On Thursday, November 17, the Supreme Court of Canada released a landmark decision giving important guidance on when personal financial information may be disclosed under Canada’s federal privacy law, the Personal Information Protection and Electronic Documents Act (“PIPEDA”).[1] In Royal Bank of Canada v. Trang,[2] the Court ruled that while PIPEDA is consumer protection legislation for the digital age, it must be interpreted in a balanced way to facilitate the collection, use and disclosure of personal information by businesses. In a clear, practical decision that supports the commercial realities of the banking industry, the Court recognized that the sensitivity of personal information depends on its particular context, including the nature of the relationship between a mortgagor, a mortgagee and a judgment creditor. Further, the Court found that express consent to disclosure is not required under PIPEDA: a reasonable mortgagor would expect that their financial information could be disclosed to facilitate collection by a judgment creditor.

This decision arose out of a situation in which privacy law stymied the seizure and sale of a property in connection with a judgment debt. It provides a framework for assessing when it is reasonable to imply consent into a relationship, and comes down on the side of a balanced, contextual approach. It is also now clear that privacy law will not necessarily serve as a trump card for avoiding other legal obligations.

The first key issue under consideration was whether an order sought by a judgment creditor constitutes an “order made by a court” pursuant to s. 7(3)(c) of PIPEDA. The Supreme Court found in the affirmative, noting explicitly that “PIPEDA does not interfere with the court’s ability to make orders.”

The second main issue involved implied consent; specifically, whether the debtors impliedly consented to disclosure of a mortgage discharge statement. The Supreme Court found that implied consent was present, noting that while financial information is a type of personal information that is generally regarded as sensitive (thereby requiring express consent) “the degree of sensitivity of specific financial information is a contextual determination.” The business and regulatory context was important in determining that the debtors had impliedly consented to their bank making the statement available in order to realize upon the judgment debt.

Background

In April 2008, the Royal Bank of Canada (“RBC”) loaned the Trangs approximately $35,000. The Trangs defaulted on the loan and on December 17, 2010, RBC obtained a judgment against the Trangs for $26,122.76 plus interest and costs. RBC then filed a writ of seizure and sale with the sheriff in Toronto, which permits the sheriff to sell the Trangs’ property pursuant to the Execution Act, R.S.O. 1990, c. E.24. However, the sheriff refused to sell the property without first obtaining a mortgage discharge statement from Scotiabank.

Faced with the concern that PIPEDA did not permit such a disclosure without the Trangs’ consent, as outlined in the Ontario Court of Appeal’s binding decision in Citi Cards Canada Inc. v. Pleasance,[3] Scotiabank declined to provide the mortgage discharge statement to RBC.

The matter then went to the Ontario courts, with neither the Trangs nor Scotiabank appearing. The federal Privacy Commissioner represented the amicus curiae arguing the defence at the Court of Appeal and Supreme Court. At first instance,[4] Justice Gray found that he was bound by Citi Cards. Nonetheless, he expressed significant concerns that PIPEDA was not “intended to interfere in only a portion of a commercial activity that has been conducted in a particular fashion for many years,” especially because RBC was not seeking “to open up to public scrutiny the entire relationship between a bank and its customer,” but to obtain “a small sliver of information that has become germane only because the customer has a final court judgment against him or her, and has a mortgage with a bank.”[5]

In particular, he noted that “[c]onsent need not always be express; it may, in appropriate circumstances, be implied”, and suggested that the specific purpose of the statement of account gave rise to a strong argument that there was implied consent on the part of the mortgagor to disclose to third parties the state of account when the exercise of those rights is in issue.

At the Court of Appeal,[6] a 3-2 majority upheld the decision below, preserving the Citi Cards precedent. While all judges agreed that a mortgage discharge statement constitutes “personal information” and that the general purpose provisions in sections 3 and 5(3) of PIPEDA did not provide an alternative to obtaining consent to disclosure of personal information, or an exception to the need for consent, the Court of Appeal did split on two points.

The first was whether Scotiabank could disclose the mortgage discharge statement on the basis that the disclosure was “required to comply with … an order made by a court”.[7]

The majority opinion of Justice Laskin considered it “circular” for the proceeding commenced by RBC against Scotiabank to constitute the necessary order. The dissent of Associate Chief Justice Hoy took a different approach; her view was that the procedure necessary under the majority’s interpretation would “result[] in unwarranted delay and expense and does not foster access to justice.”[8]

The second point of disagreement was whether the Trangs had impliedly consented to the disclosure. The majority appeared to be concerned that “less sensitive” information could, in context, be highly sensitive as a reflection of the person’s financial stability. It considered that, with foresight, RBC could have obtained the Trangs’ consent to disclosure by a term in its loan agreement.[9]

Associate Chief Justice Hoy disagreed. She considered the information at hand to be “less sensitive” in nature, as all of the details of the Trangs’ mortgage – the principal amount, the rate of interest, the payment periods and the due date – were made publicly available when the mortgage was registered and the updated numbers could be easily calculated. As less-sensitive information, the information could be the subject of an implied consent. More importantly, the question of sensitivity and reasonableness required consideration of the rights of others.

The Supreme Court of Canada then granted leave in order to provide clarity in respect of the pressing questions raised by the Trang and Citi Card precedents. Only RBC and the Privacy Commissioner of Canada appeared and made representations before the Court.

The Supreme Court’s Decision

In its decision drafted by Justice Côté, a unanimous Supreme Court agreed with the principles set out by Associate Chief Justice Hoy, ordering that the mortgage discharge statement be disclosed on two grounds:

  1. The court had inherent jurisdiction to grant RBC’s motion to compel disclosure. PIPEDA is not intended to interfere with the courts’ ability to make orders. As RBC had obtained a judgment order, filed a writ of seizure and sale, and the Trangs had declined to attend the examination in aid of execution, RBC had both proven its claim and notified the Trangs. RBC was not required, as was argued by the Privacy Commissioner, to formally cite the Rules of Civil Procedure, as the relief sought would be the same under the court’s inherent jurisdiction.
  2. The Trangs had impliedly consented to Scotiabank disclosing the mortgage discharge statement. Although personal financial information can be extremely sensitive, in the particular context, the information was less sensitive than other financial information. Much of it was already publicly available and the mortgage discharge statement was being disclosed to another creditor with an established legal right, not to a person who merely wanted to satisfy their curiosity or for nefarious reasons. Further, a reasonable mortgagor would have contemplated, at the time that they entered into the mortgage, that the information would be disclosed to a creditor, as “[i]t follows that a reasonable person expects that a creditor will be able to obtain the information necessary to realize on its legal rights.”[10]

Drawing from the purpose principle in section 3 of PIPEDA, which balances privacy rights of individuals against the need of organizations to collect, use or disclose personal information “for purposes that a reasonable person would consider appropriate in the circumstances”, the Supreme Court has clearly suggested that attempts to use PIPEDA to avoid legal obligations should fail:

PIPEDA does not diminish the powers courts have to make orders, and does not interfere with rules of court relating to the production of records. In addition, PIPEDA does not interfere with disclosure that is for the purpose of collecting a debt owed by the individual to an organization, or disclosure that is required by law. In other words, the intention behind s. 7(3) is to ensure that legally required disclosures are not affected by PIPEDA.[11]

In particular, the Supreme Court emphasized that it would be “overly formalistic and detrimental to access to justice” to insist on multiple proceedings, and blessed Associate Chief Justice Hoy’s statement:

It would fly in the face of increasing concerns about access to justice in Canada to dismiss this appeal and require RBC to bring yet another motion. A legal system which is unnecessarily complex and rule-focused is antithetical to access to justice. RBC has brought two motions and made two trips to this court over a several year period — simply to discern how much remains outstanding on the Trang’s mortgage to enforce a valid judgment.

I add that not all litigants have the resources RBC has available, or are able to make multiple trips to court. Ensuring access to justice requires paying attention to the plight of all litigants.[12]

This theme returns later in the decision, where Justice Côté observes that:

[A] mortgage discharge statement “is not something that is merely a private matter between the mortgagee and mortgagor, but rather is something on which the rights of others depends, and accordingly is something they have a right to know” (2012 ONSC 3272, para. 29). In other words, the legitimate business interests of other creditors are a relevant part of the context which informs the reasonable expectations of the mortgagor.[13]

It appears, then, that attempts to use PIPEDA to frustrate access to justice will be difficult, especially in circumstances in which the privacy interests at stake appear to be collateral or out of proportion with the right the counterparty is seeking to assert.

In Alberta, a 2011 decision by Master Schlosser had espoused the same practical approach that was evident throughout Trang when he stated, in similar circumstances, that, “[t]he appropriateness of disclosure in these circumstances requires balancing a range of the debtor’s rights and not just an abstract consideration of privacy rights.”[14]

Takeaways for Banks and other Financial Institutions

As financial institutions are often in the position of both the mortgagee and the third-party judgment creditor, the decision in Trang will impact them in both of these roles.

With the explicit overturning of Citi Cards, banks will likely no longer need to pre-emptively obtain consent from the debtor to access their personal financial information at the time that they issue the loan, for the purposes of facilitating collection in the event that the debtor defaults.

Further, when requesting a mortgage disclosure statement as a judgment debtor, banks will likely not require a court order to obtain the release of the statement. The Supreme Court’s statement is clear that, “consent [to releasing personal information] for the purpose of assisting a sheriff in executing a writ of seizure and sale was implicitly given at the time the mortgage was given.”[15] This may reduce the costs of debt collection significantly.

Prior to releasing any personal information to any third party, banks should undertake an assessment of the financial information’s sensitivity, applying the framework from Trang:[16]

  1. Is related financial information already in the public domain? Where the basic information is already publicly available, as in the case of a mortgage registered against title, then the information will generally be less sensitive;
  2. What was the purpose served by making the related information public? For example, information registered against title is partly available to allow creditors to make informed decisions. The mortgage discharge statement provides an updated “snapshot” of that information at a later date and is therefore in line with that purpose, making it less sensitive; and
  3. What is the nature of the relationship between the mortgagor, mortgagee, and directly-affected third parties? The state of the mortgagor’s account also affects the interests of creditors, making release of personal information to that creditor less sensitive. Although the court did not comment directly on this point, it is possible that there would be a distinction between a creditor and a judgment creditor who has obtained a court order for payment. Parties who are not creditors, but who are merely curious or who may have nefarious purposes should not be granted access to a party’s personal financial information.

Banks should then consider two additional points:

  1. Is the amount of personal information disclosed appropriate in the circumstances? If the same goals could be accomplished with less information, or with the information that is already publicly available, then the disclosure should be so limited; and
  2. Is the information being provided to the correct person? There may be a more appropriate party who should be making the request. Disclosure should only be made to a person with a legal interest in the property.

As personal financial information is generally extremely sensitive information, this framework should be carefully considered before releasing any personal financial information to a third party.

Overall, this decision demonstrates that the Supreme Court of Canada recognizes both the importance of individuals’ privacy interests and legitimate business concerns, and in this decision, has aimed to find a balance between the two. Similarly, banks should continue to protect clients’ privacy, but should also take confidence that in situations such as in Trang, that the courts appear to have little tolerance for individuals attempting to use privacy legislation to stymie legitimate debt collection.