RE CHINA PEOPLE CREATIVE APE SERVICES LTD

HCCW 159/2023

[2023] HKCFI 2671

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 159 OF 2023

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JUDGMENT

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1.  This is the hearing of (1) the petition presented by Allianzmen Limited (“the Petitioner”) on 6 April 2023 to wind up China People Creative Ape Services Ltd (“the Company”) based on an unmet statutory demand served on 31 January 2023; and (2) the summons taken out by the Company to strike out the petition on the ground that it is an abuse of process. At the conclusion of the hearing, judgment was reserved which I now give.

Background

2.  On 16 January 2023, the Petitioner’s solicitors wrote to the Company to the effect that

(i) the Petitioner had engaged the Company for the provision of “Design Architecture Service of an NFT Marketplace” for $1.2 million such that the Petitioner could commence issuing NFT via the NFT Marketplace in May 2022;

(ii) the Company had issued invoices to the Petitioner in the amount of $400,000 each on 21 September 2021, 6 October 2021 and 16 November 2021 which were duly paid;

(iii) as of the date of the letter (16 January 2023), the NFT Marketplace was still not ready for launch; and

(iv) the delay in the delivery of the Company’s service constituted a repudiatory breach.

3.  The Petitioner’s solicitors’ letter then gave notice to the Company of the Petitioner’s acceptance of the Company’s repudiatory breach and demanded the immediate refund of the $1.2 million paid.

4.  The Petitioner’s solicitors followed up with a letter on 1 February 2023 enclosing a statutory demand dated 31 January 2023 in respect of the $1.2 million.

5.  By letter dated 16 February 2023 (“the February letter”), the Company’s solicitors requested the Petitioner to refrain from issuing the petition on the basis that the Company has “more than a bona fide defence” and set out its case.

6.  The Petitioner sought particulars and documents from the Company on 20 February 2023 and 13 March 2023 and, meanwhile, agreed to withhold the presentation of the petition until 27 March 2023.

The petition

7.  The petition presented on 6 April 2023 alleged that

(i) the Company was engaged by the Petitioner for the provision of design architecture service of NFT Marketplace in the total consideration of $1.2 million by signing 3 invoices (“the invoices”) in or around September 2021 to November 2021 (“Service Agreement”) and the $1.2 million was duly paid;

(ii) as of January 2023 and the date of petition (6 April 2023), the NFT Marketplace platform was and is still not ready for launch; and

(iii) the Petitioner accepted the Company’s repudiatory breach, terminated the Service Agreement by letter dated 16 January 2023 and demanded a full refund of the HK$1.2 million which the Company refused to pay.

8.  A statutory demand was served on the Company on 31 January 2023 which remains unmet.

9.  The Petitioner seeks a winding up order pursuant to section 178 (1) (a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the CO”).

10.  On 19 May 2023, the Company took out the summons to strike out the petition and to restrain the Petitioner from publicising the petition pending the present hearing.

Legal principles.

11.  The relevant principles are well established. It is common ground that the relevant principles are summarised in Re Asia View Enterprises Limited [2020] HKCFI 2812 at §28[1]:

“(1) A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae.

(2) In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, the debtor has to adduce sufficiently precise evidence which is believable, and must establish that it has a defence of substance, not just a fair probability of one.

(3) Winding-up proceedings are summary in nature and are not meant to be used for the purpose of debt collection. If the court is satisfied that there is a bona fide dispute on the debt, it will not usurp the function of a civil court and decide the disputes between the parties.

(4) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, “substantial” means having substance and not frivolous.

(5) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(6) The court should caution itself against unsubstantiated and unparticularized assertions. It is incumbent on the company to put forward sufficiently precise factual evidence to substantiate his allegations.

(7) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists. In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company.”

The Company’s case

12.  The Company’s evidence consists of 2 affidavits filed by its sole director Leung Kwok Chu Anthony (“Anthony”) dated 19 May 2023 and 14 July 2023 (respectively “Anthony 1^st” and “Anthony 2^nd”) and their respective exhibits. Anthony 1^st exhibited inter partes correspondence (including enclosures) between the Plaintiff’s solicitors and the Company’s solicitors for the period from 16 January 2023 to 6 April 2023 that included 4 letters from the Company, namely the February letter, the letters dated 6 March 2023, 27 March 2023 (“the March letter”) and 6 April 2023 (collectively “the Company’s letters”).

13.  Anthony 1^st at §§4-14 was a chronological account of the matters raised in the correspondence. It then stated in §15 that

“the Company adopts the matters set out in those letters without prejudice to its right to advance its full defence to the Alleged Repudiatory Breach and the Purported Debt (including taking any further or alternative points to those set out in those letters).”

14.  The Company’s case, as set out in the February letter[2] may be summarised as follows:

(i) the agreement was made orally between Mr Jerry Chan (“Jerry”), the then representative of the Petitioner, and Anthony on behalf of the Company on 15 September 2021;

(ii) the consideration for the provision of design architecture service of the NFT Marketplace to the Petitioner by using agile/scrum IT project management methodology[3] was US $550,000;

(iii) as of 16 February 2023 the Petitioner had only made the first 3 payments of HK $400,000 each which included third-party project advisory consultancy fees;

(iv) in breach of the Agreement, in or about April 2022, the Petitioner failed to

(a) “finalize any one of intellectual property owners’ cooperation for facilitating on suitable design architecture of NFT implementation standards”; and

(b) furnish further funding i.e. the 4^th payment of HK $800,000 for the project;

(v) as a result, the Company stopped further engagement in the project even when the 3^rd version (i.e Kimarsverse) mockup of design architecture had been prepared and was continuously hosted at cloud server (i.e. https://kimarsverse.naffiti.com/).

15.  The 1^st of the 3 invoices using the Company’s letterhead, in pertinent part, read:

Invoice of Service
Allianzmen Limited		Date: 21 Sept, 2021
Attn: Jerry Chan		Q#AZNFT-202109_01
Email: cloudskygroup@outlook.com

Particular		Amount (HKD)
	Design Architecture Services of NFT Marketplace (Level 1)	HK$311,384.43
	• Needs Analysis • Design Architecture • Create a platform TOKEN • Developing NFT Marketplace (Leve 1) version
	• Project Advisory Consultancy (3rd Party)	HK$88,615.57
	Total: FOUR HUNDRED THOUSAND DOLLARS ONLY	HK$400,000.00

16.  The same particulars appeared in the 2^nd and 3^rd invoices. Each of the invoices was signed by Anthony and Jerry, the Company’s and the Petitioner’s respective authorised signatories.

17.  While the total amount in each of them was also HK $400,000, the split between the amount attributed to design architecture services and project advisory consultancy (being payments to 3^rd parties) varied.

18.  Anthony 2^nd was filed in reply. §§7-10 provided a description of services rendered:

(a) §7 recorded the Company’s statement that services were rendered and evidenced by contemporaneous WhatsApp messages[4] between Anthony and Jerry which referred, inter alia, to enclosures to the 27 March 2023 letter sent to the Petitioner’s solicitors;

(b) §8 stated that the invoices[5] set out the scope of the service rendered. It explained that payment in 3 tranches was in line with “agile/scrum IT project management methodology”, meaning incremental development;

(c) by way of example, as part of the service rendered, §9 referred to the 3 sets of logos, theme and homepage exhibited[6] as LKCA 3-5 respectively which were designed for 3 versions of the NFT Marketplace for the project;

(d) §10 referred to a further example of service rendered to the Petitioner falling within the scope of “Needs Analysis” and “Create a platform TOKEN” itemised in the invoices being, respectively, a copy of part of the NFT token design in relation to a celebrity known as Reggie Martin created by the Company, and a copy of the presentation materials for the purpose of pitching Reggie Martin in about February 2022 (exhibits LCKA 6 and 7).

19.  Mr Anson YY Wong, counsel for the Company, submitted that contrary to the Petitioner’s allegation in oral submissions[7] there has been no change of case on the part of the Company. He referred to the February letter[8] which stated that the Company had provided Jerry with 3 different marketplace design approaches (i.e. Cosmodity, MarsDiamond, Kimarsverse[9]) during the period from September 2021 to March 2022.

20.  When the Company stopped further engagement in the project, the 3^rd version (Kimarsverse) mockup of design architecture had been prepared and was continuously hosted on the cloud server. The link to it was also provided to the Petitioner as stated in §14 (v) above. The Company’s case from inception is that services had been rendered.

21.  In the March letter, the Company’s solicitors tendered the text messages[10] to show work being done stage by stage. It went on to state that the Company had been providing the market place system and technology design to support the Petitioner’s project. As intellectual property licenses (“IP licenses”) had to be obtained from the celebrities concerned before the project could be developed further, and in order to meet the proposed timeline, the Company repeatedly chased the Petitioner about the status of its (the Petitioner’s) agreements with the celebrities, that aspect not being within the scope of work of the Company.

22.  In support of the matters stated in the preceding paragraph, the court was referred to, inter alia, text messages between Anthony and Jerry on 5 and 6 November relating to the Token Launch which Jerry believed could be delivered by the end of November or early December 2021. The designs for the tokens had elicited compliments[11] from Jerry.

23.  Mr Wong elaborated on the Company’s evidence by taking the court through relevant text messages. They show that

(i) Jerry acknowledged on 15 November 2021 that it was his responsibility to secure IP rights from Robyn Rihanna Fenty (“Rihanna[12]”) for her Diamond collection;

(ii) during the six-week period from 5 November 2021 through 22 December 2021, Anthony was constantly chasing Jerry[13] regarding the status of Jerry’s negotiations with Rihanna and on 15 November he expressed concerns that the launch date might be affected by the delay;

(iii) on 10 January 2022, the following exchange took place between Anthony and Jerry:

10 Jan 2022	1615	[Anthony]	Idea ready -> $$ ready -> manpower ready -> job ready … it’s not simple to get this done
			…
	1616	[Anthony]	I also want Rihanna to be ready quickly, DiaMarsverse[14] ready …
	1619	[Jerry]	Very intensive follow-up, this project is a masterpiece for you and I as brothers

(iv) on 27 March 2022, Anthony sent the following text to Jerry:

27 Mar 2022

1141

[Anthony]

… If you like now there is the website for you to show off, I will arrange it for you. But the most updated ideas and my name would not be shown, until you have confirmed the signing of the collection …

(v) later the same day, Jerry replied:

27 Mar 2022

1450

[Jerry]

Given our brotherhood, we can be frank with each other on anything. It is entirely my responsibility that the diamond project cannot be launched within half a year, it’s me who did not find an IP to launch collection.

(vi) by about 23 June 2022, Isaac[15] had taken over from Jerry who was no longer the Petitioner’s contact person for the project; and

(vii) on 23 June 2020, Jerry confirmed to Anthony that “there is still $0.8 million due to be settled”.

24.  As regards the invoices, the Company’s position is that settlement of those invoices is evidence of the fact that services itemized had been rendered. If they had not been rendered, there would be no reason for the Petitioner to continue to make payment for 3 consecutive months.

Whether there is a bona fide dispute

25.  Mr Brian Tsui, counsel for the Petitioner, submitted that, initially, the Company’s case was based on a breach on the part of the Petitioner in not obtaining the intellectual property owners’ cooperation which was required for NFT collections and the Petitioner’s failure to furnish further funding, i.e. the 4^th payment of the project. As a result, the Company stopped engaging in the project any further.

26.  However, the Company resiled from that position and its subsequent position put forward in Anthony 2^nd is that services had been rendered, evidenced by the text messages and 5 exhibits showing the homepage, logos and themes not mentioned in its pre-action letters.

