Airtrust v Kao: Derivative Action, Breach of Fiduciary Duty & Receivership

In Airtrust (Singapore) Pte Ltd v Kao Chai-Chau Linda, the Singapore High Court dismissed an application by Carolyn Fong Wai Lyn to transfer control of a derivative action (Suit No 477 of 2012) against Linda Kao Chai-Chau for breach of fiduciary duty to the Receivers and Managers (RMs) of Airtrust. The court, presided over by George Wei JC, held that Carolyn, who had previously obtained leave to commence the derivative action, had not demonstrated sufficient grounds for the transfer, especially since the RMs had not expressed a desire to take over the action and the issue of costs had been reserved to the trial judge. The court also considered the potential for conflicts of interest and delays if the transfer were granted. The judgment was delivered on 2014-02-14.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Application dismissed in its entirety.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

High Court dismisses application to transfer control of derivative action against Linda Kao for breach of fiduciary duty to Airtrust's receivers.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Kao Chai-Chau LindaDefendantIndividualApplication dismissedWon
Airtrust (Singapore) Pte LtdPlaintiffCorporationApplication dismissedLost

3. Judges

Judge NameTitleDelivered Judgment
George WeiJudicial CommissionerYes

4. Counsels

Counsel NameOrganization
Daniel SooDrew & Napier LLC
Jimmy YimDrew & Napier LLC
Alison TanDrew & Napier LLC
Daniel ChiaStamford Law Corporation
Kenneth ChuaStamford Law Corporation

4. Facts

  1. Carolyn Fong, a director and shareholder of Airtrust, sought to transfer control of a derivative action against Linda Kao to Airtrust's RMs.
  2. The derivative action concerned alleged breaches of fiduciary duty by Linda Kao.
  3. Ernst & Young were appointed as RMs of Airtrust.
  4. The RMs commenced a separate action (Suit No 1015 of 2012) against Linda Kao for alleged conspiracy and breach of fiduciary duty.
  5. Carolyn argued that having two separate actions with different solicitors was inefficient and could lead to inconsistent positions.
  6. Linda Kao opposed the transfer, arguing it was contrary to a previous consent order and an abuse of process.
  7. The RMs stated that there would be no overall cost savings if the application was allowed.

5. Formal Citations

  1. Airtrust (Singapore) Pte Ltd v Kao Chai-Chau Linda, Suit No 477 of 2012 (Summons No 4613 of 2013), [2014] SGHC 28

6. Timeline

DateEvent
Airtrust incorporated in Singapore
Linda Kao Chai-Chau appointed managing director of Airtrust
Peter Fong passed away
Carolyn Fong Wai Lyn instituted proceedings to obtain leave pursuant to s 216A of the Companies Act
Ernst & Young appointed RMs of Airtrust pursuant to Consent Order No 203 of 2012
Derivative action of S 477/2012 commenced against Linda
RMs commenced Suit No 1015 of 2012 against Linda and 15 others
Linda commenced third party proceedings against the estate of PF
Assistant Registrar held that Linda was not allowed to bring third party proceedings against the estate of PF
Appeals in respect of the third party proceedings were heard
Appeals in respect of the third party proceedings were heard
Current application heard
Judgment reserved

7. Legal Issues

  1. Transfer of Control of Derivative Action
    • Outcome: The court dismissed the application to transfer control of the derivative action to the RMs.
    • Category: Procedural
    • Related Cases:
      • [2011] 3 SLR 980
  2. Funding of Derivative Action
    • Outcome: The court did not grant directions for funding of the derivative action, upholding the previous decision to reserve the issue of costs to the trial judge.
    • Category: Procedural

8. Remedies Sought

  1. Transfer of control and conduct of derivative action to RMs
  2. Directions for funding of derivative action

9. Cause of Actions

  • Breach of Fiduciary Duty

10. Practice Areas

  • Commercial Litigation
  • Corporate Law

11. Industries

  • No industries specified

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd and anotherHigh CourtYes[2011] 3 SLR 980SingaporeAffirmed the decision of the High Court which ruled in favour of Carolyn and granted her leave to commence derivative proceedings on behalf of Airtrust.
Low Heng Leon Andy v Low Kian Beng Lawrence (administrator of the estate of Tan Ah Kng, deceased)High CourtYes[2011] SGHC 184SingaporeCited for the principle that a consent order representing a 'real contract' should only be varied pursuant to ordinary principles of contract law.
Wiltopps (Asia) Ltd v Drew & Napier and anotherN/AYes[1999] 1 SLR(R) 252SingaporeCited for the principle that a consent order representing a 'real contract' should only be varied pursuant to ordinary principles of contract law.
Wellmix Organics (International) Pte Ltd v Lau Yu ManN/AYes[2006] 2 SLR(R) 117SingaporeCited for the principle that a consent order representing a 'real contract' between the parties and is recorded before the court, the court should only vary or set aside the consent order pursuant to ordinary principles of contract law
Intercontinental Precious Metals Inc v CookeN/AYes[1994] WWR 66N/ACited for factors to consider when ordering a company to pay the complainant costs of the derivative action and/or to pay interim costs of the proceedings pending trial.
Johnson v MeyerN/AYes[1987] CLD 1400N/ACited for factors to consider when ordering a company to pay the complainant costs of the derivative action and/or to pay interim costs of the proceedings pending trial.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed)Singapore
Rules of Court (Cap 322, R 5, 2006 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Derivative Action
  • Receivers and Managers
  • Breach of Fiduciary Duty
  • Consent Order
  • Alter Ego
  • Controlling Mind
  • Res Judicata
  • Issue Estoppel

15.2 Keywords

  • derivative action
  • fiduciary duty
  • receivership
  • companies act
  • singapore
  • high court

17. Areas of Law

Area NameRelevance Score
Derivative action90
Fiduciary Duties85
Company Law75
Corporate Law70
Business Litigation65
Minority Oppression60
Civil Procedure50
Bankruptcy40
Arbitration30
Banking Law25

16. Subjects

  • Company Law
  • Civil Procedure
  • Corporate Governance