Hou Chao v Gu Xiaolan: Striking Out, Common Law Derivative Action

In Hou Chao v Gu Xiaolan, the High Court of Singapore dismissed the plaintiff's appeals against the Assistant Registrar's decisions, which included refusing leave for the plaintiff, Hou Chao, to maintain a common law derivative action on behalf of Yong Zhen Yuan Pte Ltd against the defendants, Gu Xiaolan, Hou Yini, and Yong Zhen Yuan Pte Ltd. The court found that the plaintiff failed to meet the necessary procedural and substantive requirements for bringing a common law derivative action and questioned the plaintiff's motives. The court dismissed the appeals with costs.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Appeals Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

The High Court dismissed an appeal, refusing leave for a common law derivative action due to failure to meet requirements and questionable motives.

1.7 Decision Date

15 September 2020

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Hou Chao	Plaintiff	Individual	Appeal Dismissed	Lost	Ng Khai Lee Ivan of Infinitus Law Corporation Tay Hui Yuan Denise of Infinitus Law Corporation
Gu Xiaolan	Defendant	Individual	Judgment for Defendant	Won	Aw Wen Ni of WongPartnership LLP Ho Wei Jie Vincent of WongPartnership LLP
Hou Yini	Defendant	Individual	Judgment for Defendant	Won	Aw Wen Ni of WongPartnership LLP Ho Wei Jie Vincent of WongPartnership LLP
Yong Zhen Yuan Pte Ltd	Defendant	Corporation	Judgment for Defendant	Won	Aw Wen Ni of WongPartnership LLP Ho Wei Jie Vincent of WongPartnership LLP

3. Judges

Judge Name	Title	Delivered Judgment
S Mohan	Judicial Commissioner	Yes

4. Counsels

Counsel Name	Organization
Ng Khai Lee Ivan	Infinitus Law Corporation
Tay Hui Yuan Denise	Infinitus Law Corporation
Aw Wen Ni	WongPartnership LLP
Ho Wei Jie Vincent	WongPartnership LLP

4. Facts

Hou Chao commenced a suit against Gu Xiaolan, Hou Yini, and Yong Zhen Yuan Pte Ltd.
Hou Chao sought to bring a common law derivative action on behalf of Yong Zhen Yuan Pte Ltd.
The Assistant Registrar refused leave for the common law derivative action.
The plaintiff alleged that the first defendant had acted fraudulently and/or in breach of her fiduciary duties.
The plaintiff alleged unauthorized withdrawals of US$2.85m from the Company’s OCBC account.
The plaintiff alleged failure to pay Shida for apples shipped from China.
The first defendant explained that the transfer was to the Company’s fully owned US subsidiary to earn interest.

5. Formal Citations

Hou Chao (in his personal capacity and in his representative capacity on behalf of Yong Zhen Yuan Pte Ltd) v Gu Xiaolan, Suit No 1009 of 2019 (Registrar’s Appeal Nos 83, 84 and 85 of 2020), [2020] SGHC 194

6. Timeline

Date	Event
1995-08-03	Yong Zhen Yuan Pte Ltd incorporated in Singapore
2012-11-01	Hou Yini made a director of Yong Zhen Yuan Pte Ltd
2018-03-01	Shida shipped apples to Singapore
2019-05-01	Shida shipped apples to Singapore
2019-05-23	US$2.45m withdrawn from Company’s OCBC Bank corporate account
2019-07-15	US$400,000 withdrawn from Company’s OCBC Bank corporate account
2019-09-01	Divorce proceedings commenced by Gu Xiaolan in China
2019-10-08	Hou Chao commenced Suit No 1009 of 2019
2019-10-09	Plaintiff sought ex parte Mareva injunction against Gu Xiaolan
2019-10-22	Injunction granted ex parte
2019-11-20	Gu Xiaolan’s 1st Affidavit filed
2019-11-27	Defendants filed SUM 5936 to strike out parts of WOS and SOC
2019-12-09	Hou Chao’s 1st Affidavit filed
2019-12-12	Hou Chao’s 2nd Affidavit filed
2019-12-13	Plaintiff filed SUM 6251 for leave to maintain a common law derivative action
2019-12-19	Plaintiff filed SUM 6349 for leave to amend the Company’s name
2019-12-20	Hou Chao’s 3rd Affidavit filed
2020-01-10	Gu Xiaolian’s 3rd Affidavit filed
2020-01-16	Injunction set aside by Ang SJ
2020-01-23	Notes of Evidence before the AR
2020-03-25	AR allowed the defendants’ striking out application in SUM 5936
2020-04-02	AR dismissed the amendment application in SUM 6349
2020-06-04	Plaintiff’s Skeletal Submissions for the Registrar’s Appeals filed
2020-06-04	Defendants’ Skeletal Submissions for the Registrar’s Appeals filed
2020-06-11	Hearing of the appeals
2020-06-11	Notes of Arguments
2020-09-16	Written grounds for decisions provided

