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Believe it or not: court finds no fiduciary relationship between fortune teller/Feng Shui Master and clients

Extension of fiduciary obligations to new categories of relationships

It has long been held in Canada that categories of fiduciary relationships are never closed1. Certain categories of relationships recognize a fiduciary obligation, including those between directors and corporations, solicitors and clients, trustees and beneficiaries, agents and principals, life tenants and remaindermen, and partners2. For a relationship to qualify as a fiduciary relationship, when it has not been previously recognized as such, three general characteristics have to be found:

  1. The fiduciary has scope for the exercise of some discretion or power;
  2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
  3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.3

The third element is seldom found in dealings of experienced businesspersons of similar bargaining strength acting at arm’s length. The law takes the position that such individuals are perfectly capable of agreeing as to the scope of the discretion or power to be exercised, such that any vulnerability could have been prevented through the exercise of bargaining power. To the extent that that discretion or power is abused or wrongfully exercised, damages are the appropriate remedies4.

In the last few days, the Honourable Justices Woodley and DiTomaso of the Ontario Superior Court of Justice each released a decision concerning whether certain relationships constituted fiduciary relationships. Justice Woodley’s decision in Estate of Annie MacKay v. Dawn MacKay (Evans), 2015 ONSC 7429, deals with a dispute between former family members and is reviewed by my colleague, Arieh Bloom. Justice DiTomaso’s decision in Lai v. Teng, 2015 ONSC 7410, which involves a dispute between commercial parties, is reviewed herein.

The facts of Lai v. Teng

The plaintiff, Ms. Lai, was an experienced fortune teller and a Feng Shui Master. She also holds a doctorate in traditional Chinese Medicine. Ms. Lai claimed that the defendants, Ms. Teng and Mr. Sorkhabi, who were married to one another and were Ms. Lai’s clients, breached a loan agreement and were jointly and severally liable for damages.

In 2006, Ms. Teng and Mr. Sorkhabi, purchased Ms. Lai’s house in Richmond Hill in accordance with an agreement of purchase and sale. They also purchased all of the household goods “as is” and as inspected for the price of $80,000. To facilitate this transaction, Ms. Lai gave a personal loan to Ms. Teng and Mr. Sorkhabi upon the following conditions:

  1. Ms. Teng and Mr. Sorkhabi would pay simple interest on the loan at the rate of six percent for three years with an option to review for two additional years at maturity date; and
  2. The loan would be due and payable at the end of five years from September 2006, ie, September 2011.

Ms. Teng and Mr. Sorkhabi paid interest on the loan in the years 2007, 2008, 2009, and 2010. They refused to pay the interest and principal when the loan became due in September 2011.

The allegations

The defendants alleged that as their fortune teller and Feng Shui Master, they relied on Ms. Lai and were owed fiduciary obligations by her. They alleged that Ms. Lai made misrepresentations as to the values of the spheres and stones which form part of the contents of the house. At trial, the defendants produced an expert’s report valuing the spheres and stones in the house based on their retail values. It is not clear from the decision as to the values ascribed to each sphere and stone in question, though it appears that one of the stones retailed at between $30 and $40. According to the defendants, Ms. Lai had told them that the stone was worth $30,000.

The defendants maintained that they trusted their fortune teller and Feng Shui Master, that she was in a fiduciary relationship with them, and that she breached her fiduciary obligations. The defendants gave evidence at trial that they relied on Ms. Lai’s advice and organized their lives in accordance with such advice, including matters concerning diet and what colours and jewellery to wear.

The decision

The court found that the relationship between the parties did not rise to a situation where a fiduciary relationship existed between them. The court disagreed with the defendants’ submission that because of their relationship with Ms. Lai, as their Feng Shui advisor and fortunate teller, they had a special relationship with her based on trust and that this relationship was so close that a fiduciary relationship existed.

The court found that all of the parties were sophisticated individuals. All three hold university degrees and post-university certificates. Language barriers existed between them. Ms. Lai did not speak English but spoke fluent Mandarin. Ms. Teng spoke both English and Mandarin. Mr. Sorkhabi spoke English but not Mandarin. The language barrier did not appear play a role in the judge’s determination that that was no fiduciary relationship between the parties.

Ultimately this was a commercial transaction. Both defendants knew that they were buying all of the contents in the house. They knew from inspecting the goods that they were buying, in addition to other household effects, stones said to possess Feng Shui properties. None of the household effects, stones, and spheres were itemized and allocated a value for the purposes of price. The defendants accepted the price of $80,000 without negotiation when they could have. There was never any complaint about the efficacy or lack thereof pertaining to the Feng Shui properties of the stones or the advice given by Ms. Lai. Interestingly, the defendants failed to plead rescission in their statement of defence and were not entitled to that remedy at trial.

Comment

The decision in Lai v. Teng is demonstrative of the general judicial reluctance to find fiduciary relationships in the context of commercial transactions. What is required in all cases of ad hoc fiduciary obligations is that there be an undertaking on the part of the fiduciary to exercise a discretionary power in the interests of the other party. The undertaking can be implied or express or as a result of statutory powers. In this case, as close as their Feng Shui relationship brought them together, the parties were dealing in a commercial transaction and there was no undertaking on Ms. Lai’s part to show the utmost good faith towards the defendants.

1. Frame v. Smith, [1987] 2 S.C.R. 99, 1987 CanLII 74 (SCC) at para. 57

2. Ibid.

3. Supra, at para. 60.

4. Supra, at para. 63

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