Yimiao Australia Pty Ltd v Star Mining Pty Ltd
[2022] VSC 701
•15 November 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2022 03213
| YIMIAO AUSTRALIA PTY LTD (ACN 657 775 758) | Plaintiff |
| v | |
| STAR MINING PTY LTD (ACN 656 484 525) & ORS | Defendants |
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JUDGE: | ATTIWILL J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 14 and 15 September 2022, 27 October 2022 and 3 November 2022 |
DATE OF RULING: | 15 November 2022 |
CASE MAY BE CITED AS: | Yimiao Australia Pty Ltd v Star Mining Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2022] VSC 701 |
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INJUNCTIONS – Interlocutory injunction – Application for interlocutory injunction for delivery up of cryptocurrency mining equipment – Whether serious question to be tried – Whether balance of convenience favours granting the interlocutory injunction – Where a defendant claims a registered security interest in the cryptocurrency mining equipment pursuant to the Personal Property Securities Act 2009 (Cth) – Where the plaintiff’s undertakings are inadequate to protect the defendant’s claimed security interest - Where the balance of convenience favours the refusal of the injunction – Application for interlocutory injunction refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O Bigos KC with Mr P Annabell | Gilbert + Tobin |
| For the First Defendant | Mr P H Caillard | Maxim Legal |
| For the Third Defendant | Mr M A J McKillop | MinterEllison |
| For the Fourth Defendant | Mr L F White | Cathay Lawyers |
HIS HONOUR:
INTRODUCTION
This is an application by the plaintiff (Yimiao) by summons filed 13 September 2022 (summons) for an interlocutory injunction for the delivery up by the third defendant (CIT) of cryptocurrency mining equipment. Yimiao seeks the delivery up of 810 items of ‘L7 Antminer’ cryptocurrency mining equipment (the Yimiao Identified Claimed Equipment) in a room (Mining Room) and a warehouse (Warehouse) at premises located at 159-171 Wellington Rd, Clayton (the Premises) and in two stacked shipping containers (the Container Rooms) at 175 Wellington Rd, Clayton (the Adjacent Premises). The Yimiao Identified Claimed Equipment has been identified during inspections of the Premises and the Container Rooms.
This proceeding concerns claims by Yimiao concerning a greater number of items of equipment, being 1,598 items of L7 Antminer cryptocurrency mining equipment (the Yimiao Total Claimed Equipment). The summons concerns only the Yimiao Identified Claimed Equipment as this is the equipment that has been identified during recent inspections of the Premises and the Container Rooms. The remainder has not been located.
By the summons, Yimiao sought the following order (based upon the undertakings set out in the order):
1.Until the hearing and determination of this proceeding or further order, the Third Defendant deliver up possession immediately to the Plaintiff of:
(a)the units of equipment described as L7 Antminer crypto-mining hardware bearing serial numbers set out in Annexure A to this summons, such that the units are made available to be collected by the Plaintiff and its contractors at the site at 159-171 Wellington Road, Clayton, Victoria during business hours; and
(b)the units of equipment described as L7 Antminer crypto-mining hardware bearing serial numbers set out in Annexure B to this summons, such that it will not interfere with the collection of the units by the Plaintiff and its contractors at the site at 175 Wellington Road, Clayton, Victoria,
upon the following undertakings by or on behalf of the Plaintiff or such further or other undertakings as the Court considers appropriate:
A.to abide by any order that the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of the order, which the plaintiff ought to pay;
B.that, until the hearing and determination of this proceeding or until further order, the Plaintiff will not dispose of the equipment delivered up under the order;
C.that it will not contend that the Third Defendant does not have ‘possession’ (within the meaning of the Personal Property Securities Act 2009 (Cth)) of the equipment referred to in paragraph (a) of the order, or ‘control’ (within the meaning of the Personal Property Securities Act 2009 (Cth)) of the equipment referred to in paragraph (b) of the order, solely by reason of the delivery up of the equipment under the order.
2. Costs payable by the Third Defendant.
3. Such other or alternative relief as the Court may decide.
Yimiao seeks injunctive relief only against CIT.
The first defendant (Star Mining) did not oppose the summons.[1] Star Mining also makes claims in this proceeding against CIT, in a statement of claim indorsed on a third party notice, concerning its cryptocurrency mining equipment at the Premises. Star Mining seeks, inter alia, the delivery up of its equipment. Star Mining does not, at this stage, seek any interlocutory relief. The second defendant (3V Development) did not appear at the hearing of the summons. The fourth defendant (Genesis) initially submitted that it did not oppose the summons or the form of order proposed by CIT,[2] but when further questioned by the Court, submitted that it opposed the form of order proposed by Yimiao. It also submitted that if Yimiao’s proposed order was amended to include certain references to Genesis (i.e. the fourth defendant) then it would not oppose Yimiao’s summons.[3] CIT opposed the summons.
[1]Transcript of Proceedings, Yimiao Australia Pty Ltd v Star Mining Pty Ltd & Ors (Supreme Court of Victoria, S ECI 2022 03213, Attiwill J, 14 September 2022) 39.14-39.18 (Mr Caillard) (‘Transcript of Proceedings 14 September 2022’).
[2]Ibid 39.8-39.13 (Mr White).
[3]It submitted that it has an interest in the Yimiao Identified Claimed Equipment as it is a sub-bailee of the Yimiao Identified Claimed Equipment under the Star Mining Agreement between it and Star Mining. See Genesis’ submissions filed 2 November 2022.
For the reasons I will now give, I will dismiss the summons.
PARTIES’ FURTHER UNDERTAKINGS[4]
[4]It is important to set out the various undertakings proffered to the Court to understand the submissions made by the parties at the hearing.
On the first day of the hearing of the summons on 14 September 2022, CIT provided a proposed order, inter alia, dismissing the summons on the basis of the following undertakings (including undertakings to be given by Yimiao):
A.The plaintiff by its counsel undertakes to abide by any order the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of paragraph C and D below, which the plaintiff ought to pay.
B.Except as set out in paragraph C and D below, each of the plaintiff, first, third and fourth defendants by their counsel undertake that, they will not, until trial or further order whether by themselves, their officers, servants or agents, interfere with, remove, dispose of or otherwise deal with:
(1)376 units of equipment described as L7 Antminer crypto-mining hardware bearing serial numbers set out in the Annexure A to this Order located at 159-171 Wellington Road, Clayton (Premises); and
(2)434 units of equipment described as L7 Antminer crypto-mining hardware bearing serial numbers set out in the Annexure B to this Order located in the shipping container held at 175 Wellington Road, Clayton (Container)
(Yimiao Claimed Equipment).
C.The plaintiff and third defendant by their counsel undertakes to:
(1)permit the third defendant to install a card access system at the hosting locations at the Premises and Container;
(2)subject to the bank guarantee referred to in paragraph D(2) being provided to the third defendant and the plaintiff not being in breach of paragraph D(1), to permit one representative from the plaintiff (Mr Feng to access the Yimiao Claimed Equipment on 2 Business Days' notice to do such things reasonably required to operate the Yimiao Claimed Equipment to mine crypto-currency.
D.The plaintiff, by its counsel, undertakes to:
(1)pay for electricity used by the Yimiao Claimed Equipment, charged by the third defendant, monthly in arrears, at the rate of $0.16 plus GST per kilowatt hour on a machine rating of 3.5kW per machine for all operating time after the date of this order (Electricity Costs), within 7 days following service of an invoice on the plaintiff by the third defendant and to make payment by bank cheque or immediately available electronic funds transfer, to an account(s) nominated by the third defendant or otherwise in cleared funds, without deduction, counterclaim or set-off;
(2)provide the third defendant an unconditional bank guarantee in the sum of $359,251.20 as security for one month's Electricity Costs;
(3)permit the third defendant to draw on the unconditional bank guarantee provided by the plaintiff to pay any unpaid Electricity Costs if any invoice for Electricity Costs is unpaid, in whole or part, after 7 days following service of the invoice on the plaintiff by the third defendant;
(4)to permit the third defendant to disconnect electricity to the Yimiao Claimed Equipment if any invoice for Electricity Costs is unpaid, in whole or part, after 7 days following service on the invoice on the plaintiff by the third defendant;
(5)to take out and maintain its own insurance for Yimiao Claimed Equipment, noting the third defendant as an interested party on the policy;
(6)provide the third defendant with all information, assistance and co-operation reasonably requested by the third defendant in order to enable the third defendant to render invoices for Electricity Costs;
(7)comply with all applicable laws, and also maintain and comply with any licences, consents, permits or other authorisations required for the operation of the Yimiao Claimed Equipment;
(8)not do anything which might prejudicially affect the third defendant's claimed interest as secured creditor of the Yimiao Claimed Equipment.
The undertakings in CIT’s proposed order, in effect, set out, inter alia, the terms of a proposed arrangement by which the Yimiao Identified Claimed Equipment could remain in situ and be operated at the Premises and the Container Rooms. This arrangement depends upon the agreement of Yimiao as it is based upon undertakings also to be given by it. Yimiao has not agreed to this arrangement.
At the conclusion of the hearing on 14 September 2022, the following undertakings were given to the Court by the parties:[5]
A.The plaintiff by its counsel undertakes to abide by any order the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of paragraph C below, which the plaintiff ought to pay.
B.The first defendant by its counsel undertakes to abide by any order the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of paragraph D below, which the first defendant ought to pay.
C.Each of the first, third and fourth defendants by their counsel undertake that, they will not, until the hearing and determination of the proceeding, or further order whether by themselves, their officers, servants or agents, interfere with, remove from the premises located at 159 - 171 Wellington Road and 175 Wellington Road, Clayton, dispose of or otherwise deal with, any of the 1598 units of equipment described as L7 Antminer Crypto-mining hardware bearing serial numbers set out at Annexure A to these orders (Yimiao Claimed Equipment).
D.Each of the third and fourth defendants by their counsel, respectively, undertake that, they will not, until the hearing and determination of the proceeding, or further order whether by themselves, their officers, servants or agents, interfere with, remove from the premises, located at 159 - 171 Wellington Road, Clayton dispose of or otherwise deal with any of the 2059 units of equipment described as Crypto-mining machines listed at page 52 of exhibit “XZ-1” to the affidavit of Xiaoliang Zeng affirmed on 21 August 2022 (Star Mining Claimed Equipment).
[5]Order made by the Honourable Justice Attiwill on 14 September 2022.
At the hearing of the second day of the summons on 15 September 2022, Yimiao made extensive revisions to its proposed undertakings:[6]
[6]The final version circulated by Yimiao’s solicitors on 15 September 2022, by email from Mr Francis Qi of Gilbert + Tobin sent to the Court and the parties and received at 9:43am.
The plaintiff by its counsel undertakes:
A.to abide by any order that the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of this order, which the plaintiff ought to pay;
B.that, until the hearing and determination of this proceeding or until further order:
(i) it will not dispose of, remove from Australia or grant any security over the equipment referred to in paragraph 1 of these Orders;
(ii) it will store the equipment referred to in paragraph 1 of these Orders at premises maintained by: (a) DC Two Limited; or (b) EWE Melbourne Limited; or (c) such other location agreed in writing with the third defendant, or ordered by the Court;
(iii) it will retain a record of all equipment removed pursuant to paragraph 1 of the Orders, which lists the serial number of each unit and their location;
(iv) it will provide a copy of the record referred to in paragraph (iii) above to the first, third and fourth defendants within 48 hours of removal;
(v) it will ensure that the equipment is adequately insured, and that the insurer has been given notice in writing that the third defendant has asserted a security interest in the equipment;
C.that it will not contend that the third defendant does not have ‘possession’ (within the meaning of the Personal Property Securities Act 2009 (Cth)) of the equipment referred to in paragraph 1 of these Orders solely by reason of the delivery up of the equipment under paragraph 1 of these orders.
D.that:
(i) the movement and collection of the equipment from either site at 159-171 Wellington Road or at 175 Wellington Road Clayton to or between the premises in B(ii) above will be performed by EWE Melbourne Limited (or such other logistics companies agreed in writing between the plaintiff and the third defendant, or ordered by the Court), supervised by a suitably qualified IT person;
(ii) it will permit the third defendant to supervise (and take video or photographs of) the plaintiff’s removal of the equipment in paragraph 1 of these Orders;
(iii) it will comply with all reasonable directions of the third defendant and its representatives in respect of the movement and collection of the equipment in paragraph 1 of these Orders.
E.that until the earlier of 9 March 2023 or the hearing and determination of the proceeding (whichever earlier) or until further order, not to repay the loans referred to as “directors loans” referred to in the balance sheet at p 182 of Exhibit STF-1 to the affidavit of Songtao Feng dated 19 August 2022.
Yimiao Tech Pte Ltd undertakes:
F.that until the earlier of 9 March 2023 or the hearing and determination of the proceeding (whichever earlier) or until further order, not to call on the loans referred to as “directors loans” referred to in the balance sheet at p 182 of Exhibit STF-1 to the affidavit of Songtao Feng dated 19 August 2022.
