Canada: Newfoundland Court Of Appeal Rules That Counterclaims Cannot Be Certified As Class Actions

The Newfoundland Court of Appeal has rendered a precedent-setting decision in Thorne v. College of the North Atlantic, in which the bench was tasked with deciding a novel issue: does the Newfoundland and Labrador Class Actions Act, (the "Act") provide for the certification of counterclaims? The Court of Appeal answered in the negative.

Like many other provinces in Canada, Newfoundland's class action legislation does not expressly provide for the certification of a claim against a class of defendants. In this case, the defendant in a class action sought to bring a counter-claim against the same class that was suing the defendant. In other words, it was seeking to certify the plaintiff class as a defendant class for the purposes of its counterclaim.

While the defendant in Thorne was trying to bring a counterclaim and was therefore forced to proceed in Newfoundland, there may be cases where parties will want to certify a defendant class. Thorne suggests that parties contemplating this unusual strategy will have to litigate in provinces such as Ontario, whose legislation expressly provides for defendant class actions.

The Background

The defendant College is a publicly-owned technical training institute operating in Newfoundland and Labrador. In 2001, the College entered into an agreement with the government of Qatar to operate a technical training institute in Qatar.

The plaintiff, Ms. Thorne, was employed by the College as an instructor in Qatar. She commenced a class action, along with other employees, against the College for breach of contract, alleging that, in addition to the remuneration set out in their individual contracts of employment with the College, they ought to have been, but were not, paid a living allowance. The application for certification was granted and Ms. Thorne was appointed the representative plaintiff.

The College filed a defence and counterclaim. In its counterclaim, the College argued that some of its employees, including Ms. Thorne, were overpaid and sought reimbursement of the overpaid amounts.

The Trial Decision

The Judge recognized that certification of the College's counterclaim did not fit within the scheme of the Act but nevertheless found that rule 7A.01(4) of the Rules of Supreme Court, 1986 and section 13 and 14 of Act provided him with the discretion to do so.

The Appeal

The Court of Appeal allowed the appeal and struck the College's counterclaim. The counterclaim did not meet the statutory conditions for certification, as required by the Act.

The Court set out the applicable provisions of the Act. Specifically, section 3 of the Act speaks to a plaintiff class action and section 4 of the Act provides that a defendant may apply to certify a plaintiff class if the defendant is sued by more than on plaintiff and the plaintiff's class has not already been certified. A defendant class action, however, is when two or more defendants are certified as a class. There is no such provision in the Act.

Because a counterclaim is an independent action, a defendant who files a counterclaim becomes a plaintiff by counterclaim. That meant that the College was a plaintiff and must therefore comply with the requirements under the Act.

In this case, the College, a corporate entity, was the sole defendant in the plaintiff's class action and the sole plaintiff by counterclaim. As a sole plaintiff by counterclaim, it was not a member of a class of persons who reside in the province as required by section 3(1) of the Act. Section 4 of the Act also did not apply because the College was not named as a defendant in more than one action.

Finally, the College was unable to fit within other sections of the Act. For instance, the counterclaim did not disclose a cause of action as required by section 5(1) of the Act. Even if employees had been overpaid, the pleadings did not disclose why the College should be entitled to recover those amounts. Further, the counterclaim was only against about half of the plaintiff class and therefore, this was not an issue common to all members of the class.

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