27.  In summary, the Petitioner submitted that when assessing the Company’s credibility of the bona fide dispute it raised, the court should have regard to the following matters:

(a) the ‘flip-flopping’ in position by the Company: and

(b) when the Company later said that its rendering of services is evidenced by WhatsApp messages, the 76 pages of text produced are entirely unhelpful when there is no evidence from the persons privy to those messages concerning the context of those messages and how they are to be understood.

28.  Mr Tsui referred to an incident relating to the PowerPoint slides produced in Anthony 1^st said to be relevant to the assessment of the credibility of the bona fide dispute.

29.  At the directions hearing before Anthony Chan J, in response to the court’s question as to what the bona fide dispute was, counsel replied that the Company had rendered services as evidenced by the PowerPoint slides[16]. There is no rebuttal in Anthony 2^nd but at §15, it stated that the reference to the slides at the hearing was merely for the purpose of illustrating the fact that presentation of the project[17] was made.

30.  Mr Tsui submitted that the Company’s current position cannot be reconciled with its position taken at the hearing.

31.  As regards the text messages, the Petitioner commented that the Company saw fit to unilaterally redact parts of those messages. In those circumstances, the Petitioner asked, rhetorically, how the court is to assess their relevance. The Petitioner submitted that the bona fide dispute raised is neither genuine nor credible.

Conclusion

32.  Turning to the ‘flip-flopping’ point the Petitioner raised, I do not accept that there has been any change in the Company’s case. The Company’s very first response to the Petitioner’s claim for total failure of consideration is the February letter. As earlier noted[18], the ground covered in that letter is extensive and not readily comprehensible to the uninitiated but it is obvious from a close and careful reading that, from the outset, the Company set out the services it said had been provided to the Petitioner between September 2021 and March 2022.

33.  As to the text messages, the criticism appears to be that Anthony did not provide a narrative of the context of each set of text message(s) relied on and how it is to be understood. When the counter party to the text messages was the Petitioner’s representative (i.e. Jerry), the criticism is somewhat misplaced.

34.  The court had to be taken to relevant text messages since it lacked the necessary background knowledge that the counter party had. The same cannot be said of the Petitioner who had commissioned the project and indeed had made the 3 payments in consecutive months.

35.  On the question of the credibility of the Company’s case in connection with the PowerPoint incident, the relevance of the slides that were presented on 12 August 2021[19] (prior to the oral agreement (which, according to the Company, was reached on 15 September 2021)), is that they show a typical project that involves development by stages.

36.  In any event, even accepting the Petitioner’s account of events, I do not consider that it undermines the documentary evidence the Company has put before court to substantiate its case that services had been rendered.

37.  The Petitioner’s case is based on a total failure of consideration. I am satisfied that the Company has adduced credible evidence that services had been rendered and that the Company has shown that it has a bona fide defence to the Petitioner’s claim.

38.  It follows the winding up petition must fail: it is not the proper means for recovering damages from the Company for breach of contract. It is an abuse of the winding up procedure.

Order

39.  The Company seeks indemnity costs on its summons, citing the observations of Harris J in Re Alpha Building Construction Limited, unrep., HCCW 283/2014, 20 May 2015 at §4 which were repeated in Re Sino Pacific Corporation Limited, unrep., HCCW 257/2015, 20 January 2016 at §14.

40.  As indemnity costs were not specifically raised at the hearing, there is to be an order in terms of the summons save that §3 of the summons be varied as follows:

“There be an order nisi of costs of and occasioned by the winding up proceedings with certificate for counsel in favour of the Company on an indemnity basis, such costs to be summarily assessed and payable forthwith.”

41.  It is directed that (a) the Company’s statement of costs be lodged within 14 days of this order; (b) the Petitioner’s statement of objections (limited to 3 pages) be lodged within 14 days thereafter; and (c) Company’s reply (limited to 2 pages) be lodged within 7 days thereafter.

42.  The costs of the Official Receiver be the usual costs of HK $4100 to be deducted from the deposit.