Royal Bank of Canada v. Welton, 2009 ONCA 48

Royal Bank of Canada v. Welton et al. [Indexed as: Royal Bank of Canada v. Welton]

93 O.R. (3d) 403

Court of Appeal for Ontario,

Winkler C.J.O., Moldaver and R.P. Armstrong

JJ.A.

January 20, 2009

Charter of Rights and Freedoms -- Application of Charter -- Private and non-governmental action -- Banks sharing information about fraudulent mortgage transactions pursuant to Personal Information Protection and Electronics Documents Act -- Lawyer who acted for bank and for purported mortgagors in suspect transactions applying for declaration that s. 7(3)(d) (i) and 7(3)(h.2) of Act are inconsistent with s. 8 of Charter -- Application judge properly dismissing application -- Impugned provisions not attracting Charter scrutiny -- Banks not acting as state agents in circumstances -- Lawyer not having standing to invoke protection of s. 8 of Charter as he had no reasonable expectation of privacy in circumstances -- Canadian Charter of Rights and Freedoms, s. 8 -- Personal Information Protection and Electronics Documents Act, S.C. 2000, c. 5, s. 7(3)(d)(i), 7(3)(h.2).

The Royal Bank sought to investigate a series of fraudulent mortgage transactions involving M and another lawyer. The Royal Bank was a client of M in respect of the suspect transactions, and M acted for both the bank and the purported mortgagors. M maintained a mixed trust account at the TD Bank. Without giving M notice, the Royal Bank and the TD Bank exchanged information on the suspect transactions which the Royal Bank used to obtain a Mareva injunction and an Anton Piller order. M and the other appellants applied for a declaration that s. 7(3)(d)(i) and 7(3)(h.2) of the Personal Information Protection and Electronics Documents Act ("PIPEDA") are inconsistent with s. 8 of the Canadian Charter of Rights and Freedoms. The application was dismissed. The appellants appealed.

Held, the appeal should be dismissed.

The impugned provisions did not attract Charter scrutiny. As the application judge found, the purpose of PIPEDA is to regulate the collection, use and disclosure of personal information by private organizations engaged in commercial activity. In doing so, PIPEDA does not transform the activities of those organizations into governmental activities, nor does it transform the organizations themselves into state actors. Moreover, the appellants did not have standing to invoke the protections of s. 8 of the Charter. As the Royal Bank's solicitor for the mortgage transactions, M was duty-bound to disclose to the Royal Bank the information he now alleged the bank obtained in contravention of his s. 8 Charter rights. He did not have a reasonable expectation of privacy in the records relating to the receipt and disbursement of funds received from his client concerning the suspect transactions. The other appellants were straw men who acted as M's surrogates, and had no greater claim to a reasonable expectation of privacy than M. Finally, the appellants' s. 8 Charter argument was misconstrued. The impugned provisions do not confer search and seizure powers on private entities, much less private entities that have assumed the role of state agents. Rather, they do little more than codify the existing common law which permitted the sharing of information where reasonable grounds exist to believe that a private entity has been, is or is about to be defrauded. [page404]

APPEAL from the order of Cumming J., 2008 CanLII 6648 (S.C.J.) dismissing an application for declaration that certain provisions of the Personal Information Protection and Electronics Documents Act are unconstitutional.

Cases referred to Canadian Imperial Bank of Commerce v. Sayani, 1993 CanLII 937 (BC CA), [1993] B.C.J. No. 1898, [1994] 2 W.W.R. 260, 33 B.C.A.C. 85, 83 B.C.L.R. (2d) 167, 11 B.L.R. (2d) 28, 42 A.C.W.S. (3d) 782 (C.A.); R. v. Buhay, [2003] 1 S.C.R. 631, [2003] S.C.J. No. 30, 2003 SCC 30, 225 D.L.R. (4th) 624, 305 N.R. 158, [2004] 4 W.W.R. 1, J.E. 2003-1124, 177 Man. R. (2d) 72, 174 C.C.C. (3d) 97, 10 C.R. (6th) 205, 122 A.C.W.S. (3d) 863, 57 W.C.B. (2d) 206 Statutes referred to Canadian Charter of Rights and Freedoms, s. 8 Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5, s. 7(3)(d)(i) [as am.], (h.2) [as am.] Regulations referred to Rules of Professional Conduct, rule 2.04(6.1) Regulations Specifying Investigative Bodies, S.O.R./2001-6, s. 1 [as am.]

