APPOTECH LTD v. 深圳今日芯科技有限公司

HCMP 1089/2024

[2025] HKCFI 2485

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1089 OF 2024

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J U D G E M E N T

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Introduction

1.  The Plaintiff seeks an injunction restraining the Defendant from presenting a winding-up petition. The Plaintiff argues that there are bona fide disputes on substantial grounds relating to the debt.

2.  On 29 May 2024, the Defendant issued a statutory demand against the Plaintiff for a debt totalling USD$347,788.00 (“SD”). The SD was served on the Plaintiff on 30 May 2024.

3.  By an Originating Summons dated 26 June 2024 (“OS”), the Plaintiff applied for an injunction restraining the Defendant from presenting any petition for the winding up of the Plaintiff pursuant to the SD (“Injunction”).

4.  On 26 June 2024, Recorder William Wong SC granted an interim injunction until final disposal of the OS and upon the Plaintiff’s undertaking to make payment into court.

5.  The Plaintiff paid USD$347,800 into court on 2 July 2024.

Background Facts

6.  The Plaintiff is a company incorporated in Hong Kong engaged in integrated circuit design and application development. The Defendant is a company incorporated in the People’s Republic of China which supplies video codec core chip design and development.

7.  On 17 May 2021, parties entered into a written agreement where the Plaintiff agreed to sell and the Defendant agreed to purchase “Integrated Circuit Intellectual Property” for USD 4 million (“2021 Agreement”). The pertinent terms include:

(a)  Clause 5.2: “As of the Completion Date of this Agreement, the Seller warrants to the Purchaser that…With regard to the Integrated Circuit Intellectual Property (Including Mask) held by the Seller are [sic: they are] legally and solely owned by the Seller, and there are no pledges, trusts, or other rights and burdens that can affect the transfer of Integrated Circuit Intellectual Property (Including Mask) or the Purchaser’s rights and liabilities.”

(b)  Clause 19: “If any Party violates the provisions of this Agreement, it shall pay the Party that doesn't violates [sic: violate] the provisions of this Agreement a punitive penalty of US$1,000,000.00 and the Party violates [sic: who violates] the provisions of this Agreement shall remit the penalty to the bank account designated by Party that doesn't violates [sic: violate] the provisions of this Agreement within seven (7) days after the Party that doesn't violates [sic: violate] the provisions of this Agreement's written notice is delivered.”

8.  The Defendant paid a total sum of US$3,800,000 under the 2021 Agreement. A balance of US$200,000 remained outstanding.

9.  In or around August 2022, the Defendant discovered that a product similar to the one sold by the Plaintiff to the Defendant was available on the market, produced by a company called Hongxin Technology Co Ltd (“Hongxin”).

10.  Between August and December 2022, the parties considered the possibility of commencing legal action against Hongxin. After reviewing comparison reports of the two products and legal advice, they concluded that any potential claim against Hongxin would unlikely succeed.

11.  Following negotiations, parties entered into a further agreement dated 30 December 2022[1] (“2022 Agreement”):

(a)  The Recital sets out the background of the parties entering into the 2021 Agreement. It notes that the Defendant discovered a similar product on the market but after seeking legal advice, decided against commencing legal proceedings. Further:

(i)  Parties note that Hongxin is unrelated to the Plaintiff (“該公司不是甲方 [Plaintiff] 的公司或關聯公司，與甲方沒有任何關係”);

(ii)  The “incident” is also unrelated to the Plaintiff (“該事件也與甲方無關”); and

(iii)  However, due to the Defendant’s repeated requests to the Plaintiff for a refund, and to maintain good business relations, the parties entered into this agreement. (“但由於乙方 [Defendant] 多次懇求甲方退回一部分轉讓款項，處於維護雙方友好合作關係，雙方達成以下協議...”).

(b)  Clause 1: The Plaintiff refunds the Defendant’s payment of US$1 million (“甲方退回乙方轉讓款美金100萬”).

(c)  Clause 2: The Defendant’s outstanding US$200,000 will be set-off against the US$1 million. After set-off, the Plaintiff shall refund US$800,000 to the Defendant (“原集成電路知識產權（含光罩〉買賣協議 乙方未付的美金20萬直接抵扣本協議 中 100萬美金中的20萬，抵扣之後甲方尚需退回給乙方的數額為美金80萬。”).

