Yimiao Australia v Cyber Intelligence

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0105

YIMIAO AUSTRALIA PTY LTD (ACN 657 775 758)	Applicant
v
CYBER INTELLIGENCE TECH PTY LTD (ACN 655 149 161)	Respondent

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JUDGES:	McLEISH, WALKER and MACAULAY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	3 February 2023
DATE OF JUDGMENT:	3 February 2023
PUBLICATION OF REASONS:	21 February 2023
MEDIUM NEUTRAL CITATION:	[2023] VSCA 21
JUDGMENT APPEALED FROM:	[2022] VSC 701 (Attiwill J)

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INJUNCTION – Interlocutory – Test – Lower risk of injustice – Serious question to be tried conceded – Balance of convenience – Undertaking as to damages – Whether trial judge failed to consider effect of dissipation of asset value on party’s asserted security interest – Real risk that assets would have little to no value by time of trial – Re-exercise of Court’s discretion – Leave to appeal granted – Appeal allowed.

Personal Property Securities Act 2008 (Cth) ss 3, 9, 10, 12, 13.

Bradto Pty Ltd v Victoria (2006) 15 VR 65, applied. Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318; Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; House v The King (1936) 55 CLR 499; Whisprun Pty Ltd v Dixon (2003) 200 ALR 447, referred to.

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Counsel
Applicant:		Dr O Bigos KC with Mr P Annabell
Respondent:		Mr M McKillop with Ms N Tyson
Solicitors
Applicant:	Gilbert + Tobin
Respondent:	MinterEllison

MCLEISH JA
WALKER JA
MACAULAY JA:

The applicant in this matter (‘Yimiao’) carries on a business of cryptocurrency mining. It purchased 1,598 units of ‘L7 Antminer’ cryptomining equipment, which were delivered to premises leased by the respondent (‘CIT’) in Clayton. Of those 1,598 units, some 810 units were identified as remaining in CIT’s possession as at the date of the hearing below;[1] the other 788 units are missing. Yimiao seeks the return of its equipment from CIT.
[1]These are referred to in the trial judge’s reasons as the ‘Yimiao Identified Claimed Equipment’. We will refer to them as ‘the 810 units’, save when quoting from the judge’s decision.
CIT is resisting Yimiao’s application. It contends that it has a security interest in the 810 units under the Personal Property Securities Act 2008 (Cth) (‘PPSA’), pursuant to an agreement with Genesis Mining Pty Ltd (‘Genesis’), and that it had perfected that interest pursuant to s 21 of the PPSA by possession or, alternatively, by registering the interest. It further contends that while Yimiao has a security interest in the 810 units as a bailor of goods under a ‘PPS lease’, as defined in s 13 of the PPSA, that security interest was not perfected. CIT contends that its security interest takes priority over Yimiao’s security interest by reason of the PPSA.
On 13 September 2022, Yimiao sought an interlocutory injunction for the delivery up of the 810 units pending the resolution of the dispute. The principal reason for Yimiao’s application was that it contended that it could not operate the 810 units unless they were delivered up; and if it could not operate the units, it could not run its business. It also advanced various other reasons in support of its submissions in favour of the grant of an injunction, which will be set out later in these reasons.
CIT conceded that there is a serious question to be tried as to whether Yimiao is entitled to recover the 810 units. However, it contended that the balance of convenience favoured the retention of the status quo: that the 810 units remain in its possession pending the outcome of the trial. Its principal reason was that its security would be put at risk if the 810 units were removed from its possession. Again, its submissions will be set out in greater detail later in these reasons.
Each side offered undertakings to the Court in aid of their case, which will also be set out below.
The judge dismissed Yimiao’s application. He held that, whichever course the Court took, there was a real risk of injustice. Applying the approach set out in Bradto Pty Ltd v Victoria,[2] the judge concluded that the course that carried the lesser risk of injustice was to refuse the application for injunctive relief. Thus, subject to CIT giving to the Court certain undertakings, and noting that certain undertakings already given remained in place, the judge exercised his discretion to dismiss Yimiao’s application for injunctive relief.
[2](2006) 15 VR 65, 74 [35] (Maxwell P and Charles JA); [2006] VSCA 89 (‘Bradto’).
Yimiao now seeks leave to appeal from that decision. It does so on the following proposed grounds of appeal:[3]
1.The trial judge erred in failing to hold that [Yimiao] did not have a ‘PPS lease’ over the equipment as defined in s 13 of the Personal Property Securities Act 2009 (Cth). His Honour ought to have held that [Yimiao] did not have a ‘PPS lease’, and therefore its ownership could not be subject to [CIT’s] asserted security interest.
2.The trial judge erred in failing to hold that [CIT] had no right to possession of the equipment.
3.The trial judge erred in proceeding on the incorrect assumption that it was necessary for [CIT] to retain possession of the equipment in order to maintain its asserted security interest.
4.The trial judge erred in finding (Reasons, [152]–[155], [165]) that the interlocutory delivery up order would create risks for [CIT’s] security interest and the cessation of its possession of the equipment or any possessory security interest in it.
5.The trial judge erred by failing to address [Yimiao’s] submission that [CIT’s] claimed security interest had little value because the equipment will be of little or no value by the time of final judgment in the proceeding.
6.The trial judge erred in finding (Reasons, [151]) that CIT’s asserted security interest was not adequately protected by Yimiao’s proposed undertakings.
7.The trial judge’s refusal to make the delivery up order was plainly unjust, such that it may be inferred that in some way there has been a failure properly to exercise the discretion.
[3]For convenience, the proposed grounds of appeal will hereafter be referred to as grounds of appeal.
CIT contended that grounds 1–4 were not raised before the trial judge and so Yimiao ought not be permitted to rely on those grounds on appeal. It also contended that none of the grounds (including grounds 1–4) had any prospects of success and thus leave to appeal should be refused.
After the hearing of the application for leave to appeal and the appeal (which were heard together), this Court made orders granting leave to appeal and allowing the appeal. The Court then made orders for the delivery up of the 810 units, as sought by Yimiao, subject to undertakings given by it and by others. This judgment sets out the Court’s reasons for those orders. In summary:
(a)The Court is of the opinion that ground 5 is made out. We accept Yimiao’s submission that the judge failed to address its argument concerning the value of CIT’s security interest by the time it came to be able to realise its security in the 810 units. For that reason, we granted leave to appeal and allowed the appeal.
(b)In light of that conclusion, it is not necessary for this Court to deal with the other grounds of appeal, although we make some remarks about those grounds in the course of our reasons.
(c)In light of our conclusion on ground 5, it was appropriate for this Court to re-exercise the discretion for itself, rather than remitting the matter to the trial judge. We concluded that, after the various relevant factors were considered, an order for delivery up of the 810 machines carried the lower risk of injustice.

The factual background

The factual background to the dispute between Yimiao and CIT is more complex than the brief summary above might suggest. The arrangements by which the 810 units came to be in CIT’s possession involve two other corporate entities; and it is notable that there is no contractual arrangement between CIT and Yimiao.

