Canada: Appellate Court Overturns Certification Of Defendant's Counterclaim

In Thorne v. College of the North Atlantic, 2018 NLCA 33  ("Thorne"), the Newfoundland and Labrador Court of Appeal (the "Court of Appeal") dealt with the novel issue of whether a counterclaim is certifiable as a class action under the Class Actions Act, SNL 2001, c. C-18.1 (the "Act"). The Court in Thorne overturned certification of the counterclaim filed by the defendant on the basis it did not meet the statutory requirements for certification outlined in the Act.

Similar to class action legislation in all other Canadian jurisdictions, with the exception of proceedings in the Federal Court, the Act does not expressly provide for the certification of counterclaims and only refers to counterclaims in the context of providing notice of certification. Given the novelty of the issue in Canadian jurisprudence, and the similarity of legislation in other jurisdictions, this case is important because it provides a precedent for the interpretation of class action legislation in the context of certification of a counterclaim that may be persuasive in other Canadian jurisdictions.

Background to the Dispute

The defendant, the College of the North Atlantic ("CNA") is a post-secondary educational institution operating in Newfoundland and Labrador. Pursuant to a contract with the State of Qatar (the "Comprehensive Agreement"), CNA provided educational services and operated a college owned by the State of Qatar.

Ms. Thorne was one of several employees who worked for CNA in the State of Qatar over the period 2008 to 2011. In September 2013, Ms. Thorne, as the representative plaintiff sued CNA under the Act for breach of contract in relation to allegations that CNA had not paid the employees a cost of living allowance ("COLA") in addition to their salaries as required by the terms of their employment agreements with CNA. Ms. Thorne's application for certification of her action under the Act was granted and she was appointed the representative plaintiff (Thorne v. College of the North Atlantic, 2014 NLTD(G) 94).

In February 2015, CNA filed a defence and counterclaim. CNA denied it breached its contracts with its employees on the basis the terms of the Comprehensive Agreement with Qatar, to which CNA's employees were not parties,  provided for a salary cap that affected the COLA claims. In its counterclaim, CNA further alleged that some of the class members, including Ms. Thorne, had actually been overpaid as a result of the salary cap, and CNA sought reimbursement of the alleged overpayments.

Ms. Thorne successfully applied to have CNA's counterclaim struck on the basis it did not disclose a cause of action (Thorne v. College of the North Atlantic, 2015 NLTD(G) 63). CNA appealed both certification and the striking of its counterclaim. The Court of Appeal upheld the certification, but overturned the decision striking the counterclaim on the basis the Judge had considered affidavit evidence that the plaintiff did not have leave to file, and remitted CNA's counterclaim back to the Trial Division for consideration of certification under the Act (College of the North Atlantic v. Thorne, 2015 NLCA 47).

The Decision Below

The Application Judge certified CNA's counterclaim, finding that rule 7A.01(4) of the Rules of Supreme Court, 1986 and section 13 of the Act  gave him the discretion to do so (Thorne v. College of the North Atlantic, 2016 NLTD(G) 165). In concluding CNA's counterclaim was valid, the Application Judge was satisfied with CNA's assertion that its proposed common issue, namely whether class members who had received overpayments were required to repay those overpayments to CNA, applied to members of the plaintiff's class. The Application Judge further indicated questions respecting individual membership in the class was not an impediment to certification and stated that it was not necessary for all class members to be identically situated.

Ms. Thorne appealed the certification of CNA's counterclaim.

The Appeal Decision

The Court of Appeal allowed the appeal and struck CNA's counterclaim. The Court found that the Application Judge erred by determining the counterclaim met the statutory conditions for certification, by determining it disclosed a cause of action, by determining CNA's proposed common issue was a common issue, and by appointing Ms. Thorne as representative defendant.

Justice Hoegg, writing for the Court, began her analysis with the nature of counterclaims, noting that a counterclaim is an independent action. As such, a defendant who files a counterclaim becomes a plaintiff by counterclaim. The Court held that in this case, that meant for all purposes related to its counterclaim, CNA was a plaintiff and therefore must comply with the provisions of the Act as any plaintiff seeking to commence an action under the Act would, including the criteria for certification (para. 38).

The Court went on to note that the distinction between plaintiff class actions and defendant class actions were fundamental to the appeal. Critically, the Act only provides for plaintiff class actions. In this regard, section 3 provides the mechanism for a plaintiff to commence an action; section 4 provides that a defendant may apply to certify a class in circumstances where it has been sued by more than one plaintiff and the plaintiff's class has not already been certified (paras. 39-40). By contrast, a defendant class action is when two or more defendants are certified as a class (para. 42). Ontario is the only province with class action legislation that provides for defendant class actions.

The Court held that CNA's counterclaim should be struck and Ms. Thorne's appeal allowed on the basis it did not comply with sections 3 and 4 of the Act alone (para. 52). In this regard, section 3(1) provides:

One member of a class of persons who reside in the province may commence an action in the court on behalf of the members of that class.

As the sole defendant in Ms. Thorne's class action and the sole plaintiff by counterclaim, CNA was not a "member of a class of persons" and therefore could not comply with section 3(1) so as to invoke the process to apply for certification under section 3(2) (paras. 47-48). Section 4 of the Act also did not apply on the basis CNA was not named as a defendant in more than one action (para. 49).

The Court also reviewed other provisions of the Act that were an additional barrier to certification of CNA's counterclaim and found as follows:

  • The Application Judge's reliance on section 13 of the Act, which directs the conduct of class actions that have already been certified, was in error and did not give him the authority to certify CNA's counterclaim (para. 68).
  • CNA's counterclaim did not disclose a cause of action as required for certification by section 5(1)(a) of the Act. Even if certain employees had been overpaid, there was nothing in the pleadings indicating why CNA should be able to recover those monies. As the class members were not bound by the Comprehensive Agreement, it could not be used as a basis to say the class members had breached their contracts with CNA (para 67).
  • As CNA's counterclaim was only against approximately half of the plaintiff class, the common issue put forward by CNA, which related to whether members of the class were required to repay alleged overpayments, was not an issue common to all members of the class as required for certification by section 5(1)(c) of the Act (para. 69).
  • Setting aside the fact that the Act does not even provide for the appointment of representative defendants, Ms. Thorne would not be an appropriate representative defendant given her interest as one of the employees who had been allegedly overpaid, which diverged from the interests of those members of the class she represented that had not, a conflict that could very well influence her to settle or discontinue the action so as to protect her interests to the detriment of other class members (para. 70).

Implications of the Appeal Decision

With the exception of Ontario, whose legislation expressly provides for defendant class actions, and proceedings in the Federal Court, whose rules of court expressly provide both for defendant class actions and the certification of counterclaims, Thorne provides guidance for courts in other jurisdictions faced with the issue of whether to certify a counterclaim against a class of defendants under their provincial legislation. Where the legislation does not expressly provide for the certification of a claim against a class of defendants, Thorne  is persuasive authority that such legislation properly interpreted does not allow for certification of such claims.

The result is that, where possible to proceed in a different jurisdiction, Ontario and the Federal Court may become attractive options for those seeking to certify a proceeding as a defendant class action and appoint a representative defendant. If a defendant class action cannot be brought in Ontario or the Federal Court, defendants to class actions proceeding in other jurisdictions with potential claims against members of a plaintiff class may need to consider alternative procedures for recovery, such as pleading the defence of set-off.

Case Information

Thorne v. College of the North Atlantic, 2018 NLCA 33

Docket: 201601H0105

Date of Decision: June 6, 2018

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