(d)  Clause 7: The Defendant hereby represents that there are no legal problems, defects or disputes in respect of the intellectual property rights under this Agreement transferred from the Plaintiff to the Defendant, and that any problems relating to the intellectual property rights under the relevant Sale and Purchase Agreement have nothing to do with the Plaintiff, and that any legal disputes relating to this product have nothing to do with the Plaintiff, and that the Defendant shall not request the Plaintiff to bear any legal liabilities for any reason, including but not limited to requesting the Plaintiff to refund or compensate any costs incurred (“乙方在此表示，甲方轉讓給乙方的本協議項下的智慧財產權不存在任何法律問題、 瑕疵、糾紛，任何涉及有關買賣協議之知識產權問題也均與甲方無關，任何跟這個產品有關的法律糾紛均与甲方無關， 乙方不得以任何理由要求甲方承担任何法律責任， 包括但不限于要求甲方返還、補償任何費用等。”).

12.  In accordance with the 2022 Agreement, the Plaintiff made refunds to the Defendant in the form of payments and products. To date, a sum of US$347,788 remains outstanding, which is the subject debt of the SD.

Plaintiff’s Arguments for the Injunction

13.  Ms Szeto, counsel for the Plaintiff, advances two arguments in support of this Injunction application:

(a)  First, the 2022 Agreement is invalid for lack of consideration; and

(b)  Second, the Plaintiff was procured to enter into the 2022 Agreement by the Defendant’s duress.

Legal Principles on Injunctions to Restrain Winding-up Petitions

14.  While counsel for the parties cited different authorities, the legal principles on the test for injunction are not in dispute.

15.  The principles are set out in Hung Yip (HK) Engineering Co Ltd v Kinli Civil Engineering Ltd [2021] 1 HKLRD 860 (per Harris J):

(a)  A company, which wishes to restrain the presentation of a petition, is required to demonstrate that it is clear that presentation would be an abuse of process (§8).

(b)  What constitutes an abuse of process would be if the petitioner knew at the time the petition was presented, or should have appreciated, that the company had a bona fide defence on substantial grounds (§16).

(c)  A putative petitioner should not lightly be prevented from exercising his statutory right to present a petition (§14).

(d)  An injunction of this sort is not intended to provide a mechanism by which a dispute that would normally be determined on the hearing of a petition is determined at the instigation of a company by a preliminary summary process (§14).

16.  As to what constitutes a bona fide defence on substantial grounds, in Re Leung Cherng Jiunn [2016] 1 HKLRD 850, Kwan JA (as she then was), outlined the following principles, at §27:

(a)  Compared to O.14 r.3, the test of bona fide dispute involves different considerations in respect of evidence.

(b)  The distinction between the two tests lies in establishing a bona fide defence (for resisting a petition) and a fair probability of establishing a bona fide defence (for obtaining leave to defend a civil action, whether unconditionally or with condition). So in that sense, the threshold test for resisting a petition may require a higher standard.

(c)  Notwithstanding this distinction, it is fair to say that the threshold tests in both situations are broadly similar. If a petition is dismissed on the basis there is a bona fide dispute on substantial grounds, it would be most unlikely that summary judgment could be obtained. Most probably, the defendant would be given leave to defend, whether unconditionally, or with conditions imposed if his defence is regarded as shadowy. Conversely, where a defendant has obtained leave to defend, unconditionally or with conditions, it would be most unlikely that a petition would be granted.

17.  Whether or not to halt proceedings because they are an abuse of process is a matter of discretion, but whether or not there is an abuse of process is not decided by exercising a discretion: it is a question to which there can only be one right answer. See: Applications to Wind Up Companies (4^th ed, 2021), §2.166.

Argument 1: No Consideration

18.  The Plaintiff argues that the 2022 Agreement is not supported by consideration and, hence invalid.

19.  Mr Siu, counsel for the Defendant, submits that there are at least two forms of consideration in the 2022 Agreement, namely (1) compromise and forbearance to sue; and (2) practical benefit/maintenance of relationship/avoidance of trouble.

Compromise and Forbearance to Sue

20.  The Defendant submits it may have had a valid claim against the Plaintiff for breaching Clause 5.2 of the 2021 Agreement due to the incident about the similar product released by Hongxin.

21.  Further or alternatively, even if the claim was invalid, the claims were reasonable, and the Defendant believed it had a fair chance of success and seriously intended to pursue the claim. Either the compromise of a valid claim or an invalid claim in this context would constitute good consideration. See: Chitty on Contracts (35^th ed), §§6-049-6-052.

