In a ruling released Tuesday, a panel of appeal judges affirmed the conclusions of Federal Court Justice Richard Mosley, who criticized CSIS for requesting warrants to track two Canadians with technical help from the Communications Security Establishment, Canada's electronic spy agency.
The issue has become a central concern to the government in its efforts to probe radicalized Canadians who travel overseas with the aim of joining Islamic extremists on the battlefield.
CSIS failed to disclose that CSEC's foreign counterparts in the Five Eyes intelligence network could be called upon to help monitor Canadians — something Mosley called "a deliberate decision to keep the court in the dark about the scope and extent of the foreign collection efforts."
Mosley said in his decision late last year that the law governing CSIS does not authorize such warrant requests. And he warned CSIS and CSEC were incurring the risk that Canadian targets "may be detained or otherwise harmed" as a result of the use of the intercepted communications by foreign agencies.
The federal government appealed the biting decision, which concluded that CSIS had breached its duty of candour.
A hearing was held in March and the Court of Appeal's decision was handed down July 31, but not made public. A version of the ruling with several sensitive passages blacked out was released only Tuesday.
The Court of Appeal concluded that Mosley "did not err in his finding" that CSIS had violated its duty of candour or in his interpretation of the CSIS Act.
Public Safety Minister Steven Blaney said in a statement he would seek permission to appeal the latest ruling to the Supreme Court of Canada because the Court of Appeal leaves "important questions of law" uncertain.
"It is our responsibility to equip Canada's security and intelligence agencies with the tools they need in order to address threats and protect Canadians," Blaney said.
The government has already taken steps, introducing a bill last week that would amend the CSIS Act by allowing the spy service to seek a warrant to investigate a security threat beyond Canada's borders.
Under the legislation, debated in the House of Commons at first reading Tuesday, the warrant could be issued "without regard to any other law, including that of any foreign state."
The bill's wording directly addresses a point in the Federal Court of Appeal ruling.
On one hand, the judges found the Federal Court has jurisdiction to issue a warrant to CSIS when an interception is lawful in the country where it occurs.
"In our further view, it remains an open question as to whether the Federal Court possesses such jurisdiction when the interception is not legal in the country where it takes place."
Follow @JimBronskill on Twitter