Canada: The Supreme Court Of Canada Rules On When Lenders May Share Personal Information Without Violating Federal Privacy Legislation

Introduction: Privacy Legislation and Secured lenders

Privacy legislation, exemplified in Canada by the federal Personal Information Protection and Electronic Documents Act ("PIPEDA"), has been passed in one form or another in almost every jurisdiction in the developed world. In Canada, the Courts have held that PIPEDA aims to achieve the legitimate purpose of protecting the private, personal information of individual consumers, when such information is gathered by organizations in the course of commercial activities.

It has never been totally clear, however, just how privacy legislation dovetails with the day-to-day world of banking and secured lending, in which personal private information of borrowers is shared between lenders many thousands of times every day. The lack of harmonization between privacy legislation and established banking practice is particularly evident when creditors are required to enforce their in rem rights against real property. A common complaint of bankers and lenders is that PIPEDA can create major headaches and lead to costly, negative and unintended consequences when loans have to be enforced against borrowers.

In the recent case of Royal Bank of Canada v. Trang, the Supreme Court of Canada dealt with one such unintended consequence. In Trang, the Supreme Court of Canada changed the existing law in Ontario, gave direction to the courts throughout Canada and provided guidance to bankers and lenders in dealing with requests for information from fellow creditors. The most immediate significance of this case is that the Supreme Court has held that a creditor may, without violating PIPEDA, share certain information with other creditors on request, when that information is reasonably required by the other creditor in order to enforce its rights against the property (in this case, real property) of the debtor. The Court provides valuable guidance as to the circumstances in which such information may be shared.

Perhaps more interestingly, the Court goes on to make a number of statements that may signal a new (or, perhaps, a reminder of an older) approach in the way Courts deal with commercial disputes. Specifically, the Court agreed with the dissenting judge at the Ontario Court of Appeal, Justice Hoy, in criticizing interpretations of the law that lead to overly-formalistic results that do not accord with common sense and commercial reasonableness. These statements, although pitched at a high level of generality, may be used in future cases as evidence of the general direction of the Courts in this type of case.

The Issues Raised by PIPEDA in a Lending Context

The types of problems that can, and, as Trang illustrates, frequently do occur in this context are not difficult to imagine. For example:

  • As was the case in Trang, where a creditor obtains a Court-issued judgment for possession of the property and has requisitioned the relevant court officials (in Ontario, the local county sheriff's office) to take possession of the property, is the first mortgage-holder prevented by PIPEDA from sharing with the judgment creditor information that is required by the sherriff in order to enforce the judgment?
  • If a lender wants to advance a second mortgage loan to a borrower and wants to know the balance of the existing first mortgage, can this be disclosed by the first mortgagee to the second mortgagee directly, without violating privacy legislation?
  • Can a mortgagee who has sold a property under power of sale and now needs to pay out the indebtedness owing to the first mortgagee obtain the outstanding balance, annual interest rate, costs incurred, and per diem interest in respect of the first mortgage? Do statutory provisions that permit or require disclosure under mortgage law statutes create an exemption under PIPEDA for permitted disclosure "as required by law"?

What's the Big Deal? Don't All Loan Agreements Today Contain "Consent to Disclosure" Clauses?

Most banking and loan arrangements today contain express written "consent to disclosure" clauses, pursuant to which borrowers agree, at the time they apply for the loan, to this type of disclosure. The question that arises is whether these clauses are worded broadly enough to encompass every conceivable situation in which disclosure of personal information may be requested. In addition, relying on fine-print clauses that may not have been drawn to the debtor's attention when the documents were signed, which is often many years ago, is not typically the preferred option for any lender or litigator.

Also, as Trang shows, many existing loan agreements relating to loans advanced prior to the advent of privacy laws do not contain these consent provisions.

The Facts in Trang

In April, 2008, RBC lent the Trangs approximately $35,000. The Trangs defaulted on the loan and in 2010, RBC obtained a judgment against the Trangs.

The Trangs owned property in Toronto. Scotiabank held the first mortgage on the property, in the face amount of $262,500. In order to collect on its judgment, RBC 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.

The sheriff, however, refused to sell the property without first obtaining a mortgage discharge statement from Scotiabank. The mortgage discharge statement was necessary for the sheriff to know Scotiabank's interest in the property, and to ascertain the rights as between Scotiabank and RBC.

In an attempt to obtain the mortgage discharge statement, RBC served the Trangs with multiple notices of examination in aid of execution. The Trangs did not appear. RBC also requested a mortgage discharge statement from Scotiabank. Scotiabank refused to provide the statement on the basis that PIPEDA precluded it from doing so without the Trangs' consent. RBC sought an order compelling Scotiabank to produce the mortgage discharge statement.

A Quick Word About PIPEDA

PIPEDA is a federal stature that governs the collection, use and disclosure of personal information by organizations in the course of commercial activities. PIPEDA prevents organizations from disclosing personal information without the knowledge and consent of the affected individual, which, significantly, can be implied. The Act contains specific definitions of what constitutes "personal information", as well as a number of exceptions in which personal information can be disclosed in certain circumstances.