Agreed facts

The following facts were agreed between the parties.
Yimiao was incorporated in March 2022 for the sole purpose of generating revenue from cryptocurrency mining. Yimiao’s director gave evidence that, at all relevant times, it has generated revenue solely from sales of cryptocurrencies it mined. Cryptocurrency mining involves the use of sophisticated computer hardware to verify cryptocurrency transactions and earn units of cryptocurrency.
On Yimiao’s evidence, between March and April 2022 it acquired 1,598 units of cryptocurrency mining equipment known as L7 Antminer for around $28 million. Yimiao’s interlocutory application concerned the 810 units that were identified following inspections on two premises at 159–171 Wellington Road (the ‘Premises’) and 175 Wellington Road, Clayton (the ‘adjacent land’) respectively. The equipment is configured to mine two types of cryptocurrencies, ‘Dogecoin’ and ‘Litecoin’. Yimiao’s evidence was that, due to technological developments and the structure of the cryptocurrency mining industry, the computing power required to generate Litecoin increases over time, and that the value of L7 Antminer machines was deteriorating.
Yimiao’s director gave evidence that Yimiao’s business model assumes that the equipment is utilised in the period prior to 6 August 2023 (when the revenues able to be generated from Litecoin are expected to halve).
Between March and May 2022, Yimiao delivered items of equipment to Star Mining Pty Ltd (‘Star Mining’), including the 810 units. Star Mining is the first defendant in the proceeding below. The terms of the agreement between Yimiao and Star Mining that apply to the equipment are in dispute in the proceeding below. The equipment was delivered to the Premises.
Yimiao claims that under its agreement with Star Mining the equipment remained the sole and exclusive property of Yimiao, and Yimiao was permitted to remove its equipment at all reasonable times. Yimiao also claims that it delivered the equipment to the Premises pursuant to that agreement.
Star Mining entered into an agreement with Genesis (the fourth defendant in the proceeding below) and Genesis took delivery of the equipment, including the 810 units.
Genesis entered into an agreement with CIT (the third defendant in the proceeding below). CIT leased a part of the Premises in respect of the use of the Premises for hosting cryptocurrency mining equipment. CIT claims that Genesis sub-bailed equipment to it, including the 810 units.
Yimiao’s evidence is that neither the agreement between Star Mining and Genesis nor the agreement between Genesis and CIT were entered into with Yimiao’s knowledge or consent. The date when Yimiao became aware of the involvement of Genesis and CIT is a fact in issue in the proceeding below.
On 25 July 2022, power and internet connection to Yimiao’s equipment that had been in operation was cut off without explanation to Yimiao. Yimiao subsequently requested that CIT disconnect the equipment from power. Since 25 July 2022, Yimiao has been denied access to the Premises (other than inspections on each of 24 and 29 August, 7 September and 26 October 2022). Since that date it has not generated any cryptocurrency from the mining equipment.
Yimiao commenced the proceeding below and applied for inspection orders. The inspections that subsequently occurred took place by consent without orders being made. Through the inspections of the Premises and the adjacent land, Yimiao identified the 810 units. CIT claims these 810 units are in its possession.
Since 25 July 2022, Yimiao sought return of the equipment. CIT has not permitted it to be returned.
CIT claims that it has a security interest in the equipment arising from an agreement with Genesis. CIT alleges that Genesis is in default under the relevant agreement, and that the debts which are secured by the security interest in the equipment comprise the sum of $265,158.00 owed by Genesis to CIT pursuant to two invoices, plus a damages claim against Genesis for breach and repudiation of the agreement between CIT and Genesis (which it estimated at $11,970,000 plus interest), plus any amounts owing pursuant to an indemnity provided by Genesis.
CIT claims its security interest has priority over Yimiao’s interest in the equipment. Yimiao denies that CIT has any security interest in the equipment owned by Yimiao.

Some additional factual matters

In addition to the agreed facts, it is relevant to note the following matters.
First, each party provided undertakings to the Court on the first day of hearing, as follows:
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 1,598 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).[4]
[4]Yimiao Australia Pty Ltd v Star Mining Pty Ltd [2022] VSC 701 (‘Reasons’), [7].
Secondly, Yimiao offered additional undertakings that would apply if the interlocutory relief it sought were to be granted. These additional undertakings varied over time, but in their ultimate form were as follows:
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.[5]
[5]Reasons, [14].
Thirdly, CIT offered additional undertakings that would apply if the interlocutory relief sought were to be refused. These also varied over time, and in their ultimate form were as follows:
(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.[6]
[6]Reasons, [12].

Relevant principles concerning interlocutory injunctions

The principles relevant to the grant of interlocutory injunctive relief were not in dispute. In summary:[7]
(a)The plaintiff seeking interlocutory injunctive relief must demonstrate that there is a serious question to be tried. As noted above, CIT conceded that Yimiao satisfied this requirement.
(b)The injury the plaintiff is likely to suffer must be one for which damages will not provide an appropriate remedy.
(c)The balance of convenience must favour the granting of an injunction. This will require consideration of the strength of the plaintiff’s claim.
(d)Ultimately, the Court should take the course that 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 the asserted right at trial, or failing to grant an injunction to a party who succeeds at trial.
[7]See, eg, Bradto (2006) 15 VR 65, 73 [35] (Maxwell P and Charles JA); Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318, [106] (Beach, McLeish and Hargrave JJA); Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 81–2 [65] (Gummow and Hayne JJ); [2006] HCA 46.

It is plain from the judge’s reasons that he understood and applied these principles when considering whether to grant the interlocutory relief sought by Yimiao, and no party contended otherwise.

The PPSA

In order to understand the nature of the underlying dispute between the parties, and the application of the principles concerning interlocutory injunctions to the circumstances of this particular case, it is necessary to set out some key provisions of the PPSA.
The PPSA is explained in general terms in s 3 as follows:
This Act is a law about security interests in personal property.
A security interest is an interest in personal property provided for by a transaction that secures payment or the performance of an obligation. The form of the transaction and the identity of the person who has title to the property do not affect whether an interest is a security interest.
Personal property includes many different kinds of tangible and intangible property, other than real property. …
…

A security interest is enforceable against third parties when it has attached to the collateral and either the secured party has possession or control of the collateral, or a security agreement covers the collateral.
If a security interest in collateral is perfected, it takes priority over another security interest that is unperfected when the security interest comes to be enforced. A security interest is perfected if:
(a) it has attached to collateral; and
(b) it is enforceable against third parties; and
(c)certain extra steps (possession or control of the collateral, or registration on the Register of Personal Property Securities) have been taken to protect the interest.

Section 9, which provides a guide to pt 2 of the PPSA, states that ‘[c]ertain transactions that do not secure payment or the performance of an obligation may also give rise to a security interest’; this includes, relevantly for present purposes, ‘certain long-term leases and bailments (called PPS leases)’.
Section 12 of the PPSA is titled ‘[m]eaning of a security interest’ and relevantly provides as follows:
(1) A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).
(2) For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:
(a)      a fixed charge;
(b)      a floating charge;
(c)      a chattel mortgage;
(d)a conditional sale agreement (including an agreement to sell subject to retention of title);
(e)      a hire purchase agreement;
(f)      a pledge;
(g)      a trust receipt;
(h)      a consignment (whether or not a commercial consignment);
(i)       a lease of goods (whether or not a PPS lease);
(j)       an assignment;
(k)      a transfer of title;
(l)       a flawed asset arrangement.
(3)A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation:
…
(c)      the interest of a lessor or bailor of goods under a PPS lease.
The meaning of the term ‘PPS lease’ is dealt with in s 13 of the PPSA, which provides as follows:
(1)      A PPS lease means a lease or bailment of goods:
(a)      for a term of more than 2 years ; or
(c)for a term of up to 2 years that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed 2 years; or
(d)for a term of up to 2 years, or a lease for an indefinite term, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than 2 years after the day the lessee or bailee first acquired possession of the property (but not until the lessee's or bailee's possession extends for more than 2 years).
(2)      However, a PPS lease does not include:
(a)a lease by a lessor who is not regularly engaged in the business of leasing goods; or
(b)a bailment by a bailor who is not regularly engaged in the business of bailing goods; or
(c)a lease of consumer property as part of a lease of land where the use of the property is incidental to the use and enjoyment of the land; or

(d)a lease or bailment of personal property prescribed by the regulations for the purposes of this definition, regardless of the length of the term of the lease or bailment.