James Stribopoulos and Howard Wolch, for appellants. Brian Greenspan, Milton A. Davis, Seth Weinstein and Kelli Preston, for respondent.

1BY THE COURT: -- The appellants appeal from the order of Cumming J. dismissing their application for a declaration that s. 7(3)(d)(i) and 7(3)(h.2) of the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 ("PIPEDA") are inconsistent with s. 8 of the Canadian Charter of Rights and Freedoms and are of no force and effect. They also appeal from his refusal to grant a further order declaring that the Royal Bank of Canada, by accessing information regarding the appellants' bank accounts, violated their s. 8 Charter rights.

2For the reasons that follow, we would dismiss the appeal with costs.

Background

3The Royal Bank of Canada sought to investigate a series of fraudulent mortgage transactions involving two lawyers. One of the lawyers was David Molson. The application judge found that the Royal Bank's determination that it had been defrauded was made in good faith and was reasonable in the circumstances.

4Molson maintained a mixed trust account at the Toronto Dominion Bank. Without giving Molson notice, an investigator at the Royal Bank provided the Toronto Dominion Bank with [page405] information on the mortgage transactions. The Royal Bank obtained information from the Toronto Dominion Bank regarding specific mortgage advances made by the Royal Bank into Molson's mixed trust account. Specifically, the Toronto Dominion Bank provided the Royal Bank with copies of cheques which it had determined were relevant to the Royal Bank mortgage advances at issue.

5This information was then used by the Royal Bank to obtain a Mareva injunction and an Anton Piller order.

6The application judge found that the Royal Bank was a client of Molson in respect of the suspect transactions and that he acted for both the bank and the purported mortgagors. He also found that the other appellants, related to Molson through marriage, were not clients of Molson; they were simply recipients of funds from the trust account, allegedly at the direction of clients.

7The Royal Bank, the Toronto Dominion Bank and all other chartered banks in Canada are members of the Bank Crime Prevention and Investigation Office of the Canadian Bankers Association (the "BCPIO"). The BCPIO is listed in the Regulations Specifying Investigative Bodies, SOR/2001-6, s. 1 as an investigative body for the purposes of s. 7(3)(d) and (h.2) of PIPEDA. Investigators at the Royal Bank and the Toronto Dominion Bank are also members of the BCPIO.

The Relevant Legislation

8The impugned provisions of PIPEDA are set out below:

Disclosure without knowledge or consent

7(3) For the purpose of clause 4.3 of Schedule 1, and despite the note that accompanies that clause, an organization may disclose personal information without the knowledge or consent of the individual only if the disclosure is . . . . . (d) made on the initiative of the organization to an investigative body, a government institution or a part of a government institution and the organization (i) has reasonable grounds to believe that the information relates to a breach of an agreement or a contravention of the laws of Canada, a province or a foreign jurisdiction that has been, is being or is about to be committed, or . . . . . (h.2) made by an investigative body and the disclosure is reasonable for purposes related to investigating a breach of an agreement or a contravention of the laws of Canada or a province. . . [page406]

The Application Judge's Decision

9The application judge provided extensive reasons for refusing to grant the declaratory relief requested by the appellants. He considered the impugned provisions, both in terms of their purpose and effect, and he concluded that they did not attract s. 8 Charter scrutiny. His reasons in this regard are summarized below.

10First, the application judge found that the impugned provisions are not facially unconstitutional, and that they can be interpreted in a manner consistent with the Charter in so far as they grant discretion to certain actors.

11Second, he found that the purpose of PIPEDA is to regulate the collection, use and disclosure of personal information by private organizations engaged in commercial activity. In doing so, PIPEDA does not transform the activities of these organizations into governmental activities, nor does it transform the organizations themselves into state agents.

12Third, on the facts of this case, the application judge was satisfied that the Royal Bank was acting to protect its private interests. He concluded that the Royal Bank and the Toronto Dominion Bank, as private actors and as members of the BCPIO, were not acting as state agents or in furtherance of an inherently governmental function.

13Accordingly, the application judge concluded that the impugned provisions did not attract s. 8 Charter scrutiny.

14Alternatively, the application judge found that if s. 8 was implicated, PIPEDA permitted the disclosure of records and "[i]n the context of an investigation by a private body to protect its private interests, the absence of a requirement of prior judicial authorization [was] not 'unreasonable' under s. 8 of the Charter" (para. 49).