The Court accepted that the balance owing and other details surrounding the Trangs' mortgage with Soctiabank constituted personal information for purposes of the statute. The issue before the Court was whether the requested disclosure fit into one or both of two exceptions contained in PIPEDA, namely: (a) whether the Trangs had impliedly consented to disclosure of their personal information when they took out the loan from RBC; or (b) whether the disclosure was permitted by a specific exception set out in PIPEDA regarding disclosure when ordered by a Court or otherwise permitted by law.

It should be noted that the loan documentation executed by the Trangs in connection with both the RBC loan and the Scotiabank mortgage did not contain a consent to disclosure of personal information. RBC was forced to argue that the Trangs had given implied consent, or that the disclosure was required by a court order, or otherwise permitted by law.

How the Courts Have Handled this Issue in the Past

The first judge to hear the case denied RBC's motion. The judge observed that the sharing of mortgage discharge statements between banks in these circumstances was formerly commonplace, and he questioned whether Parliament intended to protect debtors by preventing judgment creditors from realizing on their Court judgments. Nonetheless, the judge felt bound by an earlier 2011 Court of Appeal decision, Citi Cards Canada Inc. v. Pleasance. In Citi Cards, a creditor similarly sought disclosure of mortgage discharge statements from mortgagees in order to enforce a judgment through a sheriff's sale of the debtor's home. The Court of Appeal in Citi Cards held that a mortgage discharge statement was "personal information" for the purposes of PIPEDA and that none of the exceptions in the Act applied.

On appeal, the majority of the Court of Appeal upheld the motion judge's decision and declined to overrule Citi Cards. The majority concluded that a mortgage discharge statement is "personal information" for the purposes of PIPEDA, and that the Trangs did not impliedly consent to disclosure of the mortgage discharge statement.

The majority observed that RBC could have obtained the mortgage discharge information it sought in several ways that would have complied with PIPEDA. First, RBC could have obtained the Trangs' consent to disclosure by a term in its loan agreement. Second, RBC could apply under the Ontario Rules of Civil Procedure for an order for the examination under oath of a representative of Scotiabank. Scotiabank would be required to bring the mortgage discharge statement to the examination. Such an order would satisfy the exemption in PIPEDA because it would be made on the basis of a separate authority, namely the Rules of Civil Procedure which would not cause the "circular" reasoning described in Citi Cards.

The assumption underlying the reasoning of the majority at the Court of Appeal was that when there is a choice of legal avenues open to a creditor to pursue its rights against a borrower, the creditor is bound to utilize avenues of recovery that are compliant with PIPEDA, notwithstanding that those avenues of recovery may be more expensive and time consuming than simply requesting the information from a fellow creditor. This aspect of the case was perhaps the most controversial and attracted considerable criticism from various commentators.

The Supreme Court's Decision

In a judgment concurred-in by a full nine-judge panel of the Supreme Court of Canada, the Court overturned the decision of the Ontario of Appeal and found that the order sought by RBC constitutes an "order made by a court" under PIPEDA. The Court ordered that Scotiabank disclose the mortgage discharge statement to RBC. The Supreme Court overruled the Court of Appeal's decision in Citi Cards.

The Court agreed that financial information is generally extremely sensitive; it is one of the types of private information that falls at the heart of a person's "biographical core". However, the degree of sensitivity of specific financial information is a contextual determination. The sensitivity of financial information, here the current balance of a mortgage, must be assessed in the context of the related financial information already in the public domain, the purpose served by making the related information public, and the nature of the relationship between the mortgagor, mortgagee, and directly affected third parties. When mortgages are registered electronically on title, the principal amount of the mortgage, the rate of interest, the payment periods and the due date are made publicly available.

The Court observed, as had the courts below, 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". 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.

The more intriguing statements made by the Court related to the reasonable expectations of borrowers and lenders, and the rule of the Court in enforcing those expectations. For example, the Court held that a reasonable person borrowing money knows that, if he or she defaults on a loan, his or her creditor will be entitled to recover the debt against his or her assets. It follows that a reasonable person expects that a creditor will be able to obtain the information necessary to realize on its legal rights. From the opposite perspective, it would be unreasonable for a borrower to expect that as long as he or she refused to provide the information, a creditor would never be able to recover the debt.

At the end of the day, it is not exactly clear how far the principles set out in this case extend. Would the same principles apply in a situation where a borrower is applying for a second mortgage? Obviously, the potential new lender, even before it has made the loan will seek to obtain information regarding the relationship between the borrower and the existing first mortgagee. Could it be argued, based on the comments made by the Supreme Court of Canada in Trang, that any borrower applying for a loan cannot reasonably expect that the lender will not communicate with, and request information from, existing creditors, in order to assess risk, value, etc. and therefore express consent (although obviously prudent to obtain) is unnecessary?

It can be argued that the Supreme Court is making clear that commercial cases should always be interpreted in the context of the legitimate and objective expectations of reasonable commercial parties in the same circumstances. To be sure, these are not new ideas, and this is not the first time a Court has encouraged this approach. Nonetheless, Trang represents a potentially-important case in Canadian commercial law. As the dissenting judge at the Court of Appeal, Justice Hoy said, and the Supreme Court agreed: "overly formalistic and artificial interpretations of the law...and a legal system which is unnecessarily complex and rule-focused is antithetical to access to justice". It remains to be seen whether this signals a new direction in which the interests of all litigants will be interpreted to include the interest of "big bad banks" and other lenders to obtain timely and cost effective loan enforcement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions