Investments gone bad: claims of fraud and breach of fiduciary duty

Canada Publication December 2019

Investment advice carries risk of liability for the advisor, and in Agar Corporation Ltd. v Chun Him Laurence Lee and Canada Monetary Corp., the investment advisor faced liability for fraud and breach of fiduciary duty. 

Agar Corporation Ltd. (ACL) sued Mr. Lee and Canada Monetary Corp (CMC) relating to two investments ACL made in CMC. ACL asserted that Mr. Lee was its investment advisor, and he improperly recommended an investment in CMC, a company in which he had a personal interest.

Civil fraud 

The court noted the four elements of civil fraud: a) false representation; b) some level of knowledge of the falsehood; c) the false representation caused the plaintiff to act; and d) the plaintiff’s actions resulted in a loss. 

On the first element, the court noted that false representations include express dishonesty as well as deliberate failure to disclose material facts. Accordingly, a misstatement in Mr. Lee’s email to ACL constituted fraud, as did an omission as to the nature of the CMC investment. Further, Mr. Lee not intending to harm ACL was irrelevant to this aspect of the test for fraud.

On the second element, the court considered whether Mr. Lee had the required knowledge of the falseness of the representation, or recklessness as to its truth. Viewed objectively, the court noted Mr. Lee had no reasonable basis to believe the representations he made about CMC. 

On the third element, Mr. Lee argued that ACL’s investment portfolio was managed actively by Mr. Agar, and as such, ACL entered into the investment knowing the risk of investing in CMC. The court did not accept this version of the facts, noting that at the time of the investment, Mr. Agar was unaware of the risk involved in CMC or Mr. Lee’s personal involvement in CMC.

On the fourth element, Mr. Lee argued that other parties constituted an intervening cause of ACL’s investment losses. Dismissing this reasoning, the court held that Mr. Lee could not avoid liability by suggesting another party should have intervened to prevent ACL’s loss.

Breach of fiduciary duty

The court followed the test for fiduciary duty described in Abt Estate v Cold Lake Industrial Park GP Ltd., which we discussed in a previous legal update. The court noted that determining whether a fiduciary relationship exists between an investment advisor and client requires consideration of the particular relationship. In finding Mr. Lee was a fiduciary of ACL, the court noted the scope of Mr. Lee’s authority and the high trust placed in his advice. The fiduciary duty was breached by Mr. Lee recommending the investment without fully disclosing material information and failing to ensure the investment met ACL’s investment needs. 

The court found that ACL’s damages were equal to the actual loss suffered by ACL as a result of the investment, plus amounts equal to ACL’s lost opportunity to invest in a manner consistent with its objectives and risk tolerances. 


Persons that advise others on investment opportunities face direct and personal liability for fraud and breach of fiduciary duty where they fail to disclose material facts relating to the investment and fail to consider the investor’s investment objectives and risk tolerances.

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