Bailments for value only

(3) This section only applies to a bailment for which the bailee provides value.

Importantly, under s 13 of the PPSA the owner of goods may have the interest of a bailor under a PPS lease, in which case they have a security interest within the meaning of s 12(3)(c). In such a case their interest will be subject to the priority rules[8] under the PPSA. Relevantly, and in brief summary, if the owner has not perfected their security interest, and if there is another person with a perfected security interest, then that other person’s security interest will take priority over the owner’s unperfected security interest.
[8]PPSA, pt 2.6.
In the present case, as will become apparent, one issue in dispute is whether Yimiao has a security interest in the 810 units. That turns on whether its arrangement with Star Mining was a PPS lease. There is a dispute between the parties to the proceeding about the terms of the agreement between Yimiao and Star Mining. In addition, there is a dispute as to whether Yimiao, as bailor, was ‘not regularly engaged in the business of bailing goods’ within the meaning of s 13(2)(b) and, it appears, whether the bailment of goods by Yimiao to Star Mining was one for which Star Mining, as bailee, had provided ‘value’ within the meaning of s 13(3).[9]
[9]‘Value’ is defined in the dictionary in s 10 as follows:
(a) means consideration that is sufficient to support a contract; and
(b) includes an antecedent debt or liability; and
(c) in relation to the definition of purchase money security interest—has a meaning affected by section 14.

The trial judge’s decision

After setting out the relevant principles concerning injunctive relief and the evidence before him, the judge held that he was satisfied that there was a serious question to be tried (which, as he observed, was conceded by CIT). He held as follows:
(a)Yimiao established a prima facie claim that it owns the 810 units, and CIT accepted this.
(b)Yimiao had made demands for CIT to return the 810 units — this was not in dispute.
(c)Yimiao established a prima facie claim that when it made the demands it had a right to immediate possession of the 810 units; CIT accepted this but submitted that Yimiao’s claim is weak, which is relevant to the balance of convenience.
(d)CIT has not returned the 810 units and is in possession of them — this too was not in dispute.[10]
[10]Reasons, [95].
In relation to the balance of convenience, the judge addressed the various matters raised by the parties directed to the balance of convenience in detail.
First, the judge held that the 810 units will be better protected and maintained if they are delivered up; and this weighed in favour of the grant of the injunction.[11] However, the judge was not satisfied that there was a real risk that the 810 units would be poorly protected or maintained if the injunction was refused.[12]
[11]Reasons, [101].
[12]Reasons, [101]–[103].
Secondly, the judge held that the 810 units will be able to be best used, so that Yimiao can recommence operating its business, if they are delivered up and that this would address, to a real extent, the potential impacts to Yimiao’s business by reason of it not being able to operate its cryptomining equipment.[13] This favoured the grant of the injunction.
[13]Reasons, [113].
His Honour further held that he was not satisfied that, if the injunction were not granted, and the 810 units remained in CIT’s possession, it was likely that an agreement would be reached between Yimiao, CIT, Star Mining and/or Genesis for the necessary infrastructure to operate the 810 units. This, too, favoured the grant of the injunction.[14]
[14]Reasons, [115].
Thirdly, the judge rejected Yimiao’s argument that CIT’s claimed security interest over the 810 units is weak.[15] This tended against the grant of the injunction. Yimiao’s argument turned on the construction of the agreement between CIT and Genesis, and on whether Yimiao, Star Mining and Genesis fell within s 13(2)(b) of the PPSA, so as to deem the agreements between them in relation to the 810 units to be PPS leases.[16] The judge considered the construction questions to be arguable; and in relation to s 13(2) of the PPSA, his Honour said:
[W]hether Yimiao, Star Mining and Genesis have been ‘regularly engaged’ in the ‘business of’ bailing goods concerning the activities of cryptocurrency mining so the exception in s 13(2) of the PPS Act applies, self-evidently, raises questions of fact and law which require investigation at a trial. This includes the nature and extent of the business activities of Yimiao, Star Mining and Genesis concerning the arrangements they have entered into with respect to the provision of, inter alia, cryptocurrency mining equipment. This is not limited to the arrangements concerning the Premises and Container Rooms, as it concerns their ‘business’. This requires investigation at a trial. I am not satisfied that this is weak.[17]
[15]Reasons, [126].
[16]Reasons, [127]–[131].
[17]Reasons, [131].
Fourthly, the judge rejected Yimiao’s argument that the highest amount that would be secured by CIT’s claimed security interest is $315,000.[18] It was on the basis of that figure, plus interest, that Yimiao had offered to pay $370,000 into Court to secure CIT’s claims against Genesis.[19] Yimiao submitted that CIT’s claim for damages in the sum of $11,970,000 was overstated given the terms of the contract between CIT and Genesis, that CIT’s lost profit was approximately $90,000, and that CIT’s indemnity claims were also speculative and weak.[20] The trial judge accepted that the claim for $11,970,000 was weak, but given the state of the evidence at the time, found that it was not speculative.[21] His Honour considered that the terms of the agreement between CIT and Genesis required investigation at trial.[22] This tended against the grant of an injunction.
[18]Reasons, [136].
[19]Reasons, [133]. This was based on unpaid invoices totalling approximately $315,000 plus interest at 15% for 12 months.
[20]Reasons, [134(b)]–[134(c)].
[21]Reasons, [140].
[22]Reasons, [140(a)].
Fifthly, the judge found that the undertakings proffered by Yimiao were not adequate to protect CIT’s claimed security interest in the 810 units. This tended against the grant of an injunction.[23] The judge gave several reasons for this.
(a)The judge observed that, if the injunction were to be granted, CIT would cease to be in possession of the 810 units. He held that it would then cease to have any possessory security interest until such time, if at all, as it resumes possession.[24]
(b)The judge observed that the matter was argued on the basis that, if the injunction was granted and CIT ceased to have possession, and one of the matters in s 588FL(1)(a) of the Corporations Act[25] occurred prior to 9 March 2023, CIT’s claimed security interest (if it exists) would vest in Genesis, subject to an application being made pursuant to s 588FM of the Corporations Act.[26] The judge was not able to determine the likelihood of that occurring, nor of such an application being successful (noting that the making of an order under s 588FM is discretionary).[27] His Honour observed that, if this risk eventuated, and no order was made under s 588FM, CIT would cease to have its claimed security interest in the 810 units.[28]
(c)The judge also observed that if CIT ceased to have its claimed security interest in the 810 units, it would then be an unsecured creditor of Yimiao, which was a $100 company with net assets of approximately $80,000 and net liabilities including loans of approximately $31 million from Yimiao Tech Pte Ltd (‘Yimiao Singapore’).[29] Noting that 788 units are missing, the value of the remaining 810 units is approximately $14 million. Thus its liabilities exceed its assets by at least $14 million.[30] In that context, the proposed undertakings by Yimiao Singapore and its director, Mr Feng, were not adequate to protect CIT’s interests given that Yimiao Singapore and Mr Feng are resident in Singapore, there is no evidence of their financial circumstances (save for the loans to Yimiao) and they have not provided any security for their undertakings.[31] Nor was there any evidence as to how their undertakings could be enforced against them.[32] The judge was not satisfied that a fine against Yimiao Singapore and/or Mr Feng could be enforced against them in Singapore, but noted that even if it could be, a fine would be of no benefit to CIT and would involve substantial expense and time.[33]
(d)The judge accepted CIT’s submission that, if the injunction were granted and Yimiao provided the 810 units to other persons to store or host, those other persons may claim security interests over the 810 units.[34]
(e)The judge also observed that Yimiao’s proposed undertakings would not prevent it incurring further debt.[35]
(f)The judge was not satisfied that the value of other cryptomining equipment over which CIT may have a security interest (eg that of Star Mining) was sufficient given the quantum of CIT’s claims.[36]
[23]Reasons, [152].
[24]Reasons, [153].
[25]The matters set out in s 588FL(1)(a) of the Corporations Act are as follows:
(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; …
[26]Section 588FM of the Corporations Act provides as follows:
(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.
[27]Reasons, [155], [157].
[28]Reasons, [156].
[29]Reasons, [160]–[161].
[30]Reasons, [161].
[31]Reasons, [164(a)]–[164(d)].
[32]Reasons, [164(e)].
[33]Reasons, [164(g)].
[34]Reasons, [166].
[35]Reasons, [167].
[36]Reasons, [168].
Sixthly, the judge found that if the 810 units were delivered up this would minimise harm to third parties, because Yimiao could start using the 810 units in its business, thus minimising the damages it will ultimately claim from CIT, Star Mining and Genesis. This favoured the grant of the injunction.[37]
[37]Reasons, [171].
Seventhly, the judge found that there is a real risk that damages may not be an adequate remedy for Yimiao, because there is a real risk that any damages order may not be recoverable, given the following matters.[38]
(a)There is evidence that CIT does not own any real property in Australia and there is no evidence it has any other assets.[39] It has a paid share capital of $10,000.[40] There is evidence that CIT was incorporated to operate the ‘cryptocurrency mine site’ at the Premises and that its ability to pay rent depends upon its ability to generate revenue, in circumstances where it is claiming a lost profit of $11,970,000, as well as claims for unpaid invoices.[41]
(b)Genesis has a paid share capital of $100, there is evidence that it does not own any real property in Australia and there is no evidence it has any other assets.[42] CIT has made a claim against Genesis for $11,970,000.[43] There is evidence that it has not paid invoices issued by CIT, and that CIT has purportedly terminated its agreement with Genesis.[44]
(c)There is evidence that Star Mining owns cryptomining equipment with a value of approximately USD$1,200,000. There is no evidence that it has any other assets in Australia of any value.[45]
[38]Reasons, [175].
[39]Reasons, [177(a)].
[40]Reasons, [177(b)].
[41]Reasons, [177(c)].
[42]Reasons, [177(f)].
[43]Reasons, [177(g)].
[44]Reasons, [177(g)].
[45]Reasons, [177(h)].
This favoured the grant of the injunction.
Eighthly, the judge held that he was not satisfied that Yimiao’s claim is weak.[46] This, too, favoured the grant of the injunction.
[46]Reasons, [180].
Taking account of these various factors, the judge determined that, as set out above, the course that carried the lesser risk of injustice was to refuse the application for injunctive relief.

