Federal Court Rules on Scope of "Commercial Activity" under PIPEDA

For companies subject to Canada’s private-sector privacy legislation, the recent Federal Court of Canada decision in State Farm Mutual Automobile Insurance Company v. Canada (Privacy Commissioner) may come as both a relief and a disappointment. The court’s decision sheds some light on the types of "commercial activities" governed by the Personal Information Protection and Electronic Documents Act (PIPEDA), but it failed to settle the issue of PIPEDA’s constitutional validity as it relates to the intra-provincial activities of provincially regulated companies.

PIPEDA applies to private-sector organizations that collect, use or disclose personal information in the course of "commercial activities." It defines "commercial activity" as any transaction, act, conduct or regular course of conduct that is of a commercial character. While PIPEDA is a federal statute, it also applies in any province without legislation that is "substantially similar" to PIPEDA.

As a basic principle, PIPEDA requires that personal information about an individual not be collected, used or disclosed without that individual’s knowledge and consent, except in limited circumstances. PIPEDA also gives individuals the right to access their personal information held by organizations that are subject to PIPEDA.

The State Farm case stems from a car accident involving Ms. Jennifer Vetter and Mr. Gerald Gaudet in New Brunswick. Ms. Vetter was insured under a State Farm policy. In contemplation of litigation, State Farm retained counsel to defend Ms. Vetter. On the advice of counsel, State Farm also hired a private investigator to conduct video surveillance of Mr. Gaudet.

Before Mr. Gaudet started a civil action, he asked State Farm to disclose any surveillance tapes of him, relying on PIPEDA. State Farm denied the request, asserting that PIPEDA did not apply. Later, after the action was commenced, State Farm also claimed litigation privilege over the tapes. Mr. Gaudet complained to the Privacy Commissioner, alleging that State Farm had violated PIDEDA by denying access to his personal information, disclosing his personal information to a third party without his consent, and failing to provide adequate safeguards to protect his personal information.

The Commissioner launched an investigation into the complaint and wrote to State Farm requesting documents and information. After receiving the letter, State Farm applied to court for a declaration that the Commissioner did not have the statutory authority to act upon Mr. Gaudet’s complaint. State Farm also challenged the constitutional validity of PIPEDA. It argued that PIPEDA’s application to provincially regulated commercial activities exceeded the federal government's jurisdictional power.

To determine whether PIPEDA applied, the court considered whether the collection of the surveillance information constituted a "commercial activity." The Commissioner argued that the relationship between State Farm and Ms. Vetter was entirely commercial in nature, being based on an insurance contract. She further asserted that the surveillance of Mr. Gaudet related to this relationship, since State Farm had an interest in minimizing any amounts paid out under that insurance contract.

The court held that the dominant factor in assessing the commercial character of that activity or conduct under PIPEDA is the primary characterization of the activity or conduct in issue. In this case, the court found that the primary activity was the collection of information in order to properly defend a civil tort action. That activity, the court determined, was not a commercial activity, even if third parties were retained to carry it out or conduct it on another’s behalf. Therefore, the court found that the surveillance tapes of Mr. Gaudet were not subject to PIPEDA.

Having found that it could reach a decision on the merits without addressing the constitutionality of PIPEDA, the court declined to rule on that latter issue.

McCarthy Tétrault Notes

Companies regulated by PIPEDA may be somewhat relieved by this ruling. By establishing that the collection of personal information in the context of civil litigation does not constitute a "commercial activity" and hence is not subject to PIPEDA, this court decision has helped avoid a potentially very complex interplay between privacy rights of access and privilege.

On the other hand, many had hoped that this decision would resolve the issue of the constitutionality of PIPEDA as regards its application to the intra-provincial activities of provincially regulated entities. As the court declined to determine this question, the status quo has been maintained in this respect, at least for now.

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