PIPEDA Leaves Lender Out in the Cold in Royal Bank of Canada v. Trang: 5 Reasons to Review Your Loan Agreement
December 23, 2014
NOTE: On November 17, 2016 the Supreme Court of Canada reversed the Ontario Court of Appeal’s decision in this case; read about it here.
On December 9, 2014, the Ontario Court of Appeal decided that the Protection of Personal Information and Electronic Documents Act (PIPEDA) prevents a mortgagee from disclosing the mortgagor’s discharge statement to another lender – even when that lender has a judgement against the mortgagor – without either the mortgagor’s express consent or a specific court order. The decision is relevant beyond Ontario because PIPEDA is federal legislation applicable across Canada, and Atlantic Canadian Provinces have legislation analogous to the Ontario legislation.
Scotiabank held a registered first mortgage on the Trang’s Toronto real property. RBC subsequently loaned the Trangs money. They defaulted and RBC obtained a judgment against them. Twice, the Trangs didn’t show for their examination in aid of execution. RBC asked Scotiabank for a mortgage discharge statement to facilitate sale of the property. Scotiabank said PIPEDA precludes it from disclosing the statement without the Trangs’ consent. RBC asked the Ontario court for an order compelling Scotiabank to produce the mortgage discharge statement – but the Ontario Court of Appeal refused.
5 Reasons to Review Your Loan Agreement
There are 5 main reasons the Ontario Court of Appeal refused to compel the mortgagee to disclose the mortgagor’s discharge statement to the judgment creditor:
- PIPEDA applies to mortgage discharge statements that lending institutions hold. PIPEDA governs the commercial activities of private sector provincially and federally regulated lending institutions. PIPEDA tries to balance individuals’ right to privacy in their personal information with organizations’ need to collect, use and disclose personal information in their commercial activities. PIPEDA applies to the personal information that both RBC and Scotiabank collect, use and disclose.
- Current mortgage balance – and mortgage discharge statement – is “personal information”. Holders of personal information that is publicly available or that PIPEDA specifies, don’t require consent to disclose it – but they do require consent to disclose personal information that’s not publicly available. Mortgage details at the time the mortgage is registered in the provincial land registry system are publicly available – but the current mortgage balance isn’t, and PIPEDA doesn’t specify it. Mortgagors don’t waive any privacy interest in their mortgage balance just because the mortgage details at the time of registration are public. The Trangs couldn’t claim a privacy interest in the financial details of their mortgage when it was registered – but they could in the current balance.
- Express consent required to disclose mortgage discharge statement. Consent is a cornerstone of PIPEDA: collection, use or disclosure of personal information ordinarily requires an individual’s knowledge and consent. Under PIPEDA’s Schedule 1, Clause 4.3.6 an individual can impliedly consent to disclosure of personal information in certain circumstances. But a bank can’t “imply” a debtor’s mortgage discharge statement – it requires the mortgagor’s “express consent” because:
- the information is highly sensitive; a mortgage discharge statement contains the mortgagor’s personal financial information and can be an important piece of private, personal information; and
- a mortgagor would reasonably expect his lender to protect his personal information, and to get his consent to disclose it.
- Disclosure of the mortgage discharge statement isn’t “appropriate” under PIPEDA. PIPEDA’s sections 3 and 5 emphasize that an organization can only collect, use or disclose personal information for purposes which a reasonable person would consider appropriate in the circumstances. However, these sections are an addition to – not an alternative to or an exception from – PIPEDA’s consent requirement. Furthermore, a body that legitimately collected personal information legitimately shouldn’t disclose it for an entirely different purpose without the owner’s consent. Scotiabank didn’t collect or use the information from the mortgagors for purposes of facilitating another judgment creditor’s execution on its judgment.
- Disclosure of mortgage discharge statement not “required by law” under the Ontario Execution Act. The Ontario Execution Act – the law that authorized RBC to exercise its rights to sell the equity of redemption in the judgment debtor’s real property – doesn’t meet the “required by law” exception to PIPEDA’s consent requirement because it doesn’t require disclosure of a mortgage statement. Similarly, comparable legislation in each Atlantic Canada province doesn’t require disclosure of a mortgage statement – and likely wouldn’t satisfy PIPEDA’s “required by law” exception to consent.
2 Roads to Get the Discharge Statement
The Court did, however, offer RBC – and all lenders – 2 specific routes to get in from the cold and obtain disclosure of the mortgage statement from the mortgagee:
- Express Consent Clause in Loan Agreement. A term in the loan agreement in which the debtor expressly consents to disclosure of the mortgage discharge statement would meet PIPEDA’s requirements for the mortgagee to deliver the discharge statement to the judgement creditor. The Court even gave an example of what such a term would look like:
“… the term might have provided that if the [debtors] defaulted on their loan and [the lender] obtained a judgment against them, then for the purpose of enforcing the judgment, the [borrowers] would agree that any mortgagee of their property could deliver a mortgage discharge statement to [the lender].”
- Court Order Under Civil Procedure Rules. If the lender doesn’t have the borrower’s express consent, it might still be able to get the mortgage discharge statement with a court order under the provincial civil procedure rules. Ontario’s Civil Procedure Rules allow the court to order the examination of anyone who might have knowledge that will assist enforcement of a court order. The Court commented that RBC could show such a difficulty because the borrowers failed to appear for two judgment debtor examinations, and Scotiabank wouldn’t produce the discharge statement. Ontario’s Rules would require Scotiabank to bring a discharge statement to the examination and produce it. Such a court order would satisfy the exemption under PIPEDA’s “required by law” exception to the consent requirement – but RBC’s two motions asking the Court to compel Scotiabank to produce a discharge statement wouldn’t. Each Atlantic Canada province has civil procedures rules similar to those in Ontario – and thus, the same approach should work.
Read the Ontario Court of Appeal’s decision in Royal Bank of Canada v. Trang, 2014 ONCA 883 (CanLII).
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Banking and Financial Services Team to discuss this topic or any other legal issue.
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