Ground 5

It is convenient to commence by considering ground 5, because that is the ground on which we determined to grant leave to appeal and allow the appeal. Ground 5 is that the judge erred by failing to address Yimiao’s submission that CIT’s claimed security interest has little value because the equipment will be of little or no value by the time of final judgment in the proceeding.
In order to understand the basis for this ground, it is necessary to set out in some detail relevant passages from the transcript of the hearing before the trial judge.
The issue of the depreciation of the 810 units was first raised by Mr McKillop, counsel for CIT, in support of CIT’s submission that Yimiao’s undertaking as to damages was inadequate, because its only asset is the 810 units:
MR McKILLOP: My next point is this. The only asset this company has – it’s all ready got - assuming the machines are worth what they were when purchased new - a deficiency of $15.5m.
HIS HONOUR: Yes.
MR McKILLOP: Now, we know the machines from the evidence of Mr Feng, which is referred to - - -
HIS HONOUR: Yes, I know, depreciating and so on.
MR McKILLOP: - - - are depreciating at a very rapid rate. The upshot of his evidence is that the machines are likely to be of little value by the middle of next year.[47]
[47]Emphasis added.
In support of this submission Mr McKillop referred to Mr Feng’s affidavit. He then went on as follows:
MR McKILLOP: What we say is that this evidence establishes a real risk that after the next halving of Litecoin on 6 August, I think he said, next year, that those machines won't be earning enough money to be worth anything. The costs of operating them will exceed the cost of coins they produce. …
Now, the point of them developing this - I mean it’s sort of counterintuitive because it kind of goes against the value of their undertaking. But the reason that Mr Feng - - -
HIS HONOUR: I know because they wish to say that they need it as soon as possible.
MR McKILLOP: Yes. Exactly. What we’re saying is an undertaking that relies on the value of the machines as collateral to secure it should not satisfy the court because of this evidence. There's a real risk that by the time the undertakings are called on and that the machines are offered up to enable us to sell them to pay our damages secured by the undertaking that they'll be worth nothing.
…
MR McKILLOP: The essence of our case is this. This new scheme of undertaking - because it's only $370,000 in cash, that's not enough to secure our position. An undertaking from Yimiao is not enough - is worthless, basically, because these machines will be not likely - there's a real risk these machines won't be worth enough to secure anything by the time we call upon the undertaking.
…
MR McKILLOP: All we need Your Honour to draw a conclusion about is that there is a risk that those machines are not going to be worth anything by the time we call upon the undertaking. In that sense, it doesn't matter at all whether or not Yimiao Singapore calls on its $30m loan. That only matters if Yimiao has some assets to fight over.
HIS HONOUR: Right. I understand.
MR McKILLOP: That's our point on the undertaking from Yimiao.
…
HIS HONOUR: Well, I suppose one thing that I've got to look at then is the - and obviously, it goes back to your client’s claim for its security interests and also to the value of its indemnity or damages claim as it's set out and I can see what the parties have said about that being weak or what I’m left with. But then if the undertakings are otherwise effective in relation to the loan, you still say well, look, this equipment on the plaintiff’s own evidence is going to have substantially less value according to the evidence of Mr Feng by August next year.
MR McKILLOP: Yes. There’s no evidence of when this point is going to occur, but at some point, these machines will have no value because they will not be the latest technology available. …
HIS HONOUR: Well, I suppose in paragraph 14C, Mr Feng, in his second affidavit says, ‘The Litecoin halving said to occur on 6 August 23 will substantially reduce the returns in conducting Yimiao's business. The Yimiao's business and the significant investment Yimiao made were premised on the business plan that it should fully utilise Yimiao's equipment and maximise its mining activities before 6 August 2023’. What is evidence you say that that Yimiao equipment is worthless as at 6 August 2023?
MR McKILLOP: That’s certainly a possibility. I don’t think to be fair, you can conclude that because that's not what he says.
HIS HONOUR: Yes.
MR McKILLOP: But he does say that the business plan is premise on - - -
HIS HONOUR: No, no, it’s just that you made the submission hat it was worthless.
MR McKILLOP: Yes.
HIS HONOUR: I'm not saying he said that.
MR McKILLOP: No, no.
HIS HONOUR: You put a submission to me that that's what - - -
MR McKILLOP: My submission is this. At some point, they will be worthless. The only evidence shedding light on when that's going to occur is in Mr Feng’s affidavit and he suggested 6 August is a bit of a drop dead date because that’s when they assumed that they’ve got to get their value out of the machines before the price of Litecoin halves.[48]
[48]Emphasis added.