15In other words, in the opinion of the application judge, if s. 8 was engaged, the searches and seizures prescribed by the impugned provisions were authorized by law and the law itself was reasonable considering the context of the provisions and their purpose in preventing fraudulent or other illegal activity that could put the economic interests of private entities at risk.

Analysis

16We agree with the application judge's conclusion, particularly as it relates to his finding that the impugned provisions do not attract s. 8 Charter scrutiny. That is not to say that s. 8 rights could never be triggered in relation to these provisions. Manifestly, they could be if, for example, it could be shown that an [page407] organization, such as a bank, was acting not as a private entity but as a state agent: see R. v. Buhay, 2003 SCC 30, [2003] 1 S.C.R. 631, [2003] S.C.J. No. 30, at para. 25.

17In addition, we would make the following brief observations.

18First, we question whether the appellants have standing to invoke the protections afforded by s. 8 of the Charter.

19The main protagonist, Molson, was at all material times the Royal Bank's solicitor for the mortgage transactions, as well as the solicitor for the mortgagors. As such, he was duty- bound to disclose to his client the Royal Bank the information he now alleges his client obtained in contravention of his s. 8 Charter rights: see the Law Society of Upper Canada's Rules of Professional Conduct, rule 2.04(6.1). In the circumstances, he cannot lay claim to a reasonable expectation of privacy in the records relating to the receipt and disbursement of funds received from his client concerning the suspect mortgage transactions. The lack of a reasonable expectation of privacy on his part becomes all the more apparent when we consider the privacy agreement he signed with the Toronto Dominion Bank, in which he acknowledged that the bank could disclose the very information which he now says it should not have disclosed, without a court order, in violation of his s. 8 Charter rights.

20The same reasoning applies to the other appellants. Based on the evidence, the application judge effectively found that the other appellants were straw men who acted as Molson's, surrogates. That finding is not challenged. It follows that the other appellants can lay no greater claim to a reasonable expectation of privacy than Molson, who, as we have pointed out, has no such claim.

21Second, we believe that the appellants' s. 8 Charter argument is misconstrued. The impugned provisions of the Act do not confer search and seizure powers on private entities, much less private entities that have assumed the role of state agents or delegates performing a state function.

22In its essence, PIPEDA is a privacy statute. It restricts disclosure of private information subject to certain exemptions, one such exemption being the detection and prevention of fraudulent activity. In such circumstances, where reasonable grounds exist to believe that a private entity has been, is, or is about to be defrauded, limited information sharing between private business organizations and private investigative bodies is permitted for the purpose of preserving and protecting the economic interests of the business enterprise at risk. From what we can tell, the impugned provisions of PIPEDA do little more than codify the existing common law which permitted the sharing of such [page408] information in similar circumstances: see Canadian Imperial Bank of Commerce v. Sayani, 1993 CanLII 937 (BC CA), [1993] B.C.J. No. 1898, 83 B.C.L.R. (2d) 167 (C.A.), at paras. 18-32.

23For these reasons, as well as those provided by the application judge, we are of the view that the application judge was correct in concluding that the impugned provisions of PIPEDA do not, on their face, attract s. 8 Charter scrutiny. Nor is there any basis for interfering with the application judge's further conclusion that, in sharing the information in question, the banks were not acting as state agents or as delegates fulfilling governmental policy.

24We would accordingly dismiss the appeal on its merits.

Costs of the Application

25The appellants seek leave to challenge the costs award made against them by the application judge. In essence, they claim that this is a test case involving matters of public interest and that, in the circumstances, the Royal Bank should bear its own costs.

26We disagree. The application judge was fully aware of the "test case/public interest" principles upon which the appellants rely. He referred to them in his costs award but refused to give effect to them.

27At para. 9 of his reasons, the application judge observed that Molson had raised the Charter issue to "shield" his involvement and that of his co-appellants "in a significant fraudulent scheme . . . against the respondent [bank]". In the circumstances, he concluded that there was no good reason to depart from the ordinary rules of costs.

28We see no error in his analysis or conclusion. The application was driven by Molson's private interests. Success would potentially have abrogated the Mareva injunction, thereby enabling Molson to retrieve the $6 million worth of cash and assets that had been frozen. Accordingly, while we would grant leave on the issue of costs, we would dismiss the appeal.

Costs of the Appeal

29The respondent, the Royal Bank, is entitled to its costs of the appeal, which we fix, on a partial indemnity basis, at $53,624.95 inclusive of GST and disbursements.