At the hearing on 15 September 2022, Genesis also made revisions to Yimiao’s proposed undertakings which added references to the ‘fourth defendant’ (i.e. Genesis).
At the hearing on 15 September 2022, CIT made revisions to its proposed undertakings in the event the Court refused Yimiao’s injunctive relief. It submitted that it will undertake to: [7]
[7]Transcript of Proceedings, Yimiao Australia Pty Ltd v Star Mining Pty Ltd & Ors (Supreme Court of Victoria, S ECI 2022 03213, Attiwill J, 15 September 2022) 319.16-320.12 (Mr McKillop) (‘Transcript of Proceedings 15 September 2022’).
(a) install a card access system at the hosting locations at the Premises (159 Wellington Road, Clayton) and the Container (175 Wellington Road, Clayton) [Container Rooms] within two business days of the Court making those orders;
(b) appoint a contractor as security guard or guards to monitor, control and supervise access to the Premises and the Container [Container Rooms] from 9.00am to 5.00pm on Monday to Friday;
(c) not allow access to the hosting locations at the Premises and the Container [Container Rooms] outside the hours of 9.00am to 5.00pm Monday to Friday to anyone, other than:
(i) the Plaintiff or its representatives with 3 business days' notice; or
(ii) CIT or its contractors or agents for the purpose of safety or maintenance;
(d) provide the Plaintiff access to the Yimiao [Identified] Claimed Equipment so that they can operate the equipment, and will provide internet, lighting, electricity and the other necessary infrastructure for the equipment to be run, subject to the parties acting reasonably to agree on the terms of the provision of that infrastructure; and
(e) not, until trial or further order, whether by themselves, their officers, servants or agents, interfere with, remove, dispose of or otherwise deal with the Yimiao [Identified] Claimed Equipment.
At the hearing on 15 September 2022, Star Mining informed the Court that:[8]
… Star Mining is ready, willing and able to perform its contractual obligations to Yimiao. As such, it will directly assist in the operation of the machines and support Yimiao wherever the machines are located.
[8]Ibid 249.13-249.17 (Mr Caillard).
On 28 October 2022, Yimiao made further revisions to its proposed undertakings:[9]
[9]Email from Mr Qi of Gilbert + Tobin sent to the Court and the parties on 28 October 2022, received at 1.33pm. The amendments added are emphasised with underlining.
The plaintiff by its counsel undertakes:
A.to abide by any order that the Court may make as to damages, in case the Court shall hereafter be of the opinion that any person shall have sustained any loss, by reason of this order, which the plaintiff ought to pay;
B.that, until the hearing and determination of this proceeding or until further order:
(i) it will not dispose of, remove from Australia or grant any security over the equipment referred to in paragraph 1 of these Orders;
(ii) it will store the equipment referred to in paragraph 1 of these Orders at premises maintained by: (a) DC Two Limited; or (b) EWE Melbourne Limited; or (c) such other location agreed in writing with the third defendant, or ordered by the Court.
(iii) it will retain a record of all equipment removed pursuant to paragraph 1 of the Orders, which lists the serial number of each unit and their location;
(iv) it will provide a copy of the record referred to in paragraph (iii) above to the first, third and fourth defendants within 48 hours of removal;
(v) it will ensure that the equipment is adequately insured, and that the insurer has been given notice in writing that the third defendant has asserted a security interest in the equipment;
C.that it will not contend that the third defendant does not have ‘possession’ (within the meaning of the Personal Property Securities Act 2009 (Cth)) of the equipment referred to in paragraph 1 of these Orders solely by reason of the delivery up of the equipment under paragraph 1 of these orders.
D.that:
(i) the movement and collection of the equipment from either site at 159-171 Wellington Road or at 175 Wellington Road Clayton to or between the premises in B(ii) above will be performed by EWE Melbourne Limited (or such other logistics companies agreed in writing between the plaintiff and the third defendant, or ordered by the Court), supervised by a suitably qualified IT person;
(ii) it will permit the third defendant to supervise (and take video or photographs of) and the fourth defendant to observe the plaintiff’s removal of the equipment in paragraph 1 of these Orders;
(iii) it will comply with all reasonable directions of the third defendant and its representatives in respect of the movement and collection of the equipment in paragraph 1 of these Orders.
E.that until the hearing and determination of the proceeding or until further order, not to repay the loans referred to as “directors loans” referred to in the balance sheet at p 182 of Exhibit STF-1 to the affidavit of Songtao Feng dated 19 August 2022.
F.that within 14 days, it will pay the sum of $370,000 into Court as security for the undertakings recorded in these Orders, and provide written confirmation to the defendants once the sum has been paid.
Yimiao Tech Pte Ltd and its sole director, Songtao Feng jointly and severally undertake:
G.that until the hearing and determination of the proceeding or until further order, not to call on (or cause to be called on or cause to be repaid) the loans referred to as “directors loans” referred to in the balance sheet at p 182 of Exhibit STF-1 to the affidavit of Songtao Feng dated 19 August 2022.
H.to submit to the jurisdiction of the Supreme Court of Victoria in respect of the undertakings made in these orders.
On 2 November 2022, Genesis again made revisions to Yimiao’s proposed undertakings which added references to the ‘fourth defendant’ (i.e. Genesis).
At the further hearing on 3 November 2022, Yimiao revised its proposed orders. It submitted that the orders should only take effect upon the payment into Court of the sum of $370,000 referred to in paragraph F of the proposed undertaking.[10] This is not presently set out in Yimiao’s proposed form of order.
[10]Transcript of Proceedings, Yimiao Australia Pty Ltd v Star Mining Pty Ltd & Ors (Supreme Court of Victoria, S ECI 2022 03213, Attiwill J, 3 November 2022) (‘Transcript of Proceedings 3 November 2022)’ 70.28-70.30 (Dr Bigos KC).
PARTIES’ MATERIAL
Yimiao relied upon:[11]
[11]At the hearing on 15 September 2022, it came to the Court’s attention that a number of affidavits filed in the proceeding were irregular in that they were both sworn and affirmed. The Court directed that all irregular affidavits, to the extent that any party wished to rely upon them, had to be remade and filed and served. This was attended to.
(a) affidavits of Mr Songtao Feng, a director of Yimiao, made 19 August 2022 (First Feng affidavit), 5 September 2022 (Second Feng affidavit) and 14 September 2022 (Third Feng affidavit);
(b) affidavits of Ms Christiana McCudden, partner of Gilbert + Tobin, solicitors for Yimiao, made 19 August 2022 (First McCudden affidavit), 30 August 2022 (Second McCudden affidavit), 5 September 2022 (Third McCudden affidavit), 11 September 2022 (Fourth McCudden affidavit) and 13 September 2022 (Fifth McCudden affidavit);
(c) affidavit of Mr Dajian Li, director of 3V Development, affirmed 22 August 2022 (Dajian Li affidavit);
(d) affidavits of Mr Hao (Francis) Qi, solicitor employed by Gilbert + Tobin, solicitors for Yimiao, made 26 August 2022 and remade on 16 September 2022 (First Qi affidavit) and 30 August 2022 and remade on 16 September 2022 (Second Qi affidavit)[12];
[12]This affidavit was originally made on 30 August 2022. It contained a number of handmade amendments. Although it was not irregular, the plaintiff elected to re-affirm this affidavit. It was re-affirmed and re-filed on 16 September 2022.
(e) an affidavit of Mr Miaolin Chen, engineer employed by Star Mining, made 29 August 2022 and remade on 26 September 2022 (Chen affidavit);
(f) an affidavit of Mr Peter Brown, director of Tony Hargreaves and Partners, former solicitors for CIT, made 22 August 2022 (Brown affidavit);
(g) submissions dated 5 September 2022 (Yimiao’s submissions) and 12 September 2022 (Yimiao’s reply submissions).
Star Mining informed the Court that it did not rely upon any affidavits but it did rely upon its submissions dated 10 September 2022.
CIT relied upon:
(a) an affidavit of Mr Jaryd Rankin, solicitor employed by MinterEllison, solicitors for CIT, made 30 August 2022 and remade on 15 September 2022 (Rankin affidavit);
(b) an affidavit of Mr Jonathan McNaught, CEO of ViPlus Dairy Pty Ltd and former director of CIT, made 9 September 2022 (McNaught affidavit);
(c) an affidavit of Mr Christopher Warwick, law graduate employed by MinterEllison, solicitors for CIT, made 9 September 2022 and remade on 15 September 2022 (Warwick affidavit);
(d) affidavits of Mr Andrew Vella, solicitor employed by MinterEllison, solicitors for CIT, made 13 September 2022 (First Vella affidavit) and 15 September 2022 (Second Vella affidavit);
(e) affidavit of Mr Xiaoliang Zeng, manager and shareholder of Star Mining, made 21 August 2022 and remade 16 September 2022 (Zeng affidavit);
(f) submissions dated 9 September 2022, but then revised and filed 15 September 2022 (CIT’s submissions), 15 September 2022 (CIT’s reply submissions) and 3 November 2022 (CIT’s further submissions).
Genesis relied upon:
(a) an affidavit of Mr Xuelong (Tim) Li, director of Genesis, made 12 September 2022 (Xuelong Li affidavit);
(b) affidavits of Mr Chang Liu, solicitor for Genesis, made 15 September 2022 (First Liu affidavit) and 26 September 2022 (Second Liu affidavit)[13]; and
(c) submissions dated 12 September 2022 and 2 November 2022.
[13]This affidavit was filed and served after the second day of the hearing. The Court gave the parties an opportunity to object to it by email from chambers to the parties dated 26 September 2022 and no party did so.
The Court was also provided with a book of authorities and further authorities during the course of the hearing. Counsel for the parties made submissions at the hearings.
APPLICABLE PRINCIPLES
The applicable principles upon this application for an interlocutory injunction are well established and not in dispute between the parties.
In Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd,[14] the Court of Appeal said:
[14][2019] VSCA 318.
[106] Plaintiffs seeking an interlocutory injunction must establish that they have a prima facie case for the relief that they seek and that the balance of convenience favours the granting of an injunction.[15] The Court will consider either separately or as part of the consideration of the balance of convenience whether the plaintiff is likely to suffer injury for which damages would not be an adequate remedy.[16] In considering how strong the plaintiff’s case needs to be, the Court will take into account ‘the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order [sought]’.[17]
[107] Whether the relief sought is prohibitory or mandatory, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong to grant or refuse the injunction.[18]
[15]Ibid [106] (Beach, McLeish and Hargrave JJA) citing Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.
[16]Ibid citing Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 68 [19], 82 [65].
[17]Ibid citing Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 , 622.
[18]Ibid [107] (Beach, McLeish and Hargrave JJA) citing Bradto Pty Ltd v Victoria (2006) 15 VR 65 , 73 [33]–[35].
In Australian Broadcasting Corporation v O’Neill,[19] Gummow and Hayne JJ said:[20]:
[19](2006) 227 CLR 57.
[20]Ibid [65] (Gummow and Hayne JJ) (citations omitted).
[65] The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries, and continued:
The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the court continued, in a statement of central importance for this appeal:
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.
In Bradto Pty Ltd v State of Victoria,[21] the Court of Appeal said:[22]
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.
[21][2006] VSCA 89; (2006) 15 VR 65.
[22]Ibid 73 [35] (Maxwell P and Charles JA).
BACKGROUND[23]
[23]For convenience, given the number of persons who have made affidavits, I have inserted the name of the party to whom that person is associated in brackets whenever I refer to the person so that the reasons may be readily understood without further cross-checking. I have read all of the affidavits. I do not intend to set out every matter deposed to in these Reasons.
Yimiao was incorporated on 3 March 2022.[24] Mr Feng (Yimiao) gave evidence that Yimiao was incorporated for the sole purpose of mining cryptocurrencies and that it generates income solely from trading in cryptocurrencies.[25] Mr Feng (Yimiao) also gave evidence that it is part of the ‘Yimiao group’ which includes Yimiao Technology (HK) Limited (Yimiao Hong Kong).[26] Yimiao Hong Kong conducts a business of buying and selling crypto currency mining hardware.[27] Yimiao has a $100 share capital.[28] Yimiao Tech Pte Ltd (Yimiao Singapore) owns all of the shares in Yimiao[29] and Mr Feng (Yimiao) owns 80% of the shares in Yimiao Singapore.[30] Mr Feng (Yimiao) is a director of Yimiao Singapore.[31] There is no evidence that Yimiao owns any real property in Australia.[32] There is evidence that Yimiao owes Yimiao Singapore the sum of $30,947,835.[33] Mr Feng (Yimiao) gave evidence that he is not aware of any debt incurred by Yimiao that remains unpaid or is the subject of any demand issued to Yimiao by any creditor.[34]
[24]First Feng affidavit, [5].
[25]Second Feng affidavit, [7].
[26]First Feng affidavit, [7]-[9].
[27]Ibid [8].
[28]McNaught affidavit, [119].
[29]Exhibit ‘STF-1’ to the First Feng affidavit, 19.
[30]First Feng affidavit, [7].
[31]Third Feng affidavit, [2].
