Since Canada's Federal privacy legislation was first
introduced in 2000, a significant constitutional issue about its
scope has been lingering in the background. The Personal
Information and Protection of Documents Act (PIPEDA) purports
to apply not only to federal businesses, but also to businesses
that would normally fall within provincial – not federal
– constitutional jurisdiction. Restricting PIPEDA to
federal businesses would dramatically limit its scope. Many
businesses chose not to challenge the point. This changed with
State Farm Mutual v. Privacy Commissioner (Canada).
State Farm challenged the constitutionality of PIPEDA, but the
Federal Court concluded that it did not need to decide the issue.
In another significant ruling, which disposed of the case, the
Court found that an insurance company investigation done in defence
of a lawsuit against an insured was not "commercial
activity", a threshold for the application of PIPEDA. Thus,
PIPEDA did not apply in any event.
The State Farm Case
State Farm arose from a car accident in New Brunswick.
State Farm insured the person who was allegedly responsible. In
anticipation of a lawsuit, State Farm hired counsel for the insured
and hired private investigators to do video surveillance of the
person who was expected to sue. Before suing, the plaintiff asked
State Farm, pursuant to PIPEDA, for all personal information it had
about him, including any surveillance. State Farm refused on the
ground that PIPEDA did not apply to it.
The plaintiff complained to the Privacy Commissioner.
Ultimately, State Farm applied to the Federal Court for a ruling
that PIPEDA did not apply. State Farm said that the defence of
civil litigation was not a "commercial activity," a
prerequisite to the application of PIPEDA, and that its application
to State Farm was unconstitutional, since it is provincially
regulated. The Attorney General for Canada intervened to defend the
Not "Commercial Activity"
PIPEDA provides that its privacy regime applies to organizations
that collect, use or disclose personal information in the course of
"commercial activities." The Privacy Commissioner took
the position that State Farm's activities were commercial in
nature, given that State Farm had surveillance done because of its
insurance contract with the defendant, which was part of State
Farm's commercial business. State Farm disagreed, saying that
the defence of civil litigation, including the activities of a
defendant's agents, including State Farm and the private
investigators, is not commercial activity.
The Federal Court agreed with State Farm. The Court held that
since the primary activity was the defence to a civil tort claim,
it was not a commercial activity contemplated by PIPEDA. The
primary activity was the dominant factor, not the incidental
relationship between insured and insurer, or attorney and client.
The Court observed that this approach is consistent with how other
privacy regimes deal with evidence collected for civil
Notably, the Court also observed that this ruling did not
necessarily mean the Privacy Commissioner had no authority to
investigate to test the bona fides of the exemption.
However, since the requested information was the subject of a claim
of privilege, the Privacy Commissioner's investigative
authority was very limited. The Privacy Commissioner had not taken
the steps required to challenge privilege claims made in an
The Constitutional Issue
Given its ruling on commercial activity, the Court concluded
that it was unnecessary to decide the constitutional issue.
However, the decision does summarize the position of the Attorney
General, founded on the federal Trade and Commerce power. Among
other things, the Attorney General submitted that national
regulation was necessary because the effectiveness of any
provincial law protecting an individual's information is
undermined once personal information flows out of the province. In
turn, a national scheme was viewed as necessary to ensure the
integrity and effectiveness of the protection of personal
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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