The Ontario Superior Court of Justice has agreed with the Canadian Imperial Bank of Commerce (CIBC) in a legal battle against QuadrigaCX, the country’s largest crypto exchange.
According to a document filed November 9, the court has ordered that a disputed $19.6 million in funds be handed over to the Accountant of the Superior Court as efforts to identify the owner of the money get under way, reported Cointelegraph.com.
The conflict was previously reported by the Globe and Mail in an October 8 story. Vancouver-based QuadrigaCX had been facing difficulties accessing $16.3 million of funds since January, when CIBC froze five accounts that belonged to the exchange’s payment processor and its owner, Jose Reyes. CIBC defended the move, saying that it could not determine who owned the funds.
The argument was escalated to the court, where CIBC requested that the funds be withheld as the question of whether they belong to QuadrigaCX, Costodian, or the 388 users who had deposited the funds. The bank also argued that it is entitled to an interpleader order as it has no beneficial interest in the disputed funds and there is real reason to expect that there are competing claims for the funds.
Asserting its undisputed ownership of the greater part of the funds, QuadrigaCX said that the bank was mistaken in freezing the sum. Gerald Cotton, QuadrigaCX’s CEO, and Jose Reyes, its owner, both testified that each depositor had been credited with the appropriate sum QuadrigaCX Bucks in their respective online wallets based on the amounts they deposited to the transaction accounts.
But when cross-examined, Reyes admitted that he relied only on Cotton’s word to make his assertion. During his own cross-examination, Cotton refused to confirm his evidence.
“Cotton’s refusal to answer the question leads me to draw an adverse inference that Depositors have not been credited with QuadrigaCX bucks in their online wallets,” presiding judge Glenn Hainey said in the court file. “For these reasons I am satisfied that CIBC has met the onus of establishing that there is a real foundation for the expectation of competing claims with respect to the Disputed Funds.”
Citing previous case law that establishes interpleader orders cannot be used to relieve an entity of possible liability arising from their actions, Hainey stopped short of absolving the bank of all liability from its decision to freeze the accounts.
“[I]t would be inappropriate for me to extinguish any liability that CIBC may have for freezing the accounts in the absence of an evidentiary record that establishes that CIBC has no liability,” he said.
“[T]he court has made no ruling yet on whether CIBC acted appropriately in freezing the funds in the first place,” Cotton told the Globe and Mail. “Regarding this point, we are considering our next steps.”
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