[32]McNaught affidavit, [120].
[33]Third Feng affidavit, [7].
[34]Ibid [9].
Star Mining was incorporated on 11 January 2022.[35] Star Mining conducts a business of cryptocurrency mining.[36] Mr Zeng (Star Mining), manager and shareholder of Star Mining, gave evidence that in late September 2021 the Chinese government banned all cryptocurrency transactions in China and that Star Mining then started to move its ‘mining facilities’ to other countries, including Australia.[37]
[35]Exhibit ‘STF-1’ to the First Feng affidavit, 81.
[36]Zeng affidavit, [9].
[37]Ibid [9].
3V Development is a company within the ‘Li Group’, being a group of companies in which the Li family, including Mr Dajian Li, have interests.[38] 3V Development is the registered owner of the Premises and the Adjacent Premises.[39] The Premises are constituted by a number of buildings including an office building, a laboratory, separate warehouses, carparking and a storage area.[40] The Premises include the Mining Room and Warehouse used by CIT.[41] Mr McNaught (CIT) gave evidence that 3V Development spent approximately $500,000 on the fit-out of the Mining Room.[42] The Adjacent Premises are leased to HardChrome Engineering Pty Ltd (HardChrome).[43] Mr McNaught (CIT) gave evidence that he brokered an agreement with HardChrome to allow CIT to keep the Container Rooms on the Adjacent Premises, but that CIT does not have a proprietary interest in the Adjacent Premises.[44] CIT does not lease any part of the Adjacent Premises or the Container Rooms.
[38]McNaught affidavit, [9], [12].
[39]Ibid [16].
[40]Ibid [17].
[41]Ibid [29], [37].
[42]Ibid [48].
[43]Ibid [82].
[44]Ibid [82]-[84].
Mr McNaught (CIT) gave evidence that: CIT was incorporated on 8 November 2021 as a ‘joint venture vehicle’ to operate cryptocurrency mining at the Premises; it does not currently and has never had any employees; and, its ability to pay rent to 3V Development is dependent on CIT generating revenue from its business activities.[45] Mr Vincent Zhou and Mr Chiyu (Jerry) Zhang assist in conducting the day to day activities of CIT.[46] CIT is a tenant of part of the Premises.[47] This is the part referred to by Mr McNaught (CIT) as the Mining Room.[48] Mr McNaught (CIT) gave evidence that there are approximately seven other tenants of parts of the Premises.[49] There is evidence that CIT has also used another part of the Premises, the Warehouse, to store equipment received from Genesis.[50] CIT also uses the Container Rooms[51] on the Adjacent Premises, owned by 3V Development, for cryptocurrency mining.[52] There is no evidence that CIT owns any real property in Australia.[53]
[45]Ibid [23]-[24], [26].
[46]Ibid [27].
[47]Ibid [18].
[48]Ibid [29].
[49]Ibid [18].
[50]Ibid [37]-[40].
[51]There are, in fact, two shipping containers, one stacked on top of the other.
[52]McNaught affidavit, [79]-[86].
[53]Third McCudden affidavit, [25].
Genesis was incorporated on 23 March 2022.[54] Mr Yuan was a director of Genesis from 23 March 2022 to 28 July 2022.[55] Mr Xuelong (Tim) Li is the present sole director.[56] He was appointed on 23 March 2022. He gave evidence that he became interested in cryptocurrency mining in 2021 and that he took steps to use his contacts in Australia and China ‘to make things happen’ as he understood that cryptocurrency mining was banned in China.[57] He gave evidence that Genesis incurred considerable costs in setting up the arrangements for the cryptocurrency mining operation at the Premises.[58] He gave evidence that Genesis incurred costs of about $100,000 in setting-up arrangements around the cryptocurrency mining operation.[59] There is no evidence that Genesis owns any real property in Australia.[60]
[54]Exhibit ‘JM-1’ to the McNaught affidavit, 67.
[55]Ibid.
[56]Ibid.
[57]Xuelong Li affidavit, [8]-[9].
[58]Ibid [11].
[59]Ibid [11]
[60]Third McCudden affidavit, [25]; Warwick affidavit, [8].
Mr Feng (Yimiao) gave the following evidence of cryptocurrencies and ‘mining’:[61]
11.Cryptocurrencies are described as virtual currencies and may be considered a form of electronic money. A unit of a cryptocurrency, such as a bitcoin, is created from code using an encrypted string of data blocks in the form of numbers known as blockchain. Cryptocurrencies can be bought and sold online on exchange platforms and can be used to pay for goods and services from a person or entity that is willing to accept the particular cryptocurrency as payment. People can earn or create units of cryptocurrency by solving complex puzzles to verify transactions, which is a process known as 'mining', and is done through the use of highly sophisticated computers (for example, Yimiao's Equipment which I described below). Cryptocurrencies are kept by their owners in digital wallets, and each wallet has a public key and a private key. The public key works in a way similar to a bank account number, and the private key works in a way that is similar to a password or PIN number (which is kept confidential).
12.Due to the competitive nature of this industry, it is commonplace for a crypto miner to "pool" and use multiple units of crypto mining hardware at the same time to maximise the computing power and hence, the potential returns. As such, crypto mining operations often involve running hundreds of units of crypto mining hardware. Such an operation consumes a considerable amount of electricity and emits significant heat. Accordingly, specialised "mine sites" are needed to be established by the miners so as to provide secure storage space for the mining hardware but which also can provide a stable source of electricity at the necessary volume and an internet connection through which the crypto mining businesses can be conducted. In exchange for the use of such mine sites and associated services, the owners or operators of the mine sites typically charge the crypto miners a fee.
[61]First Feng affidavit, [11]-[12].
Mr McNaught (CIT) gave evidence:[62]
[62]McNaught affidavit, [20]-[22].
20. I am informed by Mr Li and believe that:
(a)Henry Huang (Henry) is a long term acquaintance of Mr Li;
(b)in around September or October 2021, Mr Li and Henry commenced discussions to incorporate a company to run to provide a cryptomining hosting business. Henry was already involved in the business of cryptocurrency trading at this time;
(c)at about the same time cryptocurrency mining was banned in China by its Government and this created a rush for cryptominers to find alternative locations for their operations given, at that time, China was a significant centre of cryptomining.
21.Around October 2021, I was told by Mr Li that the Premises would be a good site for cryptocurrency mining as it was able to obtain access to a large amount of electricity and had comparatively low electricity costs.
22.In about mid-November 2021, Henry brought 10 to 20 cryptocurrency mining machines which he owned to the Premises as a trial to ensure the concept would work. The trial was successful and it was agreed that a proposal to set up a cryptocurrency mine site would move forward.
Mr Feng (Yimiao) gave further evidence that:[63]
[63]First Feng affidavit, [13]-[14], [19]-]20].
13.My partners in the Yimiao group, Zeng and Zhou, have been engaged in the business of mining and trading crypto currency in mainland China for about 6 years. As part of their business they have regularly entered into arrangements with Mr Jibin Liu (Liu) who has provided Zeng and Zhou with access to established mine site spaces and related services for their crypto mining business. Zeng and Zhou introduced Liu to me in or about December 2021 when I was looking to establish a mine site for Yimiao's proposed crypto mining business in Australia.
14.On or about 22 February 2022, Liu contacted me and my partners via electronic messages and stated amongst other things that:
(a)he was in the process of establishing a mine site business known as Star Mining in Melbourne, by mid-March 2022;
(b)he estimated that the mine site would have a capacity of hosting and supporting approximately 3000 units of crypto mining hardware; and
(c)he was working towards reaching an agreement to buy electricity at a commercial unit price.
…
19.… Between around 22 February and 10 March 2022, I together with Zeng and Zhou had several communications with Liu, Xiaoliang Zeng and other representatives or staff of Star Mining for the purpose of exploring this opportunity. In those messages, Star Mining's representatives or staff confirmed to me that the proposed mine site had the necessary power and facilities required for us to operate the mining business securely.
20.On or about 9 March and via exchange of electronic messages, amongst other matters:
(a)Yimiao confirmed it would deliver its crypto mining equipment to Star Mining in batches to be placed and installed at the mine site; and
(b)Star Mining confirmed the address for the mine site was at 159-171 Wellington Road, Clayton, Victoria (which I describe in this affidavit as Mine Site or Wellington Road premises).
On 4 March 2022, 3V Development and CIT entered into a lease whereby 3V Development leased part of the Premises (i.e. the Mining Room) to CIT.[64]
[64]McNaught affidavit, [18], referring to exhibit ‘JM-1’ to the McNaught affidavit, 41-64.
Mr McNaught (CIT) gave evidence that CIT provides its customers with use of the Mining Room under hosting agreements but that it does not provide other services including installation or maintenance services concerning the equipment.[65]
[65]McNaught affidavit, [33].
Mr McNaught (CIT) gave further evidence concerning the Mining Room:[66]
29.The lease between 3V and CIT is for a specific space located at the premises which I call 'the mining room'. The mining room is a customised space approximately 120 Square meters in size. It is a closed wall room accessed by a door locked with a chain and padlock. It comprises computer 'racking' to house cryptocurrency mining machines, a cooling system, transformers and switch boards, and necessary cables and other items such as power points to enable electricity to be supplied to the mining equipment. The fit-out to the mining room was paid for by CIT, with 3V helping to organise some contractors during the works period (CIT reimbursed 3V for works undertaken).
30.The mining room is the only location on the Premises that CIT leases. CIT uses the mining room to host operational cryptocurrency machines. CIT also uses a rack of computers that was set up for the initial trial in about November 2021 but this area does not host any machines under the Hosting Agreement with Genesis.
[66]Ibid [29]-[30].
Mr McNaught (CIT) also gave evidence that there are four other ‘customers’ that have equipment in the Mining Room, but that these customers have not installed L7 Antminers.[67] As I have already stated, the Yimiao Identified Claimed Equipment are L7 Antminers.
[67]Ibid [94].
Mr McNaught (CIT) gave evidence of an agreement between CIT and Genesis as follows (the CIT Agreement):[68]
57.At about this time, April 2022, Henry provided me with a copy of CIT's hosting management agreement with Genesis (Hosting Agreement).
…
59. While the Hosting Agreement is not signed by CIT or Genesis, it is the terms upon which I was informed by Henry on behalf of CIT that Genesis had agreed to and the terms upon which invoices on behalf of CIT were issued to Genesis.
60.I am not aware of CIT having any other written agreement with Genesis in relation to the hosting of crypto machines at the Premises.
[68]Ibid [57], [59]-[60].
Mr Xuelong Li (Genesis) gave evidence as follows:[69]
[69]Xuelong Li affidavit, [15]-[22], [24].
Security interest
15. The unsigned "Hosting Management Agreement" dated 5 March 2022 (the unsigned document) between Genesis Mining and CIT was originally prepared in reference to a different project, namely the proposed installation of 5000 S19 machines in the Northern Territory, which did not go ahead.
16.The unsigned document was prepared by CIT and given to Pengfei by a then Director of CIT, Wenfeng (Henry) Huang (Henry); Pengfei gave it to me in hard copy.
17.I do not read or speak English well and at that time relied on Pengfei to review documentation.
18.Pengfei gave me a brief oral summary but did not provide him with a written summary in Chinese and the unsigned document was not reviewed by a lawyer at the time.
19.Pengfei is no longer a Director of Genesis Mining, having resigned as a director on 28 July 2022 when the present dispute started.
20.I understood that the unsigned document represented the commercial terms on which CIT offered to host equipment at the Site roughly equivalent (in power consumption and hash rate) to S19 machines, subject to any subsequent negotiations that might take place. The arrangement provided for electricity, physical custody, and other services to be provided in relation to such machines.
21.I understood that CIT asserted some type of security over the machines in relation to Genesis Mining's liability for charges under the agreement, and that this was why CIT did not request that Genesis Mining pay a deposit for electricity consumption up front. I did not understand CIT to be asserting a security interest over the machines in relation to Genesis Mining liabilities under other, unrelated, agreements.
Other matters
22.Ms Fang and I reached an agreement for a special offer by phone after the crypto-mining machines were first installed in late March 2022 for a 2 cents per kwh discount on the electricity price that CIT would charge, and this was reflected in the "special offer" line item in the invoices from CIT to Genesis Mining for April - July 2022.
…
24.Separately, Genesis Mining has an arrangement with CIT that CIT would charge Genesis Mining 10c per kwh for electricity after October 2022. This was a promise made to me by Henry face to face at CIT's offices in Clayton at a time when Henry was a Director of CIT. (I dealt with Henry or Jenny at CIT rather than Mr Mcnaught [sic] because they spoke Chinese.) It was on this basis, that I felt comfortable offering the very low price of 10 cents per kwh to Star Mining (for the first 180 machines), compared with 14 cents per kwh that Genesis Mining would be paying to CIT, knowing that Genesis Mining would be losing substantial money only for a transitional period up to October.
The unsigned document titled ‘Hosting Management Agreement’ between Genesis and CIT (i.e. the CIT Agreement) relevantly provides as follows:[70]
[70]Exhibit ‘JM-1’ to the McNaught affidavit, 69-93.
