The Supreme Court of Canada Rules on Lender Disclosure of Mortgage Discharge Statements

In the landmark decision of Royal Bank of Canada v. Trang, the Supreme Court of Canada ruled definitively on whether a mortgagor implicitly consents to a lender’s disclosure to others of a borrower’s mortgage discharge statement, or whether privacy law steps in to protect such information. The decision has significant implications to creditors, lenders and borrowers alike.

The facts were straightforward:  The Trangs borrowed money from Royal Bank of Canada (“RBC”), which obtained a judgment against them when they defaulted on the loan.  However, RBC was unable to enforce the judgment by seizing and selling the Trangs’ real property because it could not do so unless provided with a mortgage discharge statement from Scotiabank, which held the Trangs’ mortgage on the property and Scotiabank refused to provide the statement.  Scotiabank’s refusal to provide the statement relied on the Personal Information Protection and Electronic Documents Act (PIPEDA), which it felt prohibited the disclosure of the Trangs’ information without their knowledge and consent.

RBC applied for a court order compelling Scotiabank to comply.  Both the lower and Appeal courts confirmed that in this scenario, Scotiabank was neither required nor permitted to disclose the Trangs’ mortgage discharge statement to RBC.

On further appeal to the Supreme Court of Canada, the earlier rulings were overturned.  The Court held that PIPEDA expressly allows that the Trangs’ consent to disclosure could be implied in certain circumstances – namely where the information is “less sensitive”.   Although financial information is generally considered highly sensitive, in all cases the exact level of sensitivity must be assessed in context, by looking at:  (1) any related financial information already in the public domain; (2) the purpose served by making the related information public; and (3) the nature of the relationship between the Trangs, Scotiabank, and directly-affected parties such as RBC. Other considerations included the identity and legitimate business interests of other creditors such as RBC, as well as the reasons behind the need for disclosure.

The court observed that certain mortgage-related information about the Trangs was already available on the province’s electronic land registry, which was the result of a legislative decision to balance privacy concerns with public disclosure needs.  In particular, 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.” The Trangs could not reasonably expect that their privacy rights could stand in the way of RBC’s right to collect its debt and their overall expectations as to disclosure and consent should be informed by such legitimate third-party needs.

Under PIPEDA, the Trangs’ expectations as to whether Scotiabank needed their consent were also relevant. The court found that a reasonable mortgagor would be aware that some mortgage details were publicly registered, that a mortgage default might trigger a judgment against them, that information would be shared with a sheriff to enable seizure and sale, and that the property would be sold.  He or she would also know that disclosure of the mortgage discharge statement might be part of this process.  As the court put it:

“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.”

In the end, the court concluded that the Trangs’ mortgage discharge statement was of the “less sensitive” variety of financial information, and that they had implicitly consented to have the information released to RBC.  The Court ordered Scotiabank to make that necessary disclosure. See Royal Bank of Canada v. Trang, 2016 SCC 50.