22.  According to the Recital of the 2022 Agreement, after seeking advice, the Defendant is of the view that it would be difficult to make a successful claim against Hongxin for infringement of intellectual property (“乙方經過詢問相關專業人士，認為很難向該公司發起維權”). It follows that no claim would be raised against the Plaintiff either for breach of Clause 5.2.

23.  The contemporaneous records show that by around mid-December 2022, the Defendant began negotiations with the Plaintiff about the 2022 Agreement and no longer tried to pursue legal claims against Hongxin.

24.  Before the parties entered into the 2022 Agreement, from mid-December 2022 to February 2023, the Defendant did not mention commencing legal action against the Plaintiff, nor issue any legal correspondence to the Plaintiff about its potential liability. It was clear that no serious claim by the Defendant against the Plaintiff was in the works.

25.  The Defendant’s argument on compromise/forbearance to sue as consideration for the 2022 Agreement must therefore fail irrespective of whether it had a valid or an invalid claim against the Plaintiff.

26.  Mr Siu further argues that the Plaintiff is estopped from denying the validity of the 2022 Agreement since the Defendant relied on the 2022 Agreement to its detriment in not proceeding to sue. Since I disagree that there was any forbearance to sue, this argument no longer stands.

Practical Benefit

27.  The Defendant relies on a “pragmatic appraisal” of consideration to include practical benefits. See: Williams v Roffey Bros & Nichollas (Contractors) Ltd [1991] 1 QB 1, 18H (Russell LJ); City Polytechnic of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd [1995] 2 HKLRD 103, 109 (Rhind J); and Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2011] 1 HKLRD 10, §§50-51 (Cheung J, as he then was).

28.  The Defendant submits that the practical benefit enjoyed by the Plaintiff includes, amongst others, maintaining good business relations with the Defendant. Indeed, this was mentioned in the Recital of the 2022 Agreement, where the 2022 Agreement was said to be entered into to maintain a friendly and cooperative relationship between the parties (“出於維護雙方友好合作關係”).

29.  In retort, the Plaintiff argued that no case is cited by the Defendant to support how “maintaining a friendly cooperative relationship” constitutes good consideration.

30.  Courts nowadays should be more ready to find the existence of consideration. See: Williams v Roffey Bros, 18H. This is consistent with the modern trend of courts holding parties to their contractual bargains. As Cheung J (as he then was) held in Chong Cheng Lin Courtney, at §51:

“…it would take very compelling reasons for the Court to hold that what were regarded as contractual by the parties actually had no contractual force in law for want of consideration.”

31.  I agree with the Defendant that a “practical benefit”, construed broadly, can encompass maintaining good business relations. This appears to be the parties’ consideration. The WeChat communications indicate that the parties remained on good terms and cooperated after entering into the 2022 Agreement.

32.  I therefore find that the 2022 Agreement is supported by consideration.

33.  This finding is consistent with Clause 7 of the 2022 Agreement, which reflects an exchange of value between the parties. The Defendant agreed not to hold the Plaintiff liable under the 2021 Agreement for any reason (“任何涉及有關買賣協議之知識產權問題也均與甲方無關……乙方 [Defendant] 不得以任何理由要求甲方承拒任何法律責任”).

34.  The Defendant effectively abandoned all its rights under the 2021 Agreement. This constitutes an additional benefit to the Plaintiff that did not exist under the 2021 Agreement.

35.  For completeness, I note Ms Szeto’s submissions on the applicability of Williams. While there has been some doubt as to Williams’ applicability to cases concerning part-payment of debt, it remains an English appellate precedent which has yet to be overruled by the Supreme Court. See: Formation and Variation of Contracts (4^th ed, 2024), §§9-22-9-23.

36.  In any event, I do not think the doubts about Williams are relevant since the present case does not involve consideration in the context of part-payment of debt. The 2022 Agreement effectively extinguishes all rights and obligations under the 2021 Agreement in exchange for a refund. It is not a part-payment scenario.

Argument 2: Threat / Duress

37.  Having found that the 2022 Agreement is supported by consideration, I will now consider whether it has been vitiated by any duress by the Defendant.