(a) The ‘Principal’ is Genesis.
(b) The ‘Manager’ is CIT.
(c) Clause 7(y) provides:
In consideration of the Manager entering into this Agreement, the Principal hereby grants the Manager a security interest over the Principals [sic] Equipment for the purpose of securing the Principals [sic] obligations under this Agreement and consents to the Manager registering a financing statement with respect to the security interest on the PPSR.
(d) Clause 8 provides:
8. Management Services
(a) Subject to the timely provision of funds and payment of management fees by the Principal, the Manager agrees to use its best endeavours to, either by itself or through such agents or independent contractors as it may engage, provide the management services within the Scope of Management Services during the Hours of Management Services at the Location set out in the Schedule to this Agreement.
(b) The Manager has full powers and authorities from the Principal as necessary to enable the Manager to carry out all management services as identified in this Agreement.
(c) Powers and authorities granted by this Agreement to the Manager are not revocable or variable by the Principal without prior written consent of the Manager.
(e) Schedule 1 provides:
1. Management Fee and Rates
Principal will be charged by recording the usage of electricity. The recording method is to multiply the power rating of machine operation time. If suitable electricity meters are available, the recording will be based on the meter.
The rate is $0.16/kwh for electricity usage.
A Deposit shall be paid upon signing of this agreement, equivalent to 1 months fees. (eg 600 x 3.15 x 0.16 x 24 x 30 = $217,728)
2. Scope of Management Services
(a) To provide a facility to allow operation of mining machines.
To be clear, maintenance of the actual machines themselves is the responsibility of the Principal. The Manager will not undertake any work on machines.
3. Machine Model and Target Number
5,000 machines, model Ant S19
4. Hours of Management Services
24 hours a day
5. Location
159 Wellington Road, Clayton, Vic 3128
6. Form of Reporting
By audio-video link or as agreed between the parties from time to time
7. Frequency of Reporting
Once a week or as agreed between the parties from time to time
8. Term
2 years minimum.
9. Commencement Date
1 March 2022
10. Termination Notice
Minimum 3 months notice in writing to be given to terminate.
Upon finalising termination and any required payments, any un-utilised deposit money will be refunded within 5 days.
11. Insurances
The Manager will maintain general building insurance. The Principal is responsible for specific equipment insurance. The Manager may provide an option for insurance, at an additional fee (to be approved prior by the Principal).
Mr Feng (Yimiao) gave evidence that between March and April 2022, Yimiao Hong Kong purchased 1,606 units of cryptocurrency mining equipment known as L7 Antminers, which were intended to be subsequently purchased by Yimiao.[71] Mr Feng (Yimiao) gave evidence that the L7 Antminers were then on sold by Yimiao Hong Kong to Yimiao.[72] Mr Feng (Yimiao) also gave evidence that the L7 Antminers are recorded in Yimiao’s balance sheet ending 30 June 2022 with a value of $27,727,041.[73] The balance sheet also records a liability of $30,947,835 as ‘Loans – Directors’.[74] Mr Feng gave evidence that this, in fact, is an ‘intercompany loan’ from Yimiao Singapore to Yimiao.[75] There is no other evidence of the terms of this loan.
[71]First Feng affidavit, [24]-[26].
[72]Ibid [27].
[73]Ibid [34] referring to exhibit ‘STF-1’ to the First Feng affidavit, 182.
[74]Exhibit ‘STF-1’ to the First Feng affidavit, 182.
[75]Third Feng affidavit, [7].
Mr Feng (Yimiao) gave evidence that he arranged to have the L7 Antminers delivered to Australia,[76] and that 1,598 units were delivered to the Premises.[77] He gave evidence that these units each have a serial number recorded on a print label that is stickered on the case of each unit.[78] There is evidence that on or about 11 March 2022, Mr Zeng (Star Mining) told Mr Feng (Yimiao) that a Mr Pengfei Yuan was working at the site and would act as the ‘consignee’ for the shipment of Yimiao’s equipment.[79] The records for the delivery of the units to the ‘site’ record various persons who signed for the deliveries.[80] Mr Yuan was a director of Genesis from 23 March 2022 to 28 July 2022.[81]
[76]First Feng affidavit, [28].
[77]Ibid [28]-[30], [33], [40]. The Australian Custom Entry forms record the delivery address as the Premises, see exhibit ‘STF-1’ to the First Feng affidavit, 132-141. Also ‘Dora’ stated on 26 July 2022: ‘There are 237 units in site 1 and 328 units in site 2; there are 1033 in the warehouse’. See exhibit ‘STF-1’ to the First Feng affidavit, 80.
[78]First Feng affidavit, [31].
[79]Ibid [21]. See also Xuelong Li affidavit, [14(e)] and McNaught affidavit, [98].
[80]Exhibit ‘STF-1’ to the First Feng affidavit, 174-181.
[81]Exhibit ‘JM-1’ to the McNaught affidavit, 67.
Mr Feng (Yimiao) gave evidence concerning the L7 Antminers:[82]
9.I know from my investigations when I was establishing and investing into this business that:
(a)Yimiao’s Equipment has been designed so that its algorithm installed can mine two particular types of crypto currencies known as “Dogecoin” and “Litecoin”. It is not possible to convert Yimiao’s Equipment to mine other crypto currencies.
(b)Yimiao’s Equipment, L7 Antminer is currently the latest model of machines mining Dogecoin and Litecoin and since it was introduced to the market in late 2021 and early 2022, has been regarded the most powerful model among all other machines mining Dogecoin and Litecoin.
(c)It is common knowledge in the crypto-mining industry that due to the competitive nature of crypto-mining process, only the most powerful machines are profitable. In other words, launching a new model of crypto-mining machines has the effect of obsoleting the older machines. These dynamics have been described by some media outlets as an “arms race”.
[82]Second Feng affidavit, [9(a)]-[9(c)].
The Yimiao Total Claimed Equipment does not include any S19 Antminer units.[83]
[83]Ibid [10].
Mr Xuelong Li (Genesis) gave evidence:[84]
25. Representatives of CIT were aware at least from 18 March 2022 that Genesis Mining intended or hoped to place equipment belong to its clients at the Site or the Adjacent Premises, as this was discussed at the lunch held at the Imperial Chinese Restaurant in Glen Waverley at which Pengfei, Ms Fang, Dajian Li of 3V and I were present.
[84]Xuelong Li affidavit, [25].
Mr Feng (Yimiao) gave evidence that on 8 June 2022, Yimiao and Star Mining ‘formalised’ their agreement in a document titled ‘Digital Currency Miner/Equipment Hosting and Management Agreement’ (Yimiao Agreement).[85]
[85]First Feng affidavit, [22].
The Yimiao Agreement relevantly provides:[86]
[86]Exhibit ‘STF-1’ to the First Feng affidavit, 84-101 (‘Yimiao Agreement’).
(a) ‘Operator’ is defined as Star Mining.
(b) ‘Hosting Client’ is defined as Yimiao.
(c) ‘Mine Site’ is defined as the Premises.[87]
[87]Yimiao Agreement, schedule 1.
(d) ‘Licensed Space’ is defined as a portion of the Mine Site.[88]
[88]Ibid recitals.
(e) ‘Hosting Client Equipment’ is defined as 1,434 units of L7 Antminer (9050M); 110 units of L7 Antminer (9300M) and 54 units of L7 Antminer (9500M).[89] This totals 1,598 items of equipment.
[89]Ibid schedule 1.
(f) Star Mining licenses to Yimiao the Licensed Space.
(g) Star Mining will provide services to Yimiao, inter alia, concerning the day-to-day management of the Licensed Space and the Hosting Client Equipment.[90] This includes ‘[e]nabling continuous and stable access to sufficient power, networking, suitable environment and other service as needed for the full capacity and optimal operation of the Hosting Client Equipment’.[91]
[90]Ibid cl 3.1(a). Clause 3.1(a) contains an error in that a reference to the defined term, ‘Licensed Space’ is written as ‘License Space’.
[91]Ibid cl 3.1(a)(3).
(h) Star Mining grants to Yimiao a right:[92]
[92]Ibid cl 2.2(a).
To place, replace and remove any equipment and hardware including but not limited to computer hardware and other tangible equipment, as submitted by the Hosting Client in Schedule 1 when enter into this agreement within its Licensed Space designated at the Mine Site and to use, subject to the terms and conditions described in the Agreement. If at any time during the term, the Hosting Client wish to place any new equipment, and/ or replaces or removes any of the existing Hosting Client Equipment, the Hosting Client shall provide a written request and notice to the Operator and provide an updated Schedule 1. Any removals of Hosting Client Equipment at different sites of the Operator shall occur after the agreement of both parties.
(i) Clause 6 provides, inter alia:[93]
6.2 The Hosting Client Equipment. The Hosting Client Equipment shall remain the sole and exclusive property of the Hosting Client with right of replacement or removal at all reasonable times, and nothing contained herein shall give or convey to the Operator any right, title or interest whatsoever in and to the Hosting Client Equipment. The Hosting Client Equipment shall remain personal property, notwithstanding that it may be or become attached to, or embedded in, realty. The Hosting Client Equipment shall not be considered a fixture of that real property.
6.3 The Hosting Client Equipment Changes. If the Hosting Client desires to materially add or subtract from the Hosting Client Equipment within the Mine Site, it shall first submit a list of such proposed changes to the Operator for its review and approval prior to the installation or removal of the Hosting Client Equipment. The Hosting Client shall submit an updated Schedule 1 of the Hosting Client Equipment (if any information on such Schedule 1 has changed since it was last submitted) immediately.
[93]Ibid cl 6.2-6.3.
On 10 June 2022, Yimiao paid $110,970 to Star Mining pursuant to the Yimiao Agreement.[94]
[94]First Feng affidavit, [23].
There is evidence that on 20 June 2022, Star Mining and Genesis entered into an agreement titled ‘Digital Currency Miner/Equipment Hosting and Management Agreement’ (Star Mining Agreement).[95] Mr Feng (Yimiao) gave evidence that Yimiao only became aware of Genesis’ involvement and the Star Agreement in or about 28 July 2022.[96] There is other evidence that appears to contradict this.[97] This cannot be resolved on this application. The Star Mining Agreement is very similar to the Yimiao Agreement except that:
[95]Ibid [41]; exhibit ‘STF-1’ to the First Feng Affidavit, 192-210 (‘Star Mining Agreement’).
[96]First Feng affidavit, [41].
[97]Xuelong Li affidavit, [25]-[26].
(a) ‘Operator’ is defined as Genesis.
(b) ‘Hosting Client’ is defined as Star Mining.
(c) ‘Hosting Client Equipment’ is defined as including more equipment, being 3,657 units, including 1,620 L7 Antminer units.[98]
[98]Star Mining Agreement, schedule 1.
Mr Xuelong Li (Genesis) gave evidence:[99]
23.The agreement dated 20 June 2022 between Genesis Mining and Star Mining is signed by both parties but does not specify a cost to Star Mining. I agreed in a phone call with Xiaoliang Zeng of Star Mining that Genesis Mining would charge Star Mining 10 cents per kwh hour for the first 180 units, and 14.5 cents per kwh for additional units.
[99]Xuelong Li affidavit, [23].
Mr Feng (Yimiao) gave evidence concerning the use of the Yimiao Total Claimed Equipment:[100]
[100]First Feng affidavit, [35]-[36], [39].
35.From around 20 April 2022, Yimiao's Equipment commenced being connected with power and internet and placed into operation batch by batch at the Mine Site. As at 20 July 2022, approximately 519 units of Yimiao's Equipment (out of the total of 1,598) were connected with power and internet and placed into operation at the Mine Site. Yimiao was operating its business through those machines and generating daily income from the mining activities that the 519 units were performing.
36.The remainder of Yimiao's Equipment was stored at the Mine Site but not connected with power or internet. In other words, more than 1000 units of Yimiao's Equipment remained 'on the shelf' and Yimiao has been unable to operate those units at the Mine Site or generate any revenue. I am aware of this because I am able to view remotely, via the "mining dashboard", the status of Yimiao's Equipment that is connected to power and the internet. The mining dashboard is an online platform that allows me to through the internet and using a protected password to view and monitor the status of the operations of the crypto mining equipment paired with the account of Yimiao.
…
39. On 25 July 2022:
(a)I discovered from viewing the mining dashboard that the status of all Yimiao's Equipment at the Mine Site became "off-line". This included the 519 units that had been in operation until that point in time. My dashboard records state that the change of status to "off-line" happened at or around 8.30pm (AEST) on 25 July 2022. The status "off-line" meant that the 512 units of Yimiao's Equipment had also been cut off from power and internet.
(b)I informed my business partner Chunan Zhou, about this, and we immediately contacted Liu and Xiaoliang Zeng seeking an explanation for this incident. Liu and Xiaoliang Zeng told Chunan Zhou and me on a call later that day that they had investigated, but they did not know the reason for the power and internet disconnection. They said that they and others from Star Mining were unable to get hold of any representatives of the companies that controlled the Mine Site, and that Star Mining's own staff had also been refused access to the Mine Site. I later found out that the companies that controlled the Mine Site are the Second Defendant, 3V Development Australia Pty Ltd (3V Development) and the Third Defendant, Cyber Intelligence Tech Pty Ltd (Cyber Tech).