7. Legal Issues

Common Law Derivative Action
- Outcome: The court held that the plaintiff failed to meet the necessary requirements for bringing a common law derivative action.
- Category: Substantive
- Sub-Issues:
  - Fraud on minority
  - Locus standi
  - Breach of fiduciary duties
Striking Out
- Outcome: The court upheld the decision to strike out parts of the plaintiff's Writ of Summons and Statement of Claim.
- Category: Procedural
- Sub-Issues:
  - Failure to plead material facts
  - Abuse of process

8. Remedies Sought

Return of US$2.85m to the Company

9. Cause of Actions

Breach of Fiduciary Duty

10. Practice Areas

Commercial Litigation
Corporate Law

11. Industries

Wholesale Trade
Restaurant Operation

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Petroships Investment Pte Ltd v Wealthplus Pte Ltd	Court of Appeal	Yes	[2016] 2 SLR 1022	Singapore	Cited for guidance on how a court should deal with an aggrieved individual who initiates a common law derivative action when a statutory derivative action is available.
Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd	High Court	Yes	[2011] 3 SLR 980	Singapore	Cited regarding the possibility of applying to the court to dispense with the notice requirement under s 216A(4) of the Companies Act.
Foss v Harbottle	English courts	Yes	(1843) 2 Hare 461	England and Wales	Cited for the entrenched principle of company law that the proper plaintiff to sue in respect of alleged wrong done to a company is the company itself.
Abdul Rahim bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd	Malaysian High Court	Yes	[1995] 3 MLJ 417	Malaysia	Cited for the procedural requirements that must be fulfilled to bring a claim under a common law derivative action.
Venkatraman Kalyanaraman v Nithya Kalyani	High Court	Yes	[2016] 4 SLR 1365	Singapore	Cited for the procedural requirements that must be fulfilled to bring a claim under a common law derivative action.
Sinwa SS (HK) Co Ltd v Morten Innhaug	Court of Appeal	Yes	[2010] 4 SLR 1	Singapore	Cited for the substantive requirements that must be satisfied before the court will consider granting leave to a minority shareholder to commence a derivative action on behalf of a company.
Ting Sing Ning (alias Malcolm Ding) v Ting Chek Swee (alias Ting Chik Sui)	High Court	Yes	[2008] 1 SLR(R) 197	Singapore	Cited for the notion of “fraud” in the context of the “fraud on minority” being broader than that in common law fraud.
MCH International Pte Ltd v YG Group Pte Ltd	High Court	Yes	[2017] SGHCR 8	Singapore	Cited for the principle that a mere allegation of breach of fiduciary duties in the pleadings does not automatically lead to an allegation of fraud.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 2006 Rev Ed) s 216A	Singapore
Rules of Court (Cap 322, R 5, 2014 Ed) O 18 r 19(1)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Common law derivative action
Fraud on minority
Locus standi
Breach of fiduciary duties
Striking out
Mareva injunction
Proper plaintiff rule

15.2 Keywords

Common law derivative action
Striking out
Singapore High Court
Breach of fiduciary duty
Fraud on minority

17. Areas of Law

Area Name	Relevance Score
Common law derivative action	80
Civil Practice	75
Company Law	75
Derivative action	70
Striking out	60
Corporate Litigation	60
Fiduciary Duties	60
Companies Act	60
Corporate Law	50
Appeal	40
Corporate Governance	40
Contract Law	20
Arbitration	10

16. Subjects

Civil Procedure
Company Law
Corporate Governance