Does Offshore Banking Confidentiality Hold Up In Canadian Courts?

The April 2016 "Panama Papers" leak highlighted the attraction for transnational actors of the confidentiality available in certain offshore financial centres. Some of these jurisdictions have laws that make it a criminal offence for banks to disclose information about their clients, providing powerful protection for individuals and corporations who wish to keep their financial affairs private. However, if a bank becomes involved in Canadian proceedings, those foreign laws may conflict with the disclosure obligations imposed on litigants here. These situations raise questions about when foreign law can provide a basis to excuse production, or to refuse the answering of a question, in a Canadian proceeding, and under what circumstances a Canadian court will compel disclosure despite potential foreign legal jeopardy.

In making these determinations, Canadian courts do not apply a bright-line rule, but have developed a collection of factors they consider when deciding if a foreign statute will be applied to excuse production or testimony in Canada.

Respect for foreign laws

Canadian courts begin with respect for foreign laws and the general principle that, as our courts would not order a Canadian to break domestic law, nor should they compel a foreign litigant to break the laws of its home jurisdiction.1

This principle was recently cited and applied in TD Bank, NA v Lloyd's Underwriters,2 where an American subsidiary of the Toronto-Dominion Bank commenced an action in Ontario against its syndicated fidelity insurance underwriters for declining coverage when it was sued by investors allegedly defrauded by a customer in Florida.

TD advised the defendant insurers that it could not produce certain documents because disclosure was prohibited by American laws. These included banking records of TD customers, which were subject to privacy laws. The insurers brought a motion to compel production.

The court cited a number of factors that favoured accommodation of the Florida privacy law: the policy of the law was analogous to policies in Canadian law; Florida had the closest and most real connection to the documents at issue; the privacy interests being protected were largely those of Florida residents; the insurers had voluntarily chosen to extend coverage to operations in Florida; the penalty for violating the Florida statute was potentially severe; and the legal risk to TD in Florida was by no means imagined or fanciful.3

The court held that TD was not...