Wednesday, November 30, 2016

Supreme Court of Canada permits disclosure of mortgage document over debtor’s privacy objections

The Supreme Court of Canada has recently applied common sense to prevent debtors from using Canadian privacy laws to tie the hands of lenders looking to enforce their legal rights.

In a proceeding brought by the Royal Bank of Canada against a debtor, the bank required the mortgage discharge statement held by Scotiabank in order to complete a sheriff’s sale of the property. Scotiabank took the view, following Citi Cards Canada Inc. v. Pleasance, 2011 ONCA 3, that the discharge statement is “personal information” and that the Personal Information Protection and Electronic Documents Act (“PIPEDA”) prohibits its disclosure unless there is consent or a court order. The debtor would not consent.

The Royal Bank brought a motion for such an order and was denied, citing the Citi Cards case. The Ontario Court of Appeal upheld this decision.

Ultimately, in front of the Supreme Court of Canada (Royal Bank of Canada v. Trang), the Court overruled Citi Cards and made some interesting observations that likely have broader application. The Court principally considered two questions: first, would the order sought by the Royal Bank satisfy the consent exception in PIPEDA that permits disclosure pursuant to a court order? Secondly, is there implied consent so that a mortgage discharge statement can be disclosed to a judgement creditor?

On the first question, the Court was clear that a creditor can seek and obtain such an order, and that the order would satisfy the provisions of PIPEDA:

[31] Further, it is clear that this is a case in which it was appropriate to make an order for disclosure. The majority of the Court of Appeal observed that a party seeking an order under rule 60.18(6) must demonstrate “difficulty” in enforcing its judgment, and that “courts should be reticent to require strangers to the litigation to appear on a motion” (para. 77). Hoy A.C.J.O. concluded, however, that rule 60.18(6)(a) can be applied less cautiously where a mortgagee is being examined in order to obtain a mortgage discharge statement. I agree. As Hoy A.C.J.O. noted, a mortgagee is not a stranger to the litigation in the sense that its interest in the property is at issue as well — the sheriff requires the mortgage discharge statement in part to settle the priority between mortgagees and creditors. Moreover, in practice, only the mortgagee can produce a mortgage discharge statement.

[32] I also agree with Hoy A.C.J.O. regarding the application of rule 60.18(6). I conclude that an order requiring disclosure can be made by a court in this context if either the debtor fails to respond to a written request that he or she sign a form consenting to the provision of the mortgage discharge statement to the creditor, or fails to attend a single judgment debtor examination. A creditor who has already obtained a judgment, filed a writ of seizure and sale, and completed one of the two above-mentioned steps has proven its claim and provided notice. Provided the judgment creditor serves the debtor with the motion to obtain disclosure, the creditor should be entitled to an order for disclosure. A judgment creditor in such a situation should not be required to undergo a cumbersome and costly procedure to realize its debt. The foregoing is a sufficient basis to order Scotiabank to produce the statement to RBC, and I would so order. But there is more in the present case.

On the second question, the Court effectively determined that an order – while available – is not necessary. It can be given under implied consent. PIPEDA provides that implied consent can be applicable where the information is less sensitive. Though financial information is generally considered to be sensitive, the Court noted that the information in a mortgage discharge statement is at the less sensitive end of that spectrum. PIPEDA also states that the reasonable expectations of the individual are relevant in the circumstances.

[43] Turning to the reasonable expectations of the individual, the parties disagree on the appropriate scope of the inquiry. The Privacy Commissioner submits that only the relationship between the Trangs as mortgagors and Scotiabank as mortgagee is relevant to assessing the Trangs’ reasonable expectations in the circumstances; the relationship between the Trangs and RBC has no role to play. On the other hand, RBC argues that the party receiving the disclosure is a relevant consideration when determining the Trangs’ reasonable expectations.

[44] In my view, when determining the reasonable expectations of the individual, the whole context is important. This is supported by the Office of the Privacy Commissioner’s consideration of context in various decisions: PIPEDA Report of Findings No. 2014-013; PIPEDA Case Summary No. 2009-003; PIPEDA Case Summary No. 311. Indeed, to do otherwise would unduly prioritize privacy interests over the legitimate business concerns that PIPEDA was also designed to reflect, bearing in mind that the overall intent of PIPEDA is “to promote both privacy and legitimate business concerns”: L. M. Austin, “Reviewing PIPEDA: Control, Privacy and the Limits of Fair Information Practices” (2006), 44 Can. Bus. L.J. 21, at p. 38.

[45] As the motion judge observed in the initial motion, and as I have already noted, 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 (CanLII), 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.

Looking at the situation and assuming a “reasonable debtor”, the Court found implied consent:

[48] Here, RBC is seeking disclosure regarding the very asset it is entitled to, and intends to, realize on. A reasonable person borrowing money knows that if he defaults on a loan, his creditor will be entitled to recover the debt against his 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 refused to comply with his obligation to provide information, his creditor would never be able to recover the debt.

Interestingly, the Court did not consider or comment on whether this implied consent that would have existed initially had been or could be overridden by the debtor’s clear refusal of consent that was communicated during the collection proceedings.