Yimiao paid $40,548.58 to Star Mining pursuant to the Yimiao Agreement for service fees for the month of June and then $59,524.50 for the month of July.[101]
[101]Ibid [37]-[38].
Mr Xuelong Li (Genesis) gave evidence that Genesis issued invoices to Star Mining for April to June 2022 pursuant to the Star Mining Agreement but did not issue an invoice for July given the dispute that had arisen.[102]
[102]Xuelong Li affidavit, [30].
Mr McNaught (CIT) gave evidence:[103]
64.Henry was responsible for invoicing under the Hosting Agreement to Genesis. From time to time I asked for confirmation from Henry and his workers, Vincent and Jerry for the number of machines installed and how much should be billed by CIT. My focus was making sure 3V received the money from CIT to cover its own liabilities, which included the total electricity bill for the Premises. CIT was the largest user of electricity at the Premises and 3V required it to make payment on time to ensure 3V could meet its own commitments. I followed up Henry regularly to make sure CIT was billing so that 3V could receive and make its payments on time.
[103]McNaught affidavit, [64].
There is evidence that on 8 July 2022, Genesis paid $50,000 to CIT on account of its June invoice.[104]
[104]Xuelong Li affidavit, [29].
By late July 2022, the evidence establishes that a dispute had arisen between CIT and Genesis.
On 21 July 2022, Mr Chen (Star Mining) attended at the Premises. He gave evidence:[105]
[105]Chen affidavit, [3]-[7].
3. I observed that the machines were stored in a warehouse (the Warehouse) and two other locations at the premises. At page 5 of the exhibit marked “MC-1” is two photographs of the Warehouse that I took on 21 July 2022. At page 6 of the exhibit marked “MC-1” is a photograph of another location used to store the machines (the No 2 Location) that I took on 21 July 2022. I did not take a photograph of the third storage area (No 1 Location).
4. After I completed the audit on that day, I sent a message to my supervisor as to following effect:
a. The “Warehouse” had the following machines:
Antminers machines L7 1033 units
Watsminer m20s 100 units
Watsminer m20s 210 units
Ebit E12 1706 units
Total: 3049 units
b. The “No 1 Location” had the following machines:
Antminers machines L7 1033 units
Antminers machines S19 21 units
Total: 280 units
c. The “No 2 Location” had the following machines:
Antminers machines L7 328 units
Total: 328 units
d. All machines total: 3657 units
5.The total of 3657 crypto currency machines described in my message accounted for the 2,059 machines owned by Star Mining and the 1,598 machines owned by Yimiao. At page 7 of the exhibit marked “MC-1” is a copy of that message sent by me to my supervisor.
6.I returned to 159-172 Wellington Road, Clayton the following day and noticed that 33 of the Antminer L7 machines had been unpacked and moved from the “Warehouse” to the “No 1 Location”. The total number of machines on site had not changed. On the same day, I sent another message to my supervisor as a record that the machines had been moved. . [sic] At page 8 of the exhibit marked “MC-1” is a copy of message that sent by me to my supervisor.
7.I have since tried to revisit the site to ensure that Star Mining’s equipment still remains at the premises but have been denied access.
Mr Chen’s message on 22 July 2022 (exhibited to his affidavit), when read with his affidavit, records that he observed 1,620 items of L7 Antminer equipment:
(a) ‘Warehouse’: 997 items. This is the Warehouse at the Premises.
(b) ‘No 1 Location’: 259 items. The evidence establishes that this is likely to be the Mining Room at the Premises as, apart from the Container Rooms on the Adjacent Premises (addressed immediately below), there is no other evidence of any other site used for mining at the Premises or the Adjacent Premises.
(c) No 2 Location’: 328 items. This is the Container Rooms at the Adjacent Premises, which is depicted in the photograph taken by Mr Chen which shows two containers.
Mr Chen’s evidence has a number of minor errors and inconsistencies:
(a) The reference to ‘1,033’ Antminers machines L7 in the ‘No 1 Location’ in paragraph 4(b) is a typographical error. It should be ‘259’. This is because 1,033 plus 21 does not equal 280. Also, the actual text message refers to ‘259’,[106] and I observe that 259 plus 21 equals 280.
(b) He also gave evidence that on 21 July 2022 there were 1,033 items in the Warehouse and that on 22 July 2022 he observed that 33 of these items had been moved to the ‘No 1 Location’. This would mean that 1,000 items remained in the Warehouse. The message he sent on 22 July 2022 refers to 997 items.
[106]Exhibit ‘MC-1’ to the Chen affidavit, 7.
This number of items of equipment (i.e. 1,620) exceeds, upon the present evidence, the number of items of L7 Antminer equipment delivered by Yimiao to the Premises. It does accord with a letter sent on 28 July 2022 by Genesis’ solicitors to CIT in which they stated ‘[i]n or before March 2022, we came to agreement that you would provide our client a place to store the cryptocurrency mining hardware and equipment, and make all mining equipment in full operation at the designated Mine Site’ and that Genesis had provided, inter alia, 1,620 L7 Antminers to CIT.[107] The letter further stated: ‘Since you have all required mining equipment, you have not put all mining equipment in full operation as agreed. We now terminate our agreement and demand the return of all equipment…’[108]. These inconsistencies cannot be resolved on this application. They are not material to its determination.
[107]Exhibit ‘STF-1’ to the First Feng affidavit, 211-212.
[108]Ibid 212.
There is evidence that as at 22 July 2022 a substantial number of the items of the Yimiao Total Claimed Equipment were not connected to power or the internet and were stored in the Warehouse.
On 28 July 2022, Mr Feng (Yimiao) gave evidence that he was informed by Mr Zeng (Star Mining) that Star Mining had engaged a third party, namely Genesis, to establish the Mine Site and to ensure that the site could provide related services to the cryptocurrency mining equipment of Star Mining and Yimiao.[109]
[109]First Feng affidavit, [41].
Mr Feng (Yimiao) gave evidence:[110]
[110]Ibid [42]-[44].
42Xiaoliang Zeng also told me that he understood from Xuelong (Tim) Li, who was and still is a director and shareholder of Genesis Mining, that Genesis Mining had also been refused access to the Mine Site, and had hence engaged solicitors to issue a formal demand to regain access. Xiaoliang Zeng later gave me a copy of the letter of demand.
…
43.On or about 31 July 2022, Xiaoliang Zeng (from Star Mining) told me by electronic messages that Mr Wenfeng Huang (Huang) might be able to explain what happened on 25 July 2022, and potentially, assist with getting in contact with the companies that controlled the Mine Site. Xiaoliang Zeng asked me to meet with Huang.
44.On 31 July 2022, Xiaoliang Zeng and I met with Huang at 22 Prospect Street, Box Hill. During that meeting Huang told me that:
(a)In early 2022, as a director and shareholder of Cyber Tech, he was interested in pursuing a business opportunity in establishing a crypto mine site.
(b)Through his network, Huang got in touch with Xuelong (Tim) Li of Genesis Mining and Dajian Li of 3V Development and they discussed the opportunity of establishing a crypto mine site for hire.
(c) During these discussions:
(i)Dajian Li, the director of 3V Development offered to make available 3V Development's premises at 159-171 Wellington Road, Clayton for the purpose of the Mine Site.
(ii)Xuelong (Tim) Li told Huang and Li that he had many connections and could potentially attract crypto currency miners to hire spaces at the mine site to be established.
(iii)Huang offered to cover the costs of fitting out the Wellington Road premises as a crypto mine site.
(d)3V Development and Cyber Tech agreed that Cyber Tech would pay rent to 3V Development in an amount representing 10% of Cyber Tech's annual turnover. Cyber Tech would otherwise be solely responsible for the costs of fitting out the Wellington Road premises as a crypto mine site. Around this time 3V Development also became a shareholder of Cyber Tech.
(e)Subsequently Dajian Li told Huang that in order to refinance the Wellington Road premises, 3V Development as the landlord was required to enter into a written lease with Cyber Tech and that the rent payable in the lease should be fixed at $18,000 per month. Dajian Li promised that he would not enforce the written lease nor require Cyber Tech to pay $18,000 per month.
(f)Later Dajian Li reneged on his promise and required Cyber Tech to pay a monthly rent of $18,000 which caused some discontent between Li and Huang.
(g)In or about June 2022, Huang agreed to assign all of his interests in Cyber Tech to Dajian Li on the condition that within 6 months, 3V Development would pay Huang approximately $230,000 representing the fit-out costs that Huang had paid on behalf of Cyber Tech.
(h)At the time of our meeting on 31 July 2022, Huang was no longer involved in Cyber Tech’s business and Dajian Li had taken control of both Cyber Tech and 3V Development and in doing so, also took control of the Mine Site.
Mr McNaught (CIT) gave evidence concerning CIT’s knowledge of the relationship between Star Mining and Yimiao:[111]
[111]McNaught affidavit, [88]-[90].
88.I was not aware until this proceeding, and I am informed by Mr Li and believe that he was not aware until this proceeding, that Genesis had entered into back to back hosting arrangements with Star Mining and, that in turn, Star Mining had an agreement with Yimiao.
89. Nor was I aware that Genesis was acting as a proverbial 'middle man'. Indeed, CIT took comfort from the fact that under the terms of the Hosting Agreement Genesis purported to be the owner of all the Principal's Equipment which was provided as security for Genesis' obligations under the Hosting Agreement. To my knowledge, Genesis never informed CIT that:
(a)equipment owned by third parties who had not entered into a hosting agreement with Cyber was being stored at the mine site;
(b) it did not own the equipment held at the mine site.
90.At all times I understood CIT to be dealing with Genesis as principal, and not as agent or representative for any other person or party.
On 3 August 2022, Mr Feng (Yimiao) was told by Mr Huang that he had been told by an unnamed person at the mine site that Yimiao’s equipment was ‘running’.[112]
[112]First Feng affidavit, [48(c)].
Mr McNaught (CIT) gave evidence that Genesis has failed to pay CIT its invoices dated 30 June 2022 in the sum of $150,075.24 and dated 31 July 2022 in the sum of $165,082.76,[113] and that he is not aware of any ‘genuine dispute’ in relation to the liability of Genesis for the amounts set out in these invoices.[114] Mr McNaught (CIT) gave evidence of a dispute between CIT and Genesis:[115]
74.I am informed by Mr Nick Anson, Partner of MinterEllison and believe that on 6 September 2022, MinterEllison received an email from Chang Liu of Cathay Lawyers acting for Genesis. A copy of the email dated 6 September 2022 from Ms Liu is exhibited at pages 101 to 102 of JM-1.
75.The email asserts that the Hosting Agreement is ‘subject to further verbal terms… yet to be settled between the parties'. I believe this statement to be untrue. It is also inconsistent with Genesis' previous conduct performing the Hosting Agreement and the repudiation of the Hosting Agreement by Cathay Lawyers' letter dated 28 July 2022 to CIT. A copy of Cathy Lawyers' letter dated 28 July 2022 to CIT is exhibited at pages 103 to 104 of JM-1.
76.The email also makes an assertion that there was an agreement between CIT and Genesis that Genesis would not be liable to pay CIT's invoices until Star Mining made payment to Genesis. I reject this assertion as untrue. The email is the first time I have heard this allegation. At no time prior to the email have I been aware of any alleged agreement to await payment from Star before Genesis paid CIT, nor that Genesis would not be liable for any electricity fees.
77. At no time prior to this proceeding did I know of Star Mining's alleged dealings with Genesis.
78. The email refers to 100 units of shipping containers ordered by Genesis. I understand these allegations to relate to the Strategic Co-operation Agreement between CIT and Genesis and not the Hosting Agreement. I discuss the Strategic Co-operation Agreement below. It is a separate agreement to the Hosting Agreement.
[113]McNaught affidavit, [71]-[72].
[114]Ibid [73].
[115]Ibid [74]-[78].
On 4 August 2022, Yimiao’s solicitors sent a letter to 3V Development and, inter alia, made a demand to cease and desist unauthorised use and to provide access to the Yimiao Total Claimed Equipment.[116] 3V Development’s solicitors responded by seeking further information and clarification of various matters.[117]
[116]Exhibit ‘CMC-1’ to the First McCudden affidavit, 24-27.
[117]Ibid 34-36, 41-42.
On 8 August 2022, Yimiao’s solicitors sent a letter of demand to Star Mining.[118]
[118]Ibid 29-32.
On 11 August 2022, Yimiao’s solicitors sent a letter to the then solicitors of 3V Development and CIT and requested that certain steps be taken by 3V Development and CIT.[119] This included a demand to provide access to inspect the Yimiao Total Claimed Equipment. Further correspondence was then exchanged between the parties.[120]
[119]Ibid 46-48 (excluding enclosures).
[120]Ibid 85-335.
On 25 August 2022, representatives of Yimiao attended the Premises and attempted to locate and inspect the Yimiao Total Claimed Equipment. Mr Qi of Gilbert + Tobin, solicitors for Yimiao, gave evidence of difficulties encountered with that inspection, including an altercation that resulted in the police and ambulance attending the Premises.[121] This involved a representative of CIT and a representative of Genesis.[122]
[121]First Qi affidavit, [32]-[44].
[122]Ibid [32].
On 29 August 2022, representatives of Yimiao again attended the Premises and sought to locate and inspect the Yimiao Total Claimed Equipment.[123] Mr McNaught (CIT) was also in attendance, among others.[124] Mr Qi gave evidence that between 298 and 396 units of the Yimiao Total Claimed Equipment were identified during that inspection in the ‘First Room’ (i.e. the Mining Room) and 25 units in boxes in the ‘Backroom’ (i.e. the Warehouse).[125] Mr Qi also gave evidence that 1,297 empty Antminer boxes were identified in the ‘Backroom’ and that from a sample of these it was identified that 75% of the serial numbers of the empty boxes matched the serial numbers of Yimiao Total Claimed Equipment.[126] Mr Qi also gave evidence that Mr McNaught (CIT) told him during the inspection that he had been told that all of the cryptocurrency mining equipment was located in the First Room and the Back Room.[127] Mr Qi observed that ‘[a]ll crypto-mining machines in the First Room were on shelves with almost all plugged into power and operating…’.[128] Mr McNaught gave evidence:[129]
126.The pallets had been arranged in multiple rows. Behind the first couple of rows, some of which were double stacked pallets, there were approximately 20 to 22 pallets arranged in a single layer in a number of rows. I observed these pallets to be packaged including wrapped in plastic with protective cardboard edging with air freight stickers attached to plastic wrapping. These pallets appeared to be unopened. I observed each unopened pallet that was wrapped to contain three layers of eight boxes totalling 24 boxes per pallet.
127.One of the Yimiao representatives pushed a pallet and it moved. This prompted further investigation on the contents of the pallet. The representatives cut open the plastic wrapping on a sample pallet and lifted one of the boxes out of it. The box appeared to be sealed with sticky tape on top marked with the symbol of Bitmain Technologies, the manufacturer of the Antminer L7 machine. The underside side of the box appeared to have been carefully cut along the cardboard seam. The box was empty. Yimiao representatives did not attempt to open other pallets or boxes at the time as far as I could observe, but most pallets were ‘pushed’ to see if moved (inferring they were empty if moved).
[123]Second Qi affidavit, [7].
[124]Ibid [9].
[125]Ibid [12], [16], [19]. See also Third McCudden affidavit, [10].
[126]Second Qi affidavit, [20].
[127]Ibid [21].
[128]Ibid [10].
[129]McNaught affidavit, [126]-[127].
On 30 August 2022, CIT’s solicitors sent a letter to Genesis’ solicitors in which they, inter alia, made demand for sums for unpaid invoices under the CIT Agreement and made a claim for $11,970,000 for breaches of the CIT Agreement.[130]
[130]Rankin affidavit, [7]; exhibit ‘JSR-1’ to the Rankin affidavit, 34-37.
On 30 August 2022, CIT solicitors sent an email to Yimiao’s solicitors in which they stated, inter alia:[131]
[131]Exhibit ‘CMC-2’ to the Second McCudden affidavit, 16.
Additional Genesis mining site
We are instructed as follows:
·Cyber is aware that Genesis maintains a mining site at the adjacent property, 175 Wellington Road (175 Wellington Premises). Cyber understands the mining site is located in a shipping container.
·The 175 Wellington Premises are owned by 3V Development Australia Pty Ltd, and leased to a third party, Hardchrome Engineering Pty Ltd. We are instructed that Hardchrome Engineering Pty Ltd is unrelated to 3V and Cyber.
·Cyber assisted Genesis to identify the 175 Wellington Premises as a location for a potential mine site in April 2022. Cyber is also aware from those discussions that Genesis was exploring potential mine sites at other locations, including Geelong. Cyber is not aware if Genesis moved equipment to those locations. Any queries in that regard are properly directed to Genesis.
·Cyber is not aware specifically which machines were installed by Genesis at the 175 Wellington Premises, and if any of those machines were those which Yimiao asserts ownership over. Again, any queries in that regard are properly directed to Genesis.
·Cyber does not have access to the Genesis mining site at the 175 Wellington Premises.
Ms McCudden, partner at Gilbert + Tobin, solicitors for Yimiao, gave evidence:[132]
[132]Second McCudden affidavit, [10]-[12].
10Upon receiving that email [being the 30 August 2022 email from CIT’s solicitors] I caused internet searches to be conducted regarding Hardchrome Engineering and identified on their website that the Managing Director was Mr Andrew Dugan. The website for Hard Chrome [sic] Engineering provided Mr Dugan’s mobile and so I rang him.
11I introduced myself as a lawyer representing Yimiao Australia and confirmed we were involved in court proceedings concerning the location of crypto mining equipment owned by my client. I explained that the other parties involved, included the owner of and tenants at the property next door at 159-171 Wellington Road, and that one of their lawyers had suggested to me a container that contained crypto machines may be situated on the site that Hardchrome Engineering is leasing.
12 Mr Dugan said to me that
(a)Hardchrome Engineering leased the site (at 175 Wellington Road Clayton) from the same company that also owned the next door property (which I understood to be 3V Development and 159-171 Wellington Road).
(b)He confirmed that John McNaught had contacted him to ask if Hardchrome Engineering would be prepared to allow a container to be placed on their site they leased and have it connected to the power for that property at 175 Wellington Road.
[261]Exhibit ‘JM-1’ to the McNaught affidavit, 69-93.
The Principal irrevocably and unconditionally indemnifies the Manager against any and all liability, loss, harm, damage, cost or expense, whether direct or indirect, of whatsoever nature, which the Principal or the Manager may suffer as a result of any suit, claim or demand made by any third party against the Principal or the Manager or the activities of the Manager in performing its duties or obligations under this Agreement, except to the extent that such liability, loss, harm, damage, cost or expense arose directly from the Manager's wilful misconduct or bad faith.
(b) It is arguable that the indemnity in clause 17(b) is an ‘obligation’ of Genesis within the meaning of clause 7(y) of the CIT Agreement.
(c) The claims of Yimiao and Star Mining against CIT may give rise to ‘liability, loss, harm, damage, cost or expense, whether direct or indirect, of whatsoever nature, which the … Manager [CIT] may suffer as a result of any suit, claim or demand made by any third party against the … Manager [CIT] or the activities of the Manager [CIT] in performing its duties or obligations under this Agreement [i.e. CIT Agreement]…’. It is also arguable that CIT may be entitled to be indemnified by Genesis for its costs incurred in this proceeding pursuant to clause 17(b) of the CIT Agreement. Those costs may be substantial. CIT made a submission as to the present quantum of these costs but there is no evidence to support that present quantum.
(d) At present, these matters have not been fully pleaded (e.g. CIT has not filed defences). I accept that CIT may have a defence to the whole or part of the claims made against it. It is not possible to evaluate the prospects of success of these claims against CIT, or as a consequence, by CIT against Genesis based upon clause 17(b) of the CIT Agreement, on this application.
Fourthly, I accept that, upon the present evidence, CIT’s claim against Genesis for $11,970,000 based upon 5,000 items of cryptocurrency mining equipment is weak. It has a number of difficulties. I am not satisfied, however, that it is speculative, especially given the state of the evidence. I refer to the following:
(a) The CIT Agreement provides in Schedule 1 of item 1 for payment by Genesis to CIT based upon ‘usage of electricity’. The CIT Agreement refers in Schedule 1 Item 3 to 5,000 machines being a ‘target number’. As I have already stated, there is evidence that the reference in Schedule 1 Item 3 to ‘Machine Model and Target Number’, being ‘5,000 machines, model Ant S19’, may have been a mistake as that description of the equipment was for a different project that did not go ahead.[262] Mr McNaught gave evidence, however, that ‘an agreement had been reached with Genesis for CIT to host 5,000 Genesis machines by September 2022’.[263] There is also evidence that Genesis has asserted that the CIT Agreement was also ‘subject to further verbal terms … yet to be settled between the parties’. I refer to the McNaught affidavit at exhibit ‘JM-1’, 101. These verbal further terms have not be identified. I also refer to the evidence of Xuelong Li (Genesis) concerning the making of the CIT Agreement set out in these Reasons at [40]. These matters cannot be resolved on this application. This requires investigation at a trial.
[262]Xuelong Li affidavit, [15]-[21].
[263]McNaught affidavit, [56].
(b) There is evidence that the total number of items of cryptocurrency mining equipment ‘operating’ in June 2022 was only 972 items at the Premises and 304 at the Container Rooms. I refer to the McNaught affidavit at exhibit ‘JM-1’ at 96 (reproduced in readable format in the Second Vella affidavit, exhibit ‘AV-2’ at 96).
(c) There is evidence that the Mining Room was at capacity in about March or April 2022.[264] There is also evidence that CIT arranged for the further equipment to be placed offsite in the Container Rooms at the Adjacent Premises. There is no evidence that any other part of the Premises or of the Adjacent Premises was being used for cryptocurrency mining under the CIT Agreement or otherwise. There is also evidence that Genesis had ordered ‘100 units of specially designed 40” containers to accommodate mining equipment’. I refer to the McNaught affidavit at exhibit ‘JM-1’, 101. This is disputed by Mr McNaught. I refer to the McNaught affidavit at [78]. There is also evidence that the Premises are very large and have many other areas. I refer to the Dajian Li affidavit at [7]-[8].
(d) The Court has not had the benefit of this claim being pleaded. This is also in a context in which there are disputes concerning the CIT Agreement, including its terms.
[264]Ibid [79].
How can the CIT Claimed Security Interest be adequately protected?
Yimiao’s submissions
Yimiao submitted that CIT will be adequately protected and made the following key submissions.
CIT will be adequately protected:
(a) Yimiao will give an undertaking as to damages.
(b) Yimiao’s proposed payment into Court supports the undertaking as to damages. Yimiao has undertaken to, within 14 days, to pay the sum of $370,000 into Court as security for the undertakings set out in its proposed orders. It submitted that this sum is calculated by reference to two invoices claimed to be outstanding by Genesis to CIT in the sum of $315,158[265] plus interest of $47,273.70, being interest calculated at a rate of 15% per annum (being the rate in clause 4(k) of the CIT Agreement, also see definition of ‘Interest Rate’ in clause 2 of the CIT Agreement[266]) for a 12 month period.[267] During the hearing on 3 November 2022, Yimiao accepted that any order for delivery up should be conditional upon the payment of the $370,000 into Court.[268] This is not presently set out in Yimiao’s proposed form of order.
[265]Ibid [71]-[72].
[266]Exhibit ‘JRS-1’ to the Rankin affidavit, 7-31 [11], [13].
[267]Transcript of Proceedings 3 November 2022 (n 10) 12.7-12.11 (Dr Bigos KC).
[268]Ibid 12.11-12.13 (Dr Bigos KC).
(c) Yimiao owns the Yimiao Identified Claimed Equipment. This supports the undertaking as to damages. These are assets in Australia. The value of the Yimiao Identified Claimed Equipment in Yimiao’s possession is identical to the value of the Yimiao Identified Claimed Equipment as collateral under the CIT Claimed Security Interest.[269]
[269]Ibid 67.26-68.19, 69.5-69.8 (Dr Bigos KC).
(d) The other undertakings proffered by Yimiao, including by Yimiao, Yimiao Singapore and Mr Feng with respect to not calling on or repaying the loans from Yimiao Singapore to Yimiao also supports the undertaking as to damages. This means that the Yimiao Identified Claimed Equipment ‘becomes unencumbered by any director’s loan’.[270]
(e) The undertakings may be enforced against Yimiao Singapore and Mr Feng as they will undertake to submit to the jurisdiction of this Court and the judgment could be easily enforced in Singapore. They do not need to be served abroad. This Court can make ‘any orders a court would normally make for breach of undertakings, including paying a fine or paying money which could be enforced through reciprocal arrangements in Singapore.’[271]
(f) Yimiao will give other undertakings, including to insure the Yimiao Identified Claimed Equipment and not to grant any security interests.
[270]Ibid 67.19-67.23 (Dr Bigos KC).
[271]Ibid 72.9-72.12 (Dr Bigos KC).
Yimiao will ensure it retains the Yimiao Identified Claimed Equipment and will preserve CIT’s position under the PPS Act so as not to prejudice it.[272]
[272]Transcript of Proceedings 14 September 2022 (n 1) 80.25-80.31 (Dr Bigos KC).
CIT also has other assets subject to the CIT Claimed Security Interest, including the equipment of Star Mining that has a value of $1.2M.[273]
[273]Transcript of Proceedings 3 November 2022 (n 10) 69.11-69.15 (Dr Bigos KC).
Yimiao described the risks to the CIT Claimed Security Interest as a result of an injunction for the delivery up and the potential operation of s 588FL of the Corporations Act variously as ‘a hypothetical and speculative scenario’,[274] a ‘slight risk’[275] and a ‘very unlikely scenario’.[276] There is no evidence before the Court of any likelihood that Genesis will go into administration or liquidation and to do so by 9 March 2023.[277] CIT has caused this situation to arise as it registered the CIT Claimed Security Interest late. Yimiao also submitted that s 588FM of the Corporations Act permits a Court to fix a later time for the purposes of s 588FL(2)(b)(iv) of the Corporations Act. It may do so if, inter alia, it is just and equitable to do so. [278]
[274]Transcript of Proceedings 14 September 2022 (n 1) 81.5-81.6 (Dr Bigos KC).
[275]Ibid 96.19-96.22 (Dr Bigos KC).
[276]Transcript of Proceedings 15 September 2022 (n 7) 236.22-236.28 (Mr Annabell).
[277]9 March 2023 is the point in time at which six months will have elapsed since CIT registered the CIT Claimed Security Interest. This is relevant to s 588FL of the Corporations Act.
[278]Transcript of Proceedings 14 September 2022 (n 1) 146.4-147.9 (Dr Bigos KC).
CIT cannot sell the Yimiao Claimed Equipment until CIT establishes that is has a security interest through a court process and the trial of this proceeding will occur before that time.[279]
[279]Transcript of Proceedings 3 November 2022 (n 10) 68.20-69.3 (Dr Bigos KC).
Star Mining submitted that whether or not Genesis goes into administration or liquidation prior to 9 March 2023 is a risk that is in the control of CIT.[280]
[280]Transcript of Proceedings 15 September 2022 (n 7) 240.26-241.1 (Mr Caillard).
CIT’s submissions
CIT submitted:
(a) An order for delivery up will result in CIT not having possession and this would unperfect its possessory security interest.[281]
[281]Transcript of Proceedings 14 September 2022 (n 1) 31.5-31.10 (Mr McKillop).
(b) There is a risk that an order for delivery up may result in the permanent loss of the CIT Claimed Security Interest if the Yimiao Identified Claimed Equipment is delivered up and Genesis goes into administration or liquidation by 9 March 2023, by reason of the operation of s 588FL of the Corporations Act.[282] The likelihood of this occurring is unknown but there is a real risk. CIT submitted that the Court’s power under s 588FM is discretionary and there is no guarantee that the Court would exercise that power.[283] The Court cannot take into account that CIT elected to only recently register the CIT Claimed Security Interest.
[282]CIT’s reply submissions, [2]; Transcript of Proceedings 14 September 2022 (n 1) 29.5-29.23 (Mr McKillop).
[283]Transcript of Proceedings 15 September 2022 (n 7) 285.14-285.29 (Mr McKillop).
(c) There is a risk that other non-parties may assert their possessory security interests under the PPS Act if they deal with the Yimiao Identified Claimed Equipment (i.e. for example, DC Two Limited and other ‘warehousemen’).[284] Yimiao’s proposed new host, DC Two Limited, will have a possessory security interest for its storage fees which will rank ahead of CIT.[285] Further, the Yimiao Identified Claimed Equipment would be at risk of being encumbered in favour of other people who become involved in their storage and operation. CIT submitted, for example, that if Yimiao accrues a bill over the next 12 months of $3M for the operation, maintenance and storage with respect to the Yimiao Identified Claimed Equipment and it did not pay it then that $3M will take priority to CIT.[286] Yimiao’s undertaking that it will not grant a security interest does not protect CIT against a person who asserts a security interest.
[284]Ibid 279.5-279.8 (Mr McKillop); Transcript of Proceedings 14 September 2022 (n 1) 135.14-135.23 (Mr McKillop).
[285]Transcript of Proceedings 14 September 2022 (n 1) 31.13-17 (Mr McKillop).
[286]Ibid 139.24-139.28 (Mr McKillop).
(d) The undertakings are inadequate:
(xii) Yimiao is a $100 company. Its liabilities significantly exceed its assets.
(xiii) The payment into Court of $370,000 is inadequate.[287] CIT’s claims against Genesis include: the unpaid Genesis invoices; damages for breach and repudiation of the CIT Agreement estimated at $11,970,000; indemnities under clause 17(b) of the CIT Agreement, including indemnities for the claims made by Star Mining and Yimiao. This may only include costs if those claims fail or may include damages if those claims succeed.
[287]Transcript of Proceedings 3 November 2022 (n 10) 14.18-15.6 (Mr McKillop).
(xiv) 50% of the Yimiao Total Claimed Equipment is missing so it has a value of about $14M, subject to depreciation. There is a real risk that these may be worth nothing by the time any undertaking is called upon.[288]
[288]Ibid 27.4-27.10, 27.14-27.18 (Mr McKillop).
(xv) The other cryptocurrency mining equipment installed by Genesis has minimal value. This includes the equipment of Star Mining. There is evidence that this has a value of US$1,211,749. CIT submits that this appears to be its purchase price.
(xvi) The further undertakings of Yimiao Singapore (i.e. Yimiao Tech Pte Ltd) and Mr Feng are inadequate. These undertakings cannot be enforced.[289]
[289]Ibid 32.10-33.7 (Mr McKillop).
Yimiao’s proposed undertakings do not prevent it incurring further debt.
No explanation has been provided why Yimiao Singapore is not prepared to, or able to fund, in the usual manner, security for Yimiao’s undertaking as to damages by way of a payment into Court or bank guarantee.
Genesis supported CIT’s submissions concerning the adequacy of the undertaking as to damages.
Analysis
In my opinion, the undertakings proffered by Yimiao are inadequate to protect the CIT Claimed Security Interest. As a result, this factor weighs against the grant of the injunction.
First, Yimiao accepts the Yimiao Identified Claimed Equipment is presently in CIT’s possession.[290] In the event that the injunction is granted, CIT will cease to have possession of the Yimiao Identified Claimed Equipment. CIT will cease to have any possessory security interest as part of the CIT Claimed Security Interest until such time, if at all, it resumes possession.
[290]Ibid 74.5-74.6 (Dr Bigos).
Secondly, I reject Yimiao’s submission that if the injunction is granted the risk of the CIT Claimed Security Interest vesting in Genesis is slight or speculative. There is a real risk of this occurring given Genesis financial circumstances and the claims against it:
(a) Section 588FL(1)(a) of the Corporations Act provides:
588FL Vesting of PPSA security interests if collateral not registered within time
Scope
(1) This section applies if:
(a) any of the following events occurs:
(i) an order is made, or a resolution is passed, for the winding up of a company;
(ii) an administrator of a company is appointed under section 436A, 436B or 436C;
(iii) a company executes a deed of company arrangement under Part 5.3A;
(iv) a restructuring practitioner for the company is appointed under section 453B;
(v) a company makes a restructuring plan under Division 3 of Part 5.3B; and
(b) This matter was argued by the parties on this application upon the basis that if the injunction was granted (and CIT ceased to have possession), and one of the matters in s 588FL(1)(a) occurred prior to 9 March 2023, the CIT Claimed Security Interest (if it exists) would vest in Genesis, subject to an application being made pursuant to s 588FM of the Corporations Act.
(c) There is evidence that Genesis has not paid invoices issued by CIT and also evidence that it disputes them.[291] CIT has purportedly terminated the CIT Agreement with Genesis. There is evidence that CIT has made a claim of $11,970,000 against Genesis.[292]
(d) Yimiao makes substantial claims against Genesis in this proceeding.
(e) Genesis has a paid share capital of $100.[293] There is evidence that Genesis does not own any real property in Australia. There is no evidence that Genesis has any other assets. Yimiao also submits that there is a real risk that damages may not be recoverable from Genesis.[294]
[291]McNaught affidavit, [71]-[78].
[292]Ibid [113]-[114].
[293]Exhibit ‘JM-1’ to the McNaught affidavit, 67.
[294]Yimiao’s submissions, [44].
I am not otherwise able, at this stage of the proceeding, to determine the likelihood of one of the events provided for in s 588FL(1)(a) occurring. In my view, the timing of the registration of the CIT Security Interest is not relevant to a determination of this application.
In the event that the injunction is granted, and the risk eventuates, CIT will cease to have the CIT Claimed Security Interest as it will vest in Genesis, subject to an application under s 588FM of the Corporations Act.
Thirdly, I am not able to determine the present likelihood of success of an application under s 588FM of the Corporations Act. Section 588FM provides:
588FM Extension of time for registration
(1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv).
Note: If an insolvency-related event occurs in relation to a company, paragraph 588FL(2)(b) fixes a time by which a PPSA security interest granted by the company must be registered under the Personal Property Securities Act 2009, failing which the security interest may vest in the company.
(2) On an application under this section, the Court may make the order sought if it is satisfied that:
(a) the failure to register the collateral earlier:
(i) was accidental or due to inadvertence or some other sufficient cause; or
(ii) is not of such a nature as to prejudice the position of creditors or shareholders; or
(b) on other grounds, it is just and equitable to grant relief.
(3) The Court may make the order sought on any terms and conditions that seem just and expedient to the Court.
Whether the Court would exercise its discretion under s 588FM(3) of the Corporations Act depends upon the circumstances at the time that any such application was made.
Fourthly, if CIT ceases to have the CIT Claimed Security Interest, it will become an unsecured creditor of Yimiao in the event that it makes a claim upon Yimiao’s undertaking as to damages.
Yimiao has a paid share capital of $100.
As at 30 June 2022, Yimiao had net assets of $79,112.[295] As at 30 June 2022, its liabilities included loans in the sum of $30,947,835.[296] Yimiao has established a prima facie case that it owns the 1,598 units. The units are recorded in its balance sheet at a value of $27,727,041.[297] However, approximately 50% of them are missing and cannot be accounted for. This means that the value of its units (i.e. the Yimiao Identified Claimed Equipment) is approximately not more than $14M. Yimiao submitted that the ‘market value might have dropped, but it’s still worth a lot of money’.[298] This means that it actual liabilities likely exceed its assets by at least $14M calculated as follows:
(a) Total equity as at 30 June 2022: $79,112.
(b) Less approximately $14M (i.e. approximately 50% of $27,727,041, being the value in the balance sheet of 1,598 items, whereas there are 810 items of the Yimiao Identified Claimed Equipment).[299]
[295]Exhibit ‘STF-1’ to the First Feng affidavit, 182.
[296]Ibid.
[297]Ibid.
[298]Transcript of Proceedings 14 September 2022 (n 1) 84.3-84.4 (Dr Bigos KC).
[299]This calculation does not consider depreciation of the Yimiao Identified Claimed Equipment, which means that Yimiao’s actual liabilities likely exceed the value of its assets by an even greater amount.
In this context, Yimiao has proffered further undertakings. In my opinion, these undertakings do not adequately protect CIT.
First, Yimiao Singapore and Mr Feng, the sole director of Yimiao Singapore, have offered to undertake not to, in effect, call on the loans by Yimiao Singapore to Yimiao until the hearing and determination of the matter or further order. They have also offered to undertake to ‘submit to the jurisdiction of the Supreme Court of Victoria in respect of the undertakings made in these orders’. Yimiao has also offered to not repay the loans to Yimiao Singapore until the hearing and determination of the matter or further order. These undertakings are directed to ensuring that the Yimiao Identified Claimed Equipment, in the submissions of Yimiao, ‘becomes unencumbered by any director’s loan’.[300] The undertakings of Yimiao Singapore and Mr Feng seek to address the risk of Yimiao Singapore taking action against Yimiao to enforce repayment of its loans.
[300]Transcript of Proceedings 3 November 2022 (n 10) 67.19-67.23 (Dr Bigos KC).
In my opinion, the undertakings are not adequate:
(a) Yimiao Singapore and Mr Feng are both resident in Singapore.
(b) Yimiao submitted ‘It means [if the undertakings are breached] that our friends can come to court, say to Your Honour we want to enforce the undertaking against these persons. They have submitted to the jurisdiction so there is no need for them to be served abroad.’[301] This is incorrect. Upon the assumption that they did submit to the jurisdiction, this means that they may be served out of Australia (i.e. in Singapore) without leave of the Court.[302] It does not mean that they do not have to be served before any order was made against them.
[301]Ibid 72.1-72.4 (Dr Bigos KC).
[302]Rule 7.02(k) of the Supreme Court (General Civil Procedure) Rules2015 (Vic).
(c) There is no evidence of the financial circumstances of Mr Feng. There is evidence that Yimiao Singapore is owed $30,947,835. There is no other evidence of its financial circumstances.
(d) Yimiao Singapore and Mr Feng have not provided security for their proffered undertakings.
(e) There is no evidence whether, and if so how, the proposed undertakings by Yimiao Singapore or Mr Feng could be enforced against them. The Republic of Singapore is a country to which Part 2 of the Foreign Judgments Act 1991 (Cth) applies. Part 2 extends to Singapore by reason of the Foreign Judgments Regulations 1992 (Cth). Part 2 is titled ‘Reciprocal enforcement of judgments’. Section 5(1) provides:[303]
[303]Foreign Judgments Act 1991 (Cth) s 5(1) (emphasis added).
If the Governor-General is satisfied that, in the event of the benefits conferred by this Part being applied to money judgments given in the superior courts of a country, substantial reciprocity of treatment will be assured in relation to the enforcement in that country of money judgments given in all Australian superior courts, the regulations may provide that this Part extends in relation to that country.
(f) When asked by the Court to further explain how the undertaking could be enforced, Yimiao submitted:[304]
[304]Transcript of Proceedings 3 November 2022 (n 10) 71.10-72.12 (Dr Bigos KC).
(xvii) this Court could, inter alia, impose a fine upon Yimiao Singapore and Mr Feng;
(xviii) there is a broader enforcement procedure in Singapore but there is no evidence of it;
(xix) a fine imposed by this Court could be enforced through reciprocal arrangements in Singapore.
(g) When further pressed on these matters, Yimiao did not make further submissions on how the undertakings could be enforced.[305] I am not satisfied that a fine could be enforced against Yimiao Singapore or Mr Feng in Singapore. Further, even if I am incorrect and it could be enforced, a fine would be of no benefit to CIT. Any enforcement against Yimiao Singapore and Mr Feng, whether respect to a fine or otherwise, would involve also CIT incurring substantial time, expense and costs to do so.
(h) There is a risk that if Yimiao Singapore breaches its undertaking, and takes enforcement action against Yimiao to obtain a repayment of the loans, the undertaking of Yimiao would not be effective to prevent such action.
[305]Ibid 72.13-73.22 (Dr Bigos KC).
Secondly, Yimiao has also offered to undertake to pay the sum of $370,000 into Court as security for the undertakings set out in the proposed orders. This includes the undertaking as to damages. This was part of its revised undertakings on 28 October 2022. At the hearing on 3 November 2022, Yimiao clarified that that proposed orders should provide that the delivery up should only occur after Yimiao pays the sum of $370,000 into Court.[306] In my opinion, the proposed payment into Court is inadequate to protect the CIT Alleged Security Interest. The sum of $370,000 is calculated upon the quantum of CIT’s claims against Genesis for the unpaid invoices. It is based upon Yimiao’s submissions that this is ‘highest amount’ that would be secured by the CIT Claimed Security Interest (i.e. $315,000 plus interest).[307] CIT has other claims against Genesis. I refer to my earlier Reasons.[308]
[306]Ibid 12.11-12.13 (Dr Bigos KC).
[307]Ibid 66.3-66.6 (Dr Bigos KC).
[308]Reasons, [136]-[140].
Thirdly, Yimiao has proffered that it will undertake not to grant any security over the Yimiao Identified Claimed Equipment. I accept CIT’s submissions that there remains the risk that once the Yimiao Identified Claimed Equipment is delivered up and given to other persons to store or host it that other persons may claim security interests over the Yimiao Identified Claimed Equipment.
Fourthly, Yimiao’s proposed undertakings do not prevent it incurring further debt and therefore increasing its liabilities. Mr Feng gave evidence that he is not aware of any debt incurred by Yimiao that remains unpaid or is the subject of any demand issued to Yimiao by any creditor. I refer to the Third Feng affidavit at [9].
Fifthly, I not satisfied that the value of the other cryptocurrency mining equipment (e.g. of Star Mining) that may be subject to the CIT Claimed Security Interest is sufficient given CIT’s claims.
Finally, Yimiao seeks delivery up of the Yimiao Identified Claimed Equipment. It seeks to remove them from the possession of CIT who has an arguable security interest over the Yimiao Identified Claimed Equipment. It seeks to disturb the status quo. Yimiao has revised its undertakings to seek to protect the CIT Claimed Security Interest on numerous occasions during the hearing of this application. Its undertakings remain inadequate. The undertakings do not adequately protect the CIT Claimed Security Interest.
Which approach would minimise harm to third parties?
I am satisfied that the grant of the injunction would likely minimise the potential harm to third parties. As a result, this factor weighs in favour of the grant of the injunction.
I am satisfied that if the injunction is granted then it is likely that Yimiao will use a substantial number of items of the Yimiao Identified Claimed Equipment to mine cryptocurrency. This may reduce any damages that the defendants, including CIT, may be liable to pay to Yimiao in the event that it succeeds in it claims at trial.
As I have said above, I am not satisfied that, if the interlocutory injunction is refused, it is likely that an agreement will be made between Yimiao, CIT, Star Mining and/or Genesis, or any other persons, for the maintenance of, and the provision of internet, lighting, electricity and the other necessary infrastructure to operate, the Yimiao Identified Claimed Equipment. There is a real risk that no such agreement will be made.
Are damages an adequate remedy?
Submissions
Yimiao submitted damages are not an adequate remedy as its damages will be very difficult to quantify and there is a real risk that any damages may not be recovered from the defendants.
CIT submitted that damages are an adequate remedy.
Analysis
In my opinion, there is a real risk that damages may not be an adequate remedy. As a result, this factor weighs in favour of the grant of the injunction.
Mr Feng (Yimiao) gave evidence that such loss and damage ‘cannot be easily quantified, as the quantification of the loss that Yimiao is likely to suffer is complex and dependent upon a range of factors’.[309] Mr Feng (Yimiao) gave detailed evidence of his estimate of the likely loss and damage.[310] Mr Feng (Yimiao) gave evidence that he estimates that Yimiao is losing approximately $53,437.12 in pre-tax profit per day based upon not Yimiao not being able to use 1,598 units.[311] He also gave evidence that Yimiao is unable to run its business at all until those units are returned but that if at least the 376 units identified to date[312] are returned to Yimiao, it will allow Yimiao to resume some limited mining operations.[313] Yimiao accepted that the summons does not concern 1,598 units and that the lost pre-tax profit would be about half of the amount of $53,437.12. The summons concerns 810 units. In my view, an assessment of Yimiao’s loss and damage may not be ‘easy’, and may be complex, but I am not satisfied that it will be ‘very difficult to quantify’[314]. Mr Feng has provided his assessment. As a result, I reject Yimiao’s submission ‘damages will be very difficult to quantify.’
[309]Second Feng affidavit, [15].
[310]Ibid [16]-[20].
[311]Ibid [15]-[20].
[312]Ibid [21].
[313]Ibid [20]-[21].
[314]Yimiao’s submissions, [43].
I am satisfied that there is a real risk that any damages ordered in favour of Yimiao may not be recoverable as:
(a) There is evidence that CIT does not own any real property in Australia. There is no evidence that CIT has any other assets.
(b) CIT was incorporated on 8 November 2021.[315] CIT has a paid share capital of $10,000.[316]
[315]Exhibit ‘JM-1’ to the McNaught affidavit, 65.
[316]Ibid.
(c) There is evidence that CIT was incorporated to operate the ‘cryptocurrency mine site’ at the Premises and that its ability to pay rent to 3V Development under its lease depends upon its ability to generate revenue from this business.[317] CIT submits that it has a claim of lost profit of $11,970,000 against Genesis,[318] in addition to other claims based upon unpaid invoices.
[317]McNaught affidavit, [23], [26].
[318]Ibid [113]-[114].
(d) CIT, in making submissions on the CIT Claimed Security Interest, submitted that it was incorporated by a group of companies with significant assets and a significant track record of doing business in Victoria.[319] It otherwise did not identify that CIT has any assets.
[319]Transcript of Proceedings 14 September 2022 (n 1) 30.8-30.10 (Mr McKillop).
(e) Genesis was incorporated on 23 March 2022 and has a paid share capital of $100.[320]
[320]Exhibit ‘JM-1’ to the McNaught affidavit, 67.
(f) There is evidence that Genesis does not own any real property in Australia. There is no evidence that Genesis has any other assets.
(g) There is evidence that CIT has made a claim of lost profit of $11,970,000 against Genesis.[321] There is evidence that Genesis has not paid invoices issued by CIT and also evidence that it disputes them.[322] CIT has purportedly terminated the CIT Agreement with Genesis.
(h) There is evidence that Star Mining owns items of cryptocurrency mining equipment with a value of USD$1,211,749.[323] There is no evidence that Star Mining has any other assets in Australia of any value.
[321]McNaught affidavit, [113]-[114].
[322]Ibid [71]-[78].
[323]Zeng affidavit, [35]. See also Transcript of Proceedings 15 September 2022 (n 7) 245.7-245.9 (Mr Caillard).
Is Yimiao’s prima facie claim weak?
Submissions
CIT submitted that Yimiao’s prima facie claim is weak as it was not entitled to immediate possession when it made the demands.[324] It submitted:[325]
[324]Transcript of Proceedings 15 September 2022 (n 7) 312.22-314.10 and especially at 314.6-9 (Mr McKillop).
[325]CIT’s revised submissions, [61]-[64]. Paragraph [61] of CIT’s revised submission appears to mistakenly quote from clause 6.3 of the Star Mining Agreement rather than clause 6.3 of the Yimiao agreement. The two clauses are the same, except for the words ‘in the Licensed Space’ in the Star Mining Agreement are replaced with ‘within the Mining Room’ in the Yimiao Agreement. The substance of CIT’s submission is not affected by this error.
(a) It referred to clause 6.3 of the Yimiao Agreement that provides:
If the Hosting Client desires to materially add or subtract from the Hosting Client Equipment in the Mine Site, it shall first submit a list of such proposed changes to the Operator for its review and approval prior to the installation or removal of the Hosting Client Equipment. The Hosting Client shall submit an updated Schedule 1 of the Hosting Client Equipment (if any information on such Schedule 1 has changed since it was last submitted) immediately.
(b) There is no evidence that this has occurred. The Yimiao Agreement has not been terminated.
Analysis
CIT accepted that there is a serious question to be tried on Yimiao’s claims.
On 8 August 2022, Yimiao’s solicitors sent a letter to Star Mining in which it referred to the Yimiao Total Claimed Equipment and relevantly stated: ‘Our client also requires Star Mining to work with it to arrange access to inspect and collect the L7 Equipment from the Mine Site.’[326] It is arguable that this constitutes ‘a list of proposed changes’ within the meaning of clause 6.3 of the Yimiao Agreement as Yimiao’s proposed change was that it desired to subtract the Yimiao Total Claimed Equipment from the ‘Hosting Client Equipment’ at the Mine Site. At the time of this request there is prima facie evidence that CIT had already refused Star Mining access to the Premises and the Container Rooms. I refer to the Zeng affidavit at [27]. Star Mining has also demanded the return of its own equipment. Star Mining does not oppose the delivery up of the Yimiao Identified Claimed Equipment in this application. In those circumstances, it is arguable that Star Mining has waived the requirement for its approval for their removal. I am not satisfied that Yimiao’s claim is weak.
[326]Exhibit ‘CMC-1’ to the First McCudden affidavit, 29-32 [16].
EXERCISE OF DISCRETION
I have carefully considered the serious questions to be tried and the factors on the balance of convenience. This case is one in which whatever course the Court takes there is a real risk of injustice. I am of the view that, when taking into account the serious questions to be tried and factors on the balance of convenience, the course which carries the lesser risk of injustice is to refuse the application for injunctive relief. Further, if I am incorrect and CIT’s claim for $11,970,000 is speculative, I remain of this view. Subject to CIT giving to the Court the undertakings substantially in the form proposed by it on 15 September 2022 and set out in these Reasons at [12(a)]-[12(c)], I will exercise my discretion to dismiss Yimiao’s application for injunctive relief in the summons.
The undertakings already given to the Court by the parties on 14 September 2022 remain and are not affected by the dismissal of Yimiao’s application for injunctive relief in the summons.
I will give liberty to apply to the parties. Pursuant to liberty to apply, Yimiao may, inter alia, make any further application for injunctive relief based upon the provision of further security if it is minded to do so. CIT submitted that this was an appropriate course in the event that the Court refused the application.[327]
[327]Transcript of Proceedings, Yimiao Australia Pty Ltd v Star Mining Pty Ltd & Ors (Supreme Court of Victoria, S ECI 2022 03213, Attiwill J, 27 October 2022) 10.17-10.27; 12.5-12.8 (Mr McKillop).
CONCLUSION AND ORDERS
In conclusion, subject to CIT giving to the Court the undertakings substantially in the form proposed by it on 15 September 2022 and set out in these Reasons at [12(a)]-[12(c)], I will exercise my discretion to dismiss Yimiao’s application for injunctive relief in the summons.
I will hear from the parties on the precise form of order, including costs, and the precise form of the undertakings to be given by CIT.
SCHEDULE OF PARTIES
| YIMIAO AUSTRALIA PTY LTD (ACN 657 775 758) | Plaintiff |
| - and - | |
| STAR MINING PTY LTD (ACN 656 484 525) | First Defendant |
| 3V DEVELOPMENT AUSTRALIA PTY LTD (ACN 611 589 489) | Second Defendant |
| CYBER INTELLIGENCE TECH PTY LTD (ACN 655 149 161) | Third Defendant |
| GENESIS MINING PTY LTD (ACN 658 242 721) | Fourth Defendant |
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