CANADA—Court rules on mortgage disclosure in Royal Bank v. Trang

There are many circumstances in which organizations are requested or required to disclose personal information (PI) of their customers to others. Consent is usually required for such disclosures; however, privacy law generally makes allowance for disclosures without consent in clearly spelled-out circumstances; e.g., for the purpose of collecting a debt owed by the individual to the organization or when required to comply with a subpoena or warrant issued or an order made by a court. In June, the Ontario Superior Court of Justice, in

(CanLII), had to decide if the Bank of Nova Scotia (BNS) could disclose information about a mortgage to which it was a party to the Royal Bank (RBC).

In an attempt to collect on a judgment against the defendants in this case, RBC filed a writ of seizure and sale with the sheriff of the city of Toronto, instructing the sheriff to sell the defendants’ interest in the property pursuant to a sheriff’s sale. There was a mortgage registered against the property in favour of BNS, and RBC required a mortgage discharge statement from BNS so that it could proceed with the sheriff’s sale. BNS refused to provide RBC with the statement, on the basis that the statement constituted personal information as defined by the Canada’s federal privacy law, the Personal Information Protection and Electronic Documents Act (PIPEDA). RBC sought a motion from the Superior Court of Justice requiring BNS to provide the mortgage discharge statement.

The court noted that previous to the enactment of PIPEDA, mortgage statements and mortgage discharge statements, were provided almost as a matter of course. While they were often provided with the mortgagor’s consent, in some cases they were sought without consent, for example, sales under power of sale by a second or subsequent mortgagee or sales by execution creditors, as in this case. In such cases, the express consent of the mortgagor was unlikely to be obtained as it was not in the interests of the mortgagor to assist. However, since the enactment of PIPEDA, federally regulated banks have been reluctant to provide such statements.

In

, the court considered whether banks could be required to produce such statements notwithstanding PIPEDA. The judge in

noted that PIPEDA prohibits organizations from disclosing PI without the knowledge or consent of the affected individual unless disclosure is permitted by one of the exemptions provided in section 7(3). While the applicant relied on two exemptions—disclosure required to comply with an order of the court and disclosure required by law—the court held that those exemptions did not apply, as information contained in a mortgage discharge statement is PI of the debtor and PIPEDA does not contemplate a balancing between the privacy rights of the individual and the interests of a third-party organization that may have commercial dealings with the individual that make the targeted information attractive to it.

The court in

reluctantly dismissed RBC’s motion, determining that it was bound by the

decision unless it is revisited by the Ontario Court of Appeals. In its reasons for decision, the court noted that it would seem odd that Parliament would have intended to protect a debtor who is subject to a final judgment of the court, prevent the judgment creditor from realizing the judgment the court has awarded and interfere in a commercial activity that has been conducted in a particular fashion for many years.

The court noted there were certain aspects of PIPEDA that could suggest a different approach. Section 7(3) of PIPEDA prohibits the disclosure of PI without the knowledge or consent of the individual; however, consent need not always be express and may, in appropriate circumstances, be implied. Principle 4.3.6 provides that the way in which an organization seeks consent may vary, depending on the circumstances and type of information collected; implied consent would generally be appropriate when the information is less sensitive. The court, in this case, suggested that a strong argument could be made that it would be reasonable to ask whether 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 least, the court noted, it could be argued that information as to the current state of the account is "less sensitive" as contemplated in section 4.3.6 and thus consent to its disclosure is implied.

In closing, the court noted that while Parliament obviously considered it important to preserve the privacy of PI in the possession of a federally regulated enterprise, it seems disproportionate to prevent a creditor from having access to a small piece of information, where access to that information is for the purpose of allowing enforcement of a judgment. It is legitimate to ask whether the purpose of PIPEDA’s provisions against disclosure without consent is meant to protect a legitimate right of privacy or if they were really meant to allow a debtor to hide behind the legislation as a means of avoiding or, at least frustrating, lawful enforcement of a debt.