Chris Lirette
Chris Lirette, Lawyer, McInnes Cooper
David Fraser
David Fraser, Lawyer, McInnes Cooper
 

On November 17, 2016 the Supreme Court of Canada decided a mortgagee has the mortgagor’s implied consent to disclose its discharge statement to the mortgagor’s judgment creditor – and this is sufficient to comply with the Protection of Personal Information and Electronic Documents Act (PIPEDA). It’s now much easier for a judgment creditor to obtain disclosure of the debtor’s mortgage statement from the mortgagee. 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 but Scotiabank said PIPEDA precluded it from disclosing the statement without the Trangs’ express consent. RBC asked the Ontario court for an order to compel Scotiabank to produce the mortgage discharge statement, but the Ontario Court of Appeal refused. RBC appealed the Supreme Court of Canada.

In Royal Bank of Canada v. Trang, the Supreme Court of Canada agreed with RBC: PIPEDA does not require the mortgagee to have the mortgagor’s express consent to produce a mortgage discharge statement to a judgment creditor – and Scotiabank must produce the Trang’s mortgage discharge statement to RBC:

Implied consent is good enough to disclose mortgage discharge statement to a judgment creditor. PIPEDA does apply to mortgage discharge statements that lending institutions hold and the current mortgage balance (and mortgage discharge statement disclosing that balance) is “personal information” –  but consent to its disclosure to a judgment creditor can be implied (and need not be express) under PIPEDA because:

  • Sensitivity of financial information. It’s less sensitive than other financial information (and than the Ontario Court of Appeal thought it is). The sensitivity of financial information is contextual; the already public related financial information, the purpose of making it public and the nature of the relationship between the debtor, the creditor and directly affected third parties are relevant. The outstanding mortgage balance is but a moment in the life of a publicly disclosed mortgage; disclosing it ensures the parties ‘have all pertinent information involving the property’ and makes the bank’s rough calculations based on publicly available information more certain; there are already some exceptions to a bank’s implied obligation not to disclose information about those from whom it has obtained a security interest in any event; and the state of the mortgage account also affects other creditors.
  • Reasonable expectations. A mortgagor would reasonably expect a mortgagee to provide a discharge statement to a judgment creditor. This is also a contextual determination informed by the legitimate business interests of other creditors and by who seeks disclosure and why; disclosure to someone who needs the information to exercise an established legal right is different than someone who’s just nosy. A reasonable person would consider it appropriate for a mortgagee to provide a discharge statement to a judgment creditor who has obtained a writ of seizure and sale of the mortgaged asset from the court and filed it with the sheriff. These steps demonstrate that that the creditor intends to exercise an established legal right that depends on the disclosure of the mortgage discharge statement. The mortgagor implicitly gave consent for the purpose of assisting a sheriff in executing a writ of seizure and sale when the mortgagor gave the mortgage. RBC didn’t need to seek the mortgage discharge statement through the examination process; obtaining a writ of seizure and sale and filing it with the sheriff triggered the consent to disclose the Trangs gave when they gave a mortgage to Scotiabank.

Disclosure of the mortgage discharge statement is indeed “appropriate” under PIPEDA.   An order for disclosure is appropriate where (as here) the creditor has already obtained judgment, has filed a writ of seizure and sale, and  has either asked the debtor, in writing, to sign a consent to disclosure without success or the debtor has not attended a single judgment debtor examination. That judgement creditor has proven its claim should be entitled to an order for disclosure as long as it serves the debtor with the motion to obtain disclosure.

Disclosure by Court Order. The order RBC sought does constitute an order made by a court under PIPEDA’s section 7(3)(c). PIPEDA does not interfere with the court’s ability to make orders; the court had the power to order disclosure under either the civil procedure rules or the court’s inherent jurisdiction to order disclosure.

The Supreme Court of Canada didn’t comment on whether disclosure of the mortgage statement is “required by law” under the Ontario Execution Act.

Practically, this decision makes it much easier for a judgment creditor to obtain disclosure of the debtor’s mortgage statement from the mortgagee.

Express consent clause in loan agreement isn’t necessary (but it can’t hurt). A judgment creditor does not need the debtor’s express consent, in the loan agreement or otherwise, to disclosure of the mortgage discharge statement for the mortgagee to deliver the discharge statement to the judgement creditor. However, including such a term in the loan agreement can’t hurt either.

Court Order under PIPEDA appropriate. If the mortgagee refuses to disclose the mortgagor’s mortgage statement to a judgment creditor, the judgment creditor should be able to obtain a court order for such disclosure under PIPEDA section 7(3)(c).

Court Order under civil procedure rules is not required. While Ontario’s Civil Procedure Rules (and those of most provinces and territories) allow the court to order the examination of anyone who might have knowledge that will assist enforcement of a court order (i.e., the order for the debt), which satisfies the exemption under PIPEDA’s “required by law” exception to the consent requirement. However, this process is lengthy and cumbersome – and now, not necessary.

About the authors:

Chris Lirette  is a member of McInnes Cooper’s bankruptcy and insolvency and corporate and business service groups. He regularly assists chartered banks and private lenders with mortgage enforcement matters and collections. He also assists unsecured lenders with collections work, including issuing demand letters, commencing actions for debt against debtors and obtaining default judgments. You can reach Chris at chris.lirette@mcinnescooper.com.

David Fraser is a lawyer with McInnes Cooper and leads its Privacy Law Team. David is recognized as a foremost Canadian technology and privacy lawyer and regularly advises a range of clients – from start-ups to Fortune 100 companies – on all aspects of privacy and technology laws. You can reach David at david.fraser@mcinnescooper.com.