Still later Mr McKillop said this:
The difference between our case and Inglis and other cases is this. The collateral in this case is perishable. Its value is falling month by month and at some point in the future, it will be worth nothing. It's not good enough just to require you now to give an undertaking and secure it against the collateral because by the time we call on the security - on the undertaking the security is going to be or may well be worth nothing. That’s the difference between this case and perhaps other cases where - other cases dealing with personal property. It’s a case where delivery up has been ordered but that’s because the collateral was not perishable. It didn’t matter if it was in the hands of the plaintiff or the defendant as long as it was properly secured. This is not one of those cases.[49]
[49]Emphasis added.
In response to Mr McKillop’s submissions about the decreasing value of the 810 units, and the effect of that on the value of Yimiao’s undertaking as to damages, Mr Caillard, appearing for Star Mining, made the following submissions. These submissions addressed the impact of the depreciating value of the 810 units on CIT’s security interest:
MR CAILLARD: The second point that I’m sure has occurred to the court, my learned friend appears to assert the machines will have no value as security for Cyber. In other words, when this matter is heard in 12 months, they’re worthless. So when a decision is made and they get the machines, if Cyber did, they’re worthless. It appears to cut across his own submissions given the time ’til trial. On his own submissions, these machines will be worthless at that time.
HIS HONOUR: Sorry, you say that that cuts both ways, do you?
MR CAILLARD: It cuts both ways. That Mr McKillop says, well, these machines are declining come June or August, whatever it was, they’ll have zero value. Well, he says the hearing won't take place before then. When he calls upon the security if ever he’s entitled to call upon the security, these machines by his own submissions will have nil value. That alone should be, I would have thought, pretty critical to his case.
HIS HONOUR: Why?
MR CAILLARD: Well, we're replacing - well, I’m not, these are the submissions that Yimiao may make in due course. But as far as the value of the security that he seeks to have replaced, the security at the time it's called upon will be zero according to Mr McKillop.
HIS HONOUR: Sorry, according to who?
MR CAILLARD: According to Mr McKillop.
HIS HONOUR: Yes, McKillop. Sorry.
MR CAILLARD: That the machines will have - by that stage have no value. At the time they will be called upon as security.[50]
[50]Emphasis added.
Dr Bigos, appearing for Yimiao, addressed this issue in reply, as follows:
Now, third and in any event, the amount that we’ve put forward as security to be paid into court, 370,000, that's not the only form of security that protects Cyber. It has the benefit of the undertaking as to damages. There’s an undertaking as to damages given by the plaintiff, Yimiao. We know that Yimiao’s assets are the identified equipment that it has – it’s an asset in Australia. We know that the directors of the relevant companies will agree not to enforce a director’s loan, so that asset is unencumbered through the undertaking. It becomes unencumbered by any director’s loan. We know that the asset will generate income for Yimiao if the machines are returned and can be operated.
There’s the point that our learned friend, Mr Caillard made very correctly, that the maximum that any security can be worth is the machines. That’s the maximum extent of any security. Mr McKillop's arguments that the machines are a wasting asset really, that depreciates the value of his security. The relevant comparator here is he asserts I’ve got a security interest but I’m not going to be adequately protected by the undertaking as to damages over the equipment. But that same equipment is what he has a security interest over. That was the whole discussion Your Honour had with Mr McKillop in the last half an hour or so about that's the maximum claim; that's the relevant comparator. If his security can only be worth the equipment, then whatever depreciation happens to the equipment affects him just as much.
HIS HONOUR: When do I value that? When do I - - -
DR BIGOS: Whenever Your Honour values it. If Your Honour values it now or Your Honour values it in six months’ time.
HIS HONOUR: Looking at the undertaking I mean, whether - - -
DR BIGOS: Whenever it’s valued, his security will always be worth no more than the equipment.
HIS HONOUR: No, I know that. Sorry. What I'm looking at is - you finish, Dr Bigos, and then I'll - - -
DR BIGOS: Well, the point is, I think our learned friend said well, now I will be in a position to sell. I think my learned friend said he would be in a position to sell if there were no injunction. But he can’t sell until he establishes a security interest. He’s only got an asserted security interest. He’s not in Inglis territory where there is a bank that says I have mortgage that's enforceable and I’ve got a statutory right to sell the land under the Transfer of Land Act. He has at most a charge - a general security interest - that he would have to enforce through a court process.
He would have to come to Your Honour and say I’ve got a charge that I assert. I want Your Honour’s assistance. Of course, he will have to prove that there is a charge. We’ll have the trial really before he makes good that. The relevant comparator here is the security versus the undertaking as to damages. The undertaking as to damages is worth no less than the security is worth because it equals the value of the equipment. Both of them equal the value of the equipment.[51]

The parties’ submissions on ground 5

[51]Emphasis added.

On ground 5, Yimiao submitted, correctly, that the ‘uncontested evidence was that the value of the equipment was depreciating rapidly due to the pace of technological development and the structure of the cryptocurrency mining industry’. Thus, it submitted, even if CIT is able to establish its security interest at trial, by that time the equipment may have little or no value. Yimiao submitted that it followed that:
CIT could not be worse off if the delivery up order was made. On the other hand, when Yimiao’s proffered undertakings are taken into account, CIT’s claimed security interest would be enhanced by the payment into Court of $370,000 which would cover at least the debt and interest allegedly due to CIT.
Yimiao submitted that the trial judge failed to take into account the effect of the wasting nature of the 810 units on the value of CIT’s security when considering the balance of convenience.[52] This, it contended, constituted a serious error in the House v The King[53] sense.
[52]In its written submissions Yimiao also submitted that CIT’s ‘reason for holding onto the equipment was in order to use leverage to extract a commercial deal from Yimiao’. It contended that ‘the judge ought not have ignored CIT’s desire to exercise “leverage” to force Yimiao to make a payment which, in law, it is not obliged to make’. However, in oral argument it accepted that this aspect of its submissions was relevant to ground 7, rather than ground 5.
[53](1936) 55 CLR 499; [1936] HCA 40.
In contrast, CIT submitted that the judge did not fail to take this matter into account. It accepted that there is a real risk that the value of the 810 units will dissipate by trial, but submitted that there were various options open to Yimiao to avoid or mitigate this risk.[54] It further submitted that the judge was well aware of the dissipation issue, which was discussed extensively at the hearing of the application for interlocutory relief and referred to in his Honour’s reasons. In that regard, it referred to paragraphs 142(c), 148(d)(iii) and 161, including in the latter footnote 299.

