Can counterclaims be certified as class actions?
Counterclaims are not often certified as class proceedings. But can they be? In Thorne v. College of the North Atlantic, a panel of three judges of the Newfoundland and Labrador Supreme Court – Court of Appeal recently granted leave to appeal on the strength of the novelty of that issue. The court below certified the plaintiff’s action against her employer, together with the employer’s counterclaim against the class. The Court of Appeal is expected to decide if the latter is appropriate.
Background
The plaintiff, an instructor at a college in Qatar, applied to certify an action against her Newfoundland-based employer on behalf of herself and other employees. The employer denied liability, but counterclaimed, in the event that it was found liable, seeking recovery of overpayments to certain class members. The employer sought to have the counterclaim certified as a common issue to be decided in the common issues trial. The plaintiff resisted the certification of the counterclaim, but neither party could point to any case law expressly addressing this issue.
Certification of a counterclaim
The Class Actions Act in Newfoundland and Labrador refers to counterclaims only once. In the provision detailing the required contents of a notice of certification, the Act provides that the notice shall “describe any counterclaim or third party action being asserted in the action including the relief sought.” This is similar to the class action legislation in other jurisdictions, including Ontario and British Columbia, although in those provinces the notice provision refers to “counterclaims being asserted by or against the class.” With the exception of the Federal Court, no Canadian jurisdiction expressly provides for the certification of counterclaims in the context of class actions.
At first instance in Thorne, Justice Stack read into the Class Actions Act an ability to certify counterclaims that are binding on the class. In his view, the sole statutory reference to providing notice of a counterclaim “leads to the necessary inference that counterclaims can be addressed at a common issues trial”. As the Class Actions Act did not provide for a procedure to certify a counterclaim, Justice Stack relied on his discretion under the Act to “interpret and apply the Act and the Rules [of the Supreme Court] with the necessary changes to permit the certification of a counterclaim.” Justice Stack proceeded to apply the five-part certification test and certified the counterclaim, with one of the representative plaintiffs being appointed as representative defendant.
As the certified class was defined, only class members in the main action who did not opt out were exposed to liability as a result of the counterclaim (to the extent that they received overpayments). The Court had no concerns about the employer’s choice to limit the counterclaim in this way (as opposed to also suing others who received overpayments but who were not part of the main action).
Implications of leave to appeal
The appeal in Thorne should be of interest to defence counsel across Canada. As noted, the sole reference to counterclaims in other jurisdictions’ class action legislation (other than in respect of the Federal Courts) is also in the context of the notice requirements. The Court of Appeal’s decision may accordingly have persuasive value for courts facing similar issues in other provinces.
It is too early to say whether the Court of Appeal will uphold the application judge’s decision to certify the counterclaim as a class action. Either way, the Court of Appeal’s decision is expected to provide useful guidance. The Court of Appeal noted that the most significant factor underlying the decision to grant leave was the novelty of the issue. The panel also identified several related questions that the appeal would offer an opportunity to address, including the interpretation of the Class Actions Act and the impact of the counterclaim on the possible settlement of the class action.