38.  I refer to the principles of duress outlined by both parties, which require violence to the person, or threats of violence, or imprisonment whether actual or threatened. See: Chitty on Contracts (35^th ed, 2023), §11-018.

39.  According to the Plaintiff, between July and December 2022, the Plaintiff’s Ms Chan (Director of Operation/General Manager) received calls from a Mr Liang.

40.  Mr Liang was the middle-man who brokered the 2021 Agreement. He was an employee of the Plaintiff when the 2021 Agreement was being negotiated but left the Plaintiff’s employ in around December 2022. He then began working for the Defendant from around February to March 2023.

41.  During the calls, Mr Liang allegedly told Ms Chan the following:

(a)  Mr Ai, the Defendant’s director, was unhappy about the Hongxin situation because it seemed impossible to sue them, leaving the Defendants with an unfavourable deal under the 2021 Agreement.

(b)  As the middle-man, Mr Liang knew the character and background of Mr Ai well and it would be best if the Plaintiff refunded some money paid under the 2021 Agreement.

(c)  Mr Ai had some influence and means (“有些勢力和手段”) and if the Plaintiff does not refund money paid by the Defendant, Mr Ai was very likely to find people to sit in the Plaintiff’s Shenzhen office (“找人去深圳公司坐”) or even find people to wait for the Plaintiff’s bosses in Taiwan (the “Threat”).

42.  I make the following observations about the Threat.

43.  First, there is no contemporaneous evidence of this alleged Threat.

(a)  The Plaintiff provides no records of what was said during these calls with Mr Liang and only refers to records of calls.

(b)  The only two chat records that the Plaintiff does point to are tenuous. One records the Plaintiff’s former CEO, Ms Cheuk, telling Ms Chan that Mr Cheung (Chairman of Plaintiff’s board) was scared to death (“鄭董嚇死了”). One cannot see how this comment is linked with any alleged Threat.

(c)  Another is Ms Chan telling Ms Cheuk that Mr Ai would go to Taiwan to find the Plaintiff’s boss unless a refund figure is agreed upon. I find it difficult to read this comment saying Mr Ai may visit the Plaintiff’s boss as evidence of the alleged Threat.

(d)  The timing of these calls is vague and spans across a long period, between July and December 2022.

(e)  The Plaintiff sought legal advice before entering into the 2022 Agreement. Further, there was no mention of duress in the Plaintiff’s pre-action letter. I do not see how these facts support the existence of the alleged Threat.

44.  Second, Mr Liang mentioned the alleged Threat, not Mr Ai. This is undisputed.

(a)  The Plaintiff tries to overcome this by saying that the Defendant/Ai had constructive notice of the Threat because Mr Liang was the middle-man and he was subsequently employed by the Defendant.

(b)  I find that the Plaintiff has not proved its allegation given its lack of evidence. Just because Mr Liang had some ties with the Defendant does not equate to, nor does it even suggest, that the Defendant/Ai had notice of him making this Threat.

45.  Third, even if the Defendant/Ai were aware of what Mr Liang said, I do not think it amounts to any duress or illegitimate pressure.

(a)  Read objectively, what Mr Liang said is consistent with the Defendant’s reaction to the Hongxin incident and their eagerness to find a solution.

(b)  In this context, the Defendant saying it would go to the Plaintiff’s office premises would not be considered threatening. While this may be an act of protest by the Defendant, I agree with Mr Siu that there is not necessarily an element of violence or threat of violence.

46.  Even considering the Plaintiff’s case at its highest, it lacks evidence of duress. I do not think there is any bona fide dispute on substantial grounds on this issue that needs to be resolved by oral evidence.

Other Considerations

47.  For completeness, I also take into account the following matters to consider whether the Defendant’s presentation of a petition would be an abuse. See: Hung Yip, §18.

48.  The Defendant did not issue the SD without prior warning. It had, on two occasions, sent demand letters to the Plaintiff to chase for payments. The Plaintiff did not respond until after the SD was issued.

49.  The Plaintiff did not raise any arguments about the prejudice it might face due to the presentation of a petition.

50.  There is also no suggestion that the Defendant is consciously using the threat of presenting a petition improperly.

51.  I see no reason why the presentation of a petition should be restrained.

Conclusion

52.  For the above reasons, the Plaintiff’s OS is dismissed.

53.  I also make an order nisi that costs be to the Defendant, to be taxed if not agreed, with certificate for counsel.

54.  I thank counsel on both sides for their assistance.