Consideration of ground 5

[54]Namely: sought an urgent trial; sought an interim sale order; agreed to operate the 810 units at CIT’s premises; or offered adequate alternative security, and operated the 810 units elsewhere.

Both parties agreed before the judge that there was a real risk that, by the time of trial, the 810 units would be of little or no value,[55] and that the judge noted that risk in his reasons when summarising CIT’s submissions in paragraph 148(d)(iii). It is also apparent that the judge made reference to Yimiao’s arguments concerning this issue when his Honour summarised those arguments in paragraph 142(c). However, the only place the parties identified where his Honour referred to this issue in his consideration of the various arguments was in footnote 299. That footnote occurred in paragraph 161, when the judge was considering the adequacy of Yimiao’s undertaking as to damages. In the body of his reasons, the judge said this:
[Yimiao’s] 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
[55]There was some debate before us as to whether the 810 units would be ‘worthless’ by the time of trial, which is likely to be October 2023. In our view it is not necessary to resolve this question. Even if the units had some value at that time, the parties were in broad agreement below that the value of the units was dropping rapidly and would be greatly diminished by the time of trial. Indeed, it was CIT that initially contended before the trial judge that the units would be ‘worthless’, although it later walked back from that submission to some extent.
The text of footnote 299 was as follows:
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.
That demonstrates that the judge took into account the value of the 810 units in assessing Yimiao’s assets to liabilities ratio. However, in our opinion the trial judge failed to take into account the impact of the wasting nature of the 810 units on the value of CIT’s security. That is, Yimiao had submitted that, even accepting that the depreciation of the units affected the value of its undertaking as to damages, it also affected the value to CIT of its asserted security interest in the 810 units. That interest could be worth no more than the value of the machines, and given that they were depreciating in value, the value of CIT’s interest is likely to be zero, or close to zero, by the time CIT is able to realise it. As Yimiao had submitted below, that factor weighed in favour of the grant of the injunction because it neutralised CIT’s claim that Yimiao’s undertaking as to damages was worth nothing because the units were depreciating. That is, if one compared the value of the undertaking as to damages, and the value of the security held over the machines, they were worth the same.
For these reasons, we consider that the judge erred in failing to consider the effect of the dissipation of the value of the assets on their value to CIT as a security. It follows that the judge’s decision ought to be set aside and the discretion re-exercised by this Court.

Some observations on the remaining grounds

Ground 1: the PPS lease issue

Ground 1 is that the judge ought to have held that Yimiao did not have a ‘PPS lease’ over the 810 units, and therefore its ownership could not be subject to CIT’s asserted security interest. As already observed, it is not strictly necessary for us to determine ground 1; however, given the prominence of the PPS lease issue in oral argument, we make the following observations.
Yimiao contended that on the evidence before the judge it was clear that Yimiao was not carrying on a business of bailing goods. Its only business was that of a ‘cryptominer’, which involved the use of the L7 Antminer units. That was its only source of income. Yimiao submitted that it ‘did not profit from bailing the equipment to Star Mining’; rather, ‘Star Mining, which hosted the equipment under an agreement with Yimiao, profited from the bailment’. Under the agreement, Yimiao paid Star Mining a service fee; Star Mining did not pay Yimiao.
Yimiao contended that the judge erred in two respects. First, he ignored the uncontradicted evidence concerning the relationship between Yimiao and Star Mining; and secondly, ‘the notion that a further investigation was required was speculative in the extreme’, because there had been no suggestion that Yimiao’s business was anything other than as a cryptocurrency miner. Yimiao further observed that Yimiao had only entered into a single transaction with its equipment, thus ‘it is extremely difficult to describe this … as the “regular” conduct of any business’.
As already noted, CIT contended that this ground was not raised at trial and that Yimiao ought not now be permitted to rely upon this ground of appeal. CIT further contended that determining the PPS lease issue depends on contested questions of fact and law, including the meaning of the phrases ‘regularly engaged’ and ‘the business of bailing goods’, and whether the business of bailing goods requires the bailor to derive all or most of its profit from the consideration for the bailment provided by the bailee (such as by way of ‘rent’), or whether it is sufficient that bailment is a normal component of the bailor’s business.[56] CIT submitted that it was appropriate for the judge not to determine these questions in an interlocutory application. It submitted that the questions raised are novel and difficult, and require the reconciliation of two lines of authority which have emerged as to what amounts to a bailor or lessor being in the ‘business of’ bailing or leasing goods for the purposes of the PPSA and its international analogues. None of the case law was addressed before the judge.
[56]CIT referred to Rabobank New Zealand Ltd v McAnulty [2011] 3 NZLR 192, [40] (O’Reagan P, Chambers and Harrison JJ); Re Arcabi Pty Ltd (in liq) (2014) 288 FLR 236, 243–44 [24]–[26] (Master Sanderson); [2014] WASC 310; Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v General Electric International Inc (2015) 305 FLR 101, 111 [46] (Hammerschlag J); [2016] NSWSC 52; and Fast Labour Solutions (Edmonton) Limited v Kramer’s Technical Services Inc., [2016] ABCA 266, [14]–[17] (Slatter, McDonald and Greckol JJ).
CIT also contended that the application of the competing lines of authority to the facts would require the determination of contested questions of fact. It submitted that Yimiao’s sole business activity was the bailing of cryptocurrency mining equipment to Star Mining for the purpose of generating revenue from cryptocurrency mining. It did so on multiple occasions between March and May 2022. It is an integral component of Yimiao’s business that the equipment is bailed with third parties so they can operate, since it does not own its own premises. CIT submitted that it will argue at trial that these facts satisfy the definition of a PPS lease.

