Do nominal damages benefit only class counsel such that nominal damages class actions should be shut down?

In Condon v Canada, the Ministry of Human Resources and Skills Development Canada made this argument at the certification hearing. The Certification Judge thought it was “interesting and strong” but ultimately a question for the trial judge. She proceeded to partially certify this privacy class action based on breach of contract and the tort of intrusion on seclusion. Her decision is under appeal.

Alleged Facts: The Lost Hard Drive

In November 2012, the Ministry lost a hard drive that contained the names, birthdays, addresses, student loan balances and SINs of 583,000 people. The hard drive has not been found.

Damages The Key To Causes Of Action

The Certification Judge held that the pleadings disclosed some of the causes of action the plaintiffs alleged, but not others. The key difference between the causes of action that succeeded and those that failed was damages.

The Certification Judge did not certify (i) negligence and (ii) breach of confidence. In both cases, the Court held that the plaintiff had failed to plead any factual basis for damages. As a result, the claims would plainly and obviously fail for lack of compensable damages.

The causes of action that had a chance of succeeding were (i) breach of contract and (ii) the tort of intrusion on seclusion. For each of these causes of action, the Court can award nominal damages. As a result, these causes of action cleared the reasonable cause of action hurdle.

Do Nominal Damages Benefit Class Counsel Only?

The Ministry argued that the breