking therequesting relief.

However, allowing the amendment seeking relief in the form of a remedial constructive trust does not mean that theamendment seeking a legal claim to GND’s Facility can remain. For the reasons I will set out shortly, that amendment must be refused. [41] As noted, the amendments also seek the imposition of a remedial constructive trust over two adjoining properties not owned byGND. These property owners are not parties to this proceeding.

It is plain and obvious that when considering any discretionary remedybased upon either unjust enrichment or wrongful conduct, the Court would not impose a constructive trust – a proprietary remedy – onproperty owned by a non-party. [42] Accordingly, the amendments must be redrafted to reflect that any claim relating to any balance of the prepayment is not anelement of the unjust enrichment or wrongful conduct claims; that the reference to adjoining properties excludes properties not owned by

GND; and that any reference to a legal claim to the Facility is struck. [ 43 ] The amendments are allowed subject to the following changes to the Second Amended Statement of Claim: 1. Paragraph 36 - :delete “the Prepayment” so that later references to the “Funds” (line 6) will not include any prepayment monies. 2. Paragraph 37 – delete the two properties not owned by GND. 3.

Paragraph 39 – delete everything after the first sentence, i.e. delete everything following “use of the Funds” (line 2). application to vacate notice of lis pendens [ 44 ] Do these amendments now allow the conclusion that the litigation is in respect of land or an interest in land and thus support the filing of a notice of lis pendens ? [ 45 ] Let me say at the outset that applying for amendments to ground a notice of lis pendens some seven months after the notice was filed and two months after the filing of GND’s application to vacate the lis pendens is not a practice to be commended.

In and of itself, the sequence of events could raise the inference that the notice was filed for strategic reasons rather than to advise of a claim asserting an interest in land. [ 46 ] When the notice was filed on October 13, 2017, it asserted, as reproduced earlier in these reasons (at para. 8), a proceeding grounded on fraudulent misrepresentation, detinue, conversion and breach of contract, with the unlawful use of cash to improve the Facility, thus giving rise to a constructive trust. [ 47 ] The original Statement of Claim issued on March 16, 2017, was attached to the notice.

There is nothing in this pleading about the expenditure of funds to improve the Facility, neither is there any relief requested by way of constructive trust over the Facility. The requested relief is general and special damages. [ 48 ] A first amended Statement of Claim filed on May 1, 2017, adds, among other things, claims of theft, deceit and intimidation. Additional relief is sought – an order for return of Bitmain’s computers.

No constructive trust is sought. [ 49 ] In my view, there is no reading of the Statement of Claim, as it stood at the time of filing of the notice, that could support a conclusion that the litigation was in respect of land. [ 50 ] In the absence of litigation in respect of land or an interest in land, I would categorize the filing of notice of lis pendens as improper. [ 51 ] I find support for this categorization in the comments of Welsh, J.A. in Paro Enterprises Ltd. v. Murphy , 2015 NLCA 33 at paragraph 19 .

She said: “I note that inappropriate conduct by a party in registering a lis pendens without first or coincidently commencing an action may be dealt with by an appropriate order as to costs when the lis pendens is vacated.” [ 52 ] In Paro , the Court of Appeal refused to vacate a notice of lis pendens that had been filed prior to the commencement of a proceeding seeking an interest in a matrimonial home. But I note that Paro involved matrimonial litigation under the Family Law Act , R.S.N.L. 1990, c.

F-2, and reflected, as said by Hoegg, J.A. at paragraph 39 “unique circumstances.” [ 53 ] I do not read Paro as standing for the proposition that filing a notice of lis pendens in the absence of litigation claiming an interest in land is a practice to be countenanced. Indeed, first among the ‘best practices’ principles and procedure listed by Welsh, J.A. at paragraph 31 is: “A lis pendens should not be filed until after litigation has been commenced by means of an originating application or Statement of Claim.” [ 54 ] Substantively, it is clear that the matrimonial home dispute in Paro was in respect of land.

Welsh, J.A. expressed her agreement with the following comments of LeBlanc, J. in Infini-T Holdings Ltd. v. Bell Aliant Regional Communications Inc., 2010 NLTD(G) 205 - at paragraph 14 of Paro : A lis pendens is a notice of pending legal action involving an interest in land, and is intended to preserve rights up to and during the litigation; it involves an action in rem.

A registered lis pendens does not constitute a lien or a charge on land but merely clouds the title. … If damages can provide an adequate remedy for the party filing a lis pendens it should not be allowed to stand. [my underlining] [ 55 ] For present purposes, what is important is the characterization of the nature of the proceeding that would support the filing of a notice – it must be an in rem proceeding involving an interest in land. [ 56 ] I find helpful the comments of Cameron, J., as she then was, in Newfoundland and Labrador Housing Corp. v. Ennis (1987),

(NL SC), 64 Nfld. & P.E.I.R. 22, 5 A.C.W.S. (3d) 43 (Nfld. S.C.(T.D.)) at paragraphs 44 - 47: 44 The doctrine of lis pendens was developed to prevent frustration of suits and actions in respect of land. Essentially it provides thatone who acquires an interest in land while litigation is pending in respect of that land is bound by the plaintiff's claim if successful,whether or not the purchaser had notice of the litigation when his interest was acquired. 45 In Bellamy v.

Sabine (1857), 44 E.R. 842 at 849 Turner L.J. held: The doctrine of lis pendens is not, as I conceive, founded upon any of the peculiar tenets of a Court of Equity as to implied or constructivenotice.

It is, as I think, a doctrine common to the Courts both of law and of equity, and rests, as I apprehend, upon this foundation -- thatit would plainly be impossible that any action or suit could be brought to a successful termination, if alienations pendete lite werepermitted to prevail. 46 This doctrine created hardship for purchasers without notice (Anger and Hansberger Law of Real Property, 2nd ed., 1985, Vol. 2,1719).

In England to overcome this hardship The Judgments Act, 1839, 2 & 3 Vict. c.11, s.7 provided that a person who had no actualnotice of litigation would not be affected unless a memorandum were filed as provided by the legislation. 47 The doctrine of lis pendens is part of the body of law received into the law of Newfoundland. The statute of 1839 was not, not onlybecause of its date of enactment but also because of its classification as "purely local". (Syndicat Lyonnais du Klondyke v.

McGrade(1905), (SCC), 36 S.C.R. 251.) [57] I take from this that if there is litigation in which a court is called upon to adjudicate a plaintiff’s claim to an interest in land, beit either a legal or equitable interest, it is in the interests of the administration of justice that the plaintiff, if successful, be able to realizethe benefit of the interest sought. In light of the doctrine, the plaintiff needed no protection from intervening purchasers of the interestingquestion.

The protection was given by the doctrine of lis pendens and the courts’ intention to prevent the frustration of suits. [58] Registration legislation subsequently alleviated the potential hardship of the doctrine by requiring a plaintiff to give notice ofthe claim in order to obtain the benefit of the doctrine; that is, the notice serves to preserve the potential priority of the plaintiff. (see theRegistration of Deeds Act, 2009, S.N.L. 2009, c.

R-10.01, para. 7(1)(e)) [59] Put simply, with proper notice, the ability of a plaintiff to realize the fruits of a successful claim is preserved until the courtadjudicates the claim. [60] As confirmed in Paro, the litigation that benefits from the doctrine of lis pendens must be an action in rem. [61] Black’s Law Dictionary, 9th ed. (United States: Thomson Reuters, 2009) provides a useful description: in rem Iin rem), adj. [Latin “against a thing”] (18c) Involving or determining the status of a thing, and therefore the rights of personsgenerally with respect to that thing. … i) “An action in rem is one in which the judgment of the court determines the title to property and the rights of the parties, notmerely as between themselves, but also as the property upon which the court had adjudicated.” R.H.

Graveson, Conflict of Laws 98 7thed. 1974). [62] This definition confirms that in an in rem proceeding, the subject of the adjudication is a thing – an item, a property – theownership interests or possession of which are in issue.

The litigation involves competing claims to the property, claims which existedprior to the commencement of the litigation, claims which the court is asked to adjudicate. [63] It seems to me that in order to determine whether a particular proceeding is in fact a proceeding in rem, one should simplymake a common sense evaluation of the pleadings and determine whether or not a court is being asked to determine the status of a thing.What are the issues the parties are asking the court to determine? [64] In a case such as Paro, the question is easily answered.

The applicant asked the court to decide the ownership of thematrimonial home. She did not seek an entitlement to damages, but rather ‘a one-half interest’ in specific property. Paro is clearly anaction in rem. [65] Is this litigation an action in rem? In my view, the answer is no. It is a claim for money damages and for return of computerhardware and software.

It has nothing whatsoever to do with competing claims to ownership of or an interest in GND’s Facility inLabrador City. [66] An effort to change the character of the proceeding to an in rem proceeding was made only after GND challenged the filing ofthe notice of lis pendens. [67] Assuming, based upon Paro, that in “unique circumstances” with the potential for a “possibly unjust end” (at para. 39) if anotice of lis pendens is not maintained, a subsequent amendment or filing can be offered to support a notice of lis pendens, the

circumstances here are not in any sense unique. But more fundamentally, the pleadings as now amended cannot be characterized asreflecting a proceeding in rem. [68] Bitmain says its request for the imposition of a remedial constructive trust brings into the litigation an interest in land sufficientto support the filing of a notice of lis pendens. I do not agree. [69] It is true that a constructive trust is a proprietary remedy. But it is only a remedy, a remedy that is not available as of right, butonly at the discretion of the court and only in certain circumstances.

It is used most frequently in domestic cases to remedy the unjustenrichment of one partner, or in other cases, occasionally, to address breaches of equitable obligations. (see Pettkus v. Becker, (SCC), [1980] 2 S.C.R. 834, Soulos, Kerr, and Pro-Sys) [70] The earlier discussion points out that a litigant has no legal right or entitlement to a remedial constructive trust.

It is imposedsolely as a consequence of the exercise of judicial discretion; Dickson, J., as he then was, put it this way in Petkus at paragraph 25: 25. … It is a broad and flexible equitable tool which permits courts to gauge all the circumstances of the case, including therespective contributions of the parties, and to determine beneficial entitlement. [71] The remedial constructive trust is, as put by Dickson, J., a tool, the use of which only arises for consideration after there hasbeen an adjudication by the court of the plaintiff’s substantive claim. Has the plaintiff been unjustly enriched?

Has there been a breach ofan equitable obligation? If so, is a proprietary remedy appropriate? (see Soulos sat para. 45) [72] Viewed in this light, the imposition by a court of a remedial constructive trust differs little from the enforcement, by way of aproperty attachment or seizure, of a money judgment following a finding of liability on a damages claim. [73] The remedial constructive trust establishes an interest in property only when a court determines, following a finding ofentitlement to relief, that relief is properly provided by way of a proprietary restitutionary order.

Up until that point, the litigation doesnot involve a claim to an interest in property. There is no issue of ownership to the property, no competing claims to the property.

Oncethe plaintiff’s entitlement to relief of some nature has been adjudicated and established, the court, in its discretion, may effectivelytransfer property from the defendant (whose ownership is not in question) to the plaintiff through the mechanism of the constructivetrust. [74] It is only at this point that the plaintiff’s interest in the property arises, not as a result of any adjudication of competing claimsto the property in question, but as a result of the court’s exercising its remedial discretionary authority. [75] This point was made with crystal clarity by La Forest, J. in Lac Minerals.

In a commercial case involving the acquisition ofproperty, La Forest, J. considered the issue of restitutionary relief. The remedial focus – following the adjudication of entitlement, is setout at paragraph 64: 64 The issue then is this.

If it is established that one party (here LAC) has been enriched by the acquisition of an asset, the Williamsproperty, that would have, but for the actions of that party been acquired by the plaintiff, (here Corona), and if the acquisition of thatasset amounts to a breach of duty to the plaintiff, here either a breach of fiduciary obligation or a breach of a duty of confidence, whatremedy is available to the party deprived of the benefit?

In my view the constructive trust is one available remedy, and in this case it isthe only appropriate remedy. [76] He continued, pointing out the deterrent feature of the remedy at paragraph 70: 70 … The imposition of a remedy which restores an asset to the party who would have acquired it but for a breach of fiduciaryduties or duties of confidence acts as a deterrent to the breach of duty and strengthens the social fabric those duties are imposed toprotect.

The elements of a claim in unjust enrichment having been made out, I have found no reason why the imposition of arestitutionary remedy should not be granted. [77] And further, at paragraph 72: 72 … The constructive trust does not lie at the heart of the law of restitution. It is but one remedy, and will only be imposed inappropriate circumstances.

Where it could be more appropriate than in the present case, however, it is difficult to imagine. [78] After discussing some of the concerns about the discretionary nature of the remedy, he says at paragraph 77: 77 I do not countenance the view that a proprietary remedy can be imposed whenever it is "just" to do so, unless further guidance canbe given as to what those situations may be.

To allow such a result would be to leave the determination of proprietary rights to "somemix of judicial discretion ... subjective views about which party 'ought to win' ..., and 'the formless void of individual moral opinion'", perDeane J. in Muschinski v. Dodds (1985), 160 C.L.R. 583 at 616. As Deane J. further noted at 616: Long before Lord Seldon's anachronism identifying the Chancellor's foot as the measure of Chancery relief, undefined notions of 'justice'and what was 'fair' had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system ofrational law.

The mere fact that it would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownershipagainst another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in

part lies, in equity, in that other. [79] Of particular importance to the present case is the passage at paragraph 78: 78 Much of the difficulty disappears if it is recognized that in this context the issue of the appropriate remedy only arises once a validrestitutionary claim has been made out. The constructive trust awards a right in property, but that right can only arise once a right to relief

has been established. In the vast majority of cases a constructive trust will not be the appropriate remedy. [ 80 ] As discussed already, I have allowed the amendments to include in the requested relief a claim for a constructive trust over the Facility should there be a finding of unjust enrichment or a breach of an equitable obligation.

I reiterate that even if an entitlement to relief is established, the imposition of a constructive trust does not necessarily follow. [ 81 ] But the simple insertion into the pleadings of a claim for relief by way of constructive trust does not convert the proceeding into an in rem proceeding; it does not require the court to adjudicate competing claims, in this case, to the Facility or any interest in the Facility.

As noted, should a constructive trust eventually be imposed by the Court, it is only at that point, much like an attachment enforcing a judgment, that the plaintiff’s interest in the property comes in to being. [ 82 ] A notice of lis pendens is a cloud on title. Properly filed, it represents a serious impediment to the defendant’s dealing with the property in question. Filing a notice of lis pendens for strategic reasons rather than to give notice of a claim involving an interest in land, is, in my view, inappropriate and should not be countenanced. As pointed out by LeBlanc, J. in Reardon v.

Whiffen, 2011 NLTD(G) 127 at paragraph 11, if a plaintiff is concerned about realizing on a judgment in its favour, there are mechanisms to provide prejudgment security in appropriate circumstances. The filing of a notice of lis pendens is not one of these mechanisms. [ 83 ] The pleadings, as now amended, do not support the filing of a notice of lis pendens . The notice must be vacated. conclusion 1. The amendments to the Statement of Claim are allowed as set out in paragraph 43. 2. The notice of lis pendens is vacated. [ 84 ] These two applications resulted from the filing of the lis pendens.

GND asserts that the filing of the lis pendens was an abuse of process and seeks Column 5 costs. Given the pleadings at the time the notice was filed, I am inclined to the view that the notice was filed for strategic reasons. Although the subsequent amendments, as allowed, do not support the continuance of the notice, they were nonetheless for the most part allowed. [ 85 ] Considering all the circumstances, I consider it appropriate that GND receive its costs for both applications in accordance with the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sched.

D, Column 3 of the Scale of Costs. _____________________________ David B. Orsborn Justice