Consideration of ground 1

We accept CIT’s submission that Yimiao ought not be permitted to raise this ground on the appeal. While Yimiao initially put in issue the question whether its agreement with Star Mining was a PPS lease, in the course of the hearing counsel for Yimiao expressly stated that the judge did not need to resolve that issue on the hearing of the application for interlocutory relief. At the hearing on 14 September 2022, the following exchange occurred:
DR BIGOS: Well, Your Honour doesn’t need to determine whether they [CIT] have a security interest or not. We made submissions in writing as to the weakness of their asserted security interests. We did that on two fronts: one is that the security interest they assert is not over our equipment – point 1.
HIS HONOUR: But it’s arguable or it’s a triable issue, is it?
DR BIGOS: I’m not going to make that concession, but - - -
HIS HONOUR: So you want me to finally determine that?
DR BIGOS: No, Your Honour doesn’t need to determine it because it’s sufficient for Your Honour to determine the balance of convenience. We also make a submission that the thing we have, our ownership, is not a PPS lease under the PPSA Act. But, again, Your Honour doesn’t need to determine that because the balance of convenience is overwhelmingly in favour of the delivery up.[57]
[57]Emphasis added.
Later in the hearing, the following exchange occurred:
DR BIGOS: Let me start at the beginning. Question 1 is a serious question to be tried. Is there a serious question to be tried on the plaintiff’s case? That is conceded by Cyber, so Your Honour doesn’t need to go there. Now we’re in the realm of balance of convenience. One of the factors that Your Honour will consider in relation to the balance of convenience is the strength of Cyber’s asserted security interests. We deny that they have a security interest, and Your Honour can take into account that in determining a balance of convenience, but Your Honour doesn’t need to determine that question. Your Honour doesn’t need to finally determine whether they have a security interest or not.
Your Honour doesn’t need to determine the question of whether there’s a serious question to be tried as to whether there’s a security interest or not. It’s simply a submission that we make to assist us along the way, of showing that the balance of convenience is on our side.
HIS HONOUR: So what do you say – how’s this security interest relevant to the balance of convenience? What do you say about it?
DR BIGOS: Because we know that on the authorities, the strength of the various claims is a factor that the court takes into account. The merits is a matter that the court takes into account.[58]
A further exchange then ensued, in which it was apparent that the trial judge thought that Yimiao sought to have him determine whether CIT had a security interest. His Honour indicated some concern about how he was to do that on the basis of the materials, in an interlocutory application. However, then Dr Bigos said: ‘We’re not asking Your Honour to determine anything on a final basis.’
[58]Emphasis added.
As foreshadowed, later in the hearing counsel for Yimiao returned to the question of CIT’s security interest, and the following exchange occurred:
HIS HONOUR: Yes. Then, can I just ask you in relation to the security interest being weak. I understand how you've put all of that. …
DR BIGOS: … We’ve previously also made submissions that Genesis did not have the ability to grant a security interest in something that it did not have.
HIS HONOUR: Is that because of this PPS lease point?
DR BIGOS: Yes.
HIS HONOUR: As I understand it, you say that’s weak? Mr Caillard on behalf of Star Mining, in effect, said that it’s not arguable. That is there’s no triable issue [that] CIT has a security interest because he said that you can’t have a PPS lease. And tell me if this is the same basis upon which you put it being weak. There was reliance upon the fact that Yimiao, probably Star Mining and Genesis - so all three of them – can’t be said to be regularly engaged in the business of leasing or bailing goods.
DR BIGOS: Yes, under s 13.
HIS HONOUR: Right. Is that the way it’s put?
DR BIGOS: Yes.
HIS HONOUR: All right. Right. They’re the three ways it’s put. Let me just see - right.
DR BIGOS: Those are our submissions if Your Honour pleases.[59]
[59]Emphasis added.
It is clear from the above passages that Yimiao had made submissions to the trial judge that CIT’s claim was weak, including on the basis that the claim that the agreement between Yimiao and Star Mining was a PPS lease was weak. But Yimiao expressly told the judge he did not have to determine whether the agreement between Yimiao and Star Mining was a PPS lease. In light of that, Yimiao cannot now complain that the trial judge failed to determine that it did not have a PPS lease over the 810 units.

Grounds 2, 3 and 4

Ground 2 is that the judge should have held that CIT had no right to possession of the 810 units.
Ground 3 is that the judge erred in proceeding on the incorrect assumption that it was necessary for CIT to retain possession of the 810 units in order to maintain its asserted security interest.
Ground 4 is that the judge erred in finding that the interlocutory delivery up order would create risks for CIT’s security interest and the cessation of its possession of the 810 units or any possessory security interest in them.
As already noted, it is not strictly necessary to address grounds 2, 3 and 4. However, we make the following observations.
CIT submitted that none of these grounds was argued before the trial judge and thus Yimiao should not be allowed to rely on those grounds on the appeal. In oral argument, Yimiao conceded that it was raising these grounds for the first time on appeal, but contended that it ought to be permitted to do so. It contended that these grounds involved ‘simply matters of legal argument’, not ‘factual matters that could have been met with any additional or different evidence’, so the ‘tests’ found in University of Wollongong v Metwally (No 2)[60] and Whisprun Pty Ltd v Dixon[61] do not preclude Yimiao from raising these grounds on appeal.
[60](1985) 60 ALR 68; [1985] HCA 28.
[61](2003) 200 ALR 447; [2003] HCA 48 (‘Whisprun’).
Under ground 2, Yimiao submitted that the judge erred in proceeding on two incorrect assumptions — first, that as a matter of law, CIT had possession of the 810 units because it was holding the units; secondly, that CIT would be prejudiced by the loss of possession if his Honour made an interlocutory delivery up order. Yimiao submitted that there was no security interest between Genesis and CIT attaching to this equipment, because Genesis had no title to give, as required by s 19 of the PPSA. As CIT was not entitled to possession, CIT could not have suffered any relevant prejudice by the granting of the delivery up order.
Under ground 3, Yimiao submitted that ‘possession’ as referred to in s 21 of the PPSA should be construed as ‘lawful possession’. Even if CIT were entitled to a security interest over the equipment, this interest could not be perfected by possession.
Under ground 4, Yimiao submitted, alternatively, that even if CIT had to maintain possession in order to keep its security interest perfected, an interlocutory delivery up order of the kind sought would not have amounted to a loss of possession by CIT, if it were later set aside.
In Whisprun, Gleeson CJ, McHugh and Gummow JJ said this:
It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial. … Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action. Not only is the successful party put to expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs.[62]
[62](2003) 200 ALR 447, 461 [51] (Gleeson CJ, McHugh and Gummow JJ); [2003] HCA 48.
In light of the manner in which the case proceeded before the trial judge, in particular the clear and express statement that the judge did not need to finally determine ‘anything’, and the issue on appeal being the establishment of an error of a House v The King kind, we consider that Yimiao ought not be permitted to raise these new grounds on appeal.

Ground 6

Ground 6 is that the judge erred in finding that CIT’s asserted security interest was not adequately protected by Yimiao’s proposed undertakings. Those undertakings are set out in paragraph 27 above. Again, it is not strictly necessary for us to determine ground 6, but we make the following observations.

The parties’ submissions on ground 6

Yimiao’s submissions concerning ground 6 focused on one asserted error by the judge, namely his failure to conclude that CIT’s claim for $11.97 million in damages (for lost profits by reason of Genesis’ repudiation of its agreement with CIT) was speculative. It did not seek to identify any other errors in the judge’s reasoning on the adequacy of the undertakings.
Yimiao observed that CIT had made two claims against Genesis, which it said were secured by its security interest in the 810 units: the sum of $315,158 allegedly owed to it by Genesis for unpaid electricity invoices, and the $11.97 million in damages. For the purposes of the application before the trial judge, Yimiao did not challenge the existence of the debt for unpaid electricity; rather, it proffered the cash undertakings to cover this debt plus interest. However, it did challenge the damages claim before the trial judge. As already noted, the trial judge considered that, in the context of the evidence before him, the damages claim was weak, but not speculative.
Mr McNaught of CIT gave evidence that CIT’s loss of profit was estimated as follows:
A.3.5kwh per machine x 24 hours x 30 days x 0.05 net profit = $126 per machine per month.
B. $126 per month x 5000 machines x 19 months = $11,970,000.[63]
[63]Reasons, [84].
On the appeal, Yimiao submitted that the quantum of CIT’s damages claim is ‘fanciful’. In particular it drew attention to the following features of the agreement between Genesis and CIT:
(a)the agreement referred to the machines as ‘Ant S19’, which was different from the 810 units, which were L7 Antminer machines;
(b)the agreement did not specify the number of machines that CIT was to manage, rather it specified a ‘target’ of 5000 machines;
(c)the agreement specified the hosting location as the Premises, but did not refer to the adjacent land, where some of the 810 units were located; and
(d)the agreement was for a term of three years, but could be terminated with three months’ notice.
Further, Yimiao submitted, CIT’s premises could accommodate fewer than 500 units in working condition.
Yimiao submitted that the evidence required the judge to assume that the proper basis for the calculation of CIT’s potential loss of profit was for the management of 500 units for a maximum of 3 months. On that assumption, the loss would be $189,000.
Yimiao further submitted that, even if the loss was larger than this, it was not appropriate for the judge to determine where the balance of convenience lay based on CIT suffering a potential loss of $11.97 million. This, it said, was a false premise, which impermissibly undervalued the undertakings offered by Yimiao.
In contrast, CIT submitted that the quantification of its claim against Genesis is a matter for trial. It observed that the trial judge had considered Yimiao’s submissions on this issue, and was not satisfied that CIT’s claim was speculative. Further, it emphasised, the judge held that even if CIT’s claim was speculative, the balance of convenience still weighed in favour of the injunction being refused.[64] It contended that Yimiao had not identified any error of principle by the judge.

Consideration of ground 6

[64]Reasons, [181].

This ground is doomed to fail. The principal reason for that conclusion is that the judge held that, even if he had been satisfied that CIT’s claim for damages was speculative (or, to use Yimiao’s language on the appeal, ‘fanciful’), he would nonetheless have exercised his discretion in the same manner.[65] Thus even if the judge erred in the manner now alleged by Yimiao, that would make no difference to the outcome; it would not be a material error. In oral submissions Yimiao accepted as much, but contended that this aspect of his Honour’s reasons was relevant to ground 7.
[65]Reasons, [181].

Ground 7

Ground 7 is that the judge’s refusal to make the delivery up order was plainly unjust, such that it may be inferred that in some way there has been a failure properly to exercise the discretion. We make the following observation in relation to ground 7.
Whilst we consider that this ground had real merit, as is apparent from our reasons for making the orders sought by Yimiao set out below, it is unnecessary for us to determine whether it was not open to the trial judge to have made the orders he made.

What orders are appropriate?

In light of our decision to allow the appeal on ground 5, it is necessary for us to exercise the discretion afresh. Having considered the material before the trial judge for ourselves, we consider that the following factors weigh in favour of making the orders sought by Yimiao.
First, as the trial judge concluded, the 810 units would be better protected and maintained by Yimiao, than if they were to remain with CIT. We agree with that conclusion. In particular, we note that while the Yimiao’s equipment was stored at CIT’s premises some 788 units went missing and cannot be accounted for. While CIT gave undertakings directed to ensuring the security of the remaining 810 units,[66] we nonetheless consider that there is some risk to the equipment if it remains in CIT’s physical custody. The equipment is (presently) very valuable, thus this factor favours the grant of an interlocutory injunction.
[66]As set out at paragraph 28 above, these included including installing a card reader at the locations where the 810 units are stored, appointing a security guard or guards to monitor access to the relevant locations and not allow access to the relevant locations outside the hours of 9:00am to 5:00pm from Monday to Friday to anyone other than Yimiao and its representatives, and CIT and its contractors for the purposes of safety and maintenance.
Secondly, and of significant weight, is the fact that, as the judge concluded, the 810 units will be able to be best used if delivered up to Yimiao. There was no challenge to this aspect of his Honour’s reasons, nor to the proposition that, if the units remain with CIT, agreement between the parties to enable the use of the 810 units is unlikely. Thus, if the 810 units remain with CIT they will remain unused; no party will derive benefit from them. This strongly favours the grant of an interlocutory injunction.
Thirdly, the weight to be given to this second factor was increased by reason of the wasting nature of the 810 units. Those units are rapidly decreasing in value and will have ‘little or no value’ by the time of trial. Thus if they are not used by Yimiao, or by anyone else, no party will derive benefit from them. In contrast, if Yimiao is able to use some or all of the 810 units to mine cryptocurrency, it will be able to derive value from them. Further, this may reduce any damages that the defendants in the principal proceeding, including CIT, may be liable to pay to Yimiao in the event that it succeeds in its claims at trial. This also strongly favours the grant of an injunction.
Fourthly, we consider that CIT’s claim to have a security interest over the 810 units is weak. In particular, its claim requires a conclusion that the agreement between Yimiao and Star Mining was a PPS lease as defined in s 13 of the PPSA. We have not formed a concluded view on the construction and application of that section, which raises complex issues of statutory construction and may require the resolution of disputed questions of fact. But in our view, in light of the authorities to which we were taken, Yimiao has a good argument that it falls within the exception found in s 13(3) and, perhaps, the exception found in s 13(2)(b), such that its agreement with Star Mining is not a PPS lease.
Fifthly, and importantly, as the judge accepted, and no party disputed on the appeal, there was a real risk that damages may not be an adequate remedy for Yimiao, which strongly favours the grant of an interlocutory injunction.
In contrast, the matters that weigh against the grant of the relief sought by Yimiao are as follows.
First, while we do not consider that CIT’s claim for $11,970,000 against Genesis in damages for breach of contract was plausible on the material before this Court, we accept that CIT had an arguable claim of some value. Thus, like the trial judge, we accept that CIT had an arguable claim for more than $315,000 (being the amount owing by Genesis to CIT for the supply of electricity). Yet that was the amount effectively secured by Yimiao’s offer to pay $370,000 into court. That amount was insufficient to cover CIT’s potential damages, and no further amount was offered by Yimiao. Nor did it offer to pay some proportion of the money it would derive from the use of the 810 units, if delivered up, into court. This tends against the grant of an interlocutory injunction.
Secondly, we accept that there is a risk that Yimiao’s undertaking as to damages may turn out to be inadequate to protect CIT’s security interest, given the depreciation of the 810 units and the loans owed by Yimiao to Yimiao Singapore. However, as noted in relation to ground 5, the depreciation of the 810 units also affects the value of the security if it remains in CIT’s custody, and thus we give this little weight. As for the loans to Yimiao Singapore, we note that it and its director have given undertakings not to enforce those loans pending the determination of the proceeding. While we accept that there could be difficulty enforcing those undertakings, we nonetheless consider that they significantly reduce the risk associated with Yimiao’s undertaking as to damages.
We also note that, on the evidence before us, both CIT and Yimiao have no assets (putting aside the 810 units). Thus the risks in that regard balance each other out.
Weighing up these matters, in our opinion the balance of convenience strongly favours the grant of the inunctions sought by Yimiao. In particular, we emphasise the fact that, if the 810 units are delivered up to Yimiao it will be able to use them to generate revenue, for the potential benefit of all parties; whereas if they remain with CIT the units are likely to remain unused and will ultimately become worthless. That outcome is in no-one’s interests. Further, if the 810 units remain with CIT, Yimiao will be unable to conduct its only business. In contrast, CIT is able to continue to conduct its business of renting its premises to persons requiring a place to host their cryptomining equipment.
In summary, on one side of the ledger is Yimiao’s strong claim, its payment of $370,000 to secure part of CIT’s claim, and the presently occurring, and likely to continue, catastrophic consequences for Yimiao’s business if the 810 units are not delivered up. On the other side is CIT’s weak claim, both in relation to the PPS lease issue and in relation to its claim for $11,970,000 in damages, the fact that delivery up will have no consequences for its ability to conduct its business, and a risk that it will not be able to call on Yimiao’s undertaking as to damages. In those circumstances we concluded that the course that carried the lower risk of injustice was to grant the relief sought by Yimiao, subject to the undertakings it proffered.
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[2023] VSCA 21

3 February 2023