Executive Summary: Key Legal and Evidentiary Issues

• Hougen Co. Ltd. was properly granted leave to initiate a derivative action under the Business Corporations Act despite opposition from another shareholder.

• The premature filing of a derivative claim before receiving leave was declared a nullity and struck from the record.

• The court refused to grant a nunc pro tunc order to backdate the leave, reinforcing that statutory leave must be obtained before commencing a derivative action.

• The leave application was found to be in good faith and in the best interests of the insolvent company, Toyomoto.

• The trial judge erred in awarding special costs to Ms. Su, given legal uncertainty and Hougen’s attempt to preserve potential claims.

• Special costs were overturned on appeal and replaced with standard party-and-party costs in Ms. Su's favour.

Facts and outcome of the case

In this case, the British Columbia Court of Appeal ruled on two consolidated appeals concerning a contested derivative action launched in the name of an insolvent company, Toyomoto Canada Supply Chain Inc. The underlying litigation stemmed from allegations by Hougen Co. Ltd., a majority shareholder, that Toyomoto's former CEO, Ming Su, her husband, and their related companies had engaged in serious misconduct—namely, breach of fiduciary duty, fraud, and civil conspiracy.

Toyomoto was created in 2019 through a joint venture involving Hougen, Nazda Holding Inc. (associated with Ms. Su), and PH International Co. Ltd. As CEO, Ms. Su transitioned her prior business, Inspirza, into Toyomoto’s operations. Despite strong revenue growth, Toyomoto became insolvent by mid-2021. Hougen’s principal, Mr. Gu, alleged financial irregularities after reviewing company records and filed for leave to bring a derivative action in Toyomoto’s name.

The trial court granted Hougen leave to proceed with the derivative action in October 2023. However, Hougen had already filed a notice of civil claim (NOCC) in early September 2023—before the leave was granted—to pre-empt a potential statute of limitations issue. This led Ms. Su to argue that the NOCC was a nullity, and she moved to strike it. Hougen sought a nunc pro tunc order to retroactively validate the filing.

The chambers judge sided with Ms. Su on this issue, striking the NOCC and awarding her special costs. She held that statutory leave under the Business Corporations Act must precede any corporate litigation, and that permitting post-hoc validation would circumvent legislative safeguards.

On appeal, the Court of Appeal upheld the core findings. It dismissed Ms. Su’s claim that the leave was improperly granted, affirming the judge’s application of the statutory tests for good faith and corporate interest. Hougen’s motives—while partially self-interested—were aligned with Toyomoto’s financial recovery, making the action legitimate. The court also affirmed that statutory requirements under section 232 of the Business Corporations Act preclude commencing a derivative action without prior judicial leave, rejecting Hougen’s argument for a nunc pro tunc remedy.

However, the Court of Appeal found that special costs were not justified. It noted the legal uncertainty and Hougen’s attempt to mitigate risks of a limitation defence, as well as its notification to the defendants that no steps would be taken unless leave was granted. The special costs order was overturned and replaced with standard party-and-party costs (Scale B) payable to Ms. Su.

The Court of Appeal dismissed Ming Su’s appeal challenging the grant of leave and partially allowed Hougen’s appeal. It affirmed the striking of the prematurely filed notice of civil claim but overturned the award of special costs against Hougen, replacing it with an award of ordinary party-and-party costs. No damages were awarded, as the case dealt solely with procedural authorization to proceed with litigation and did not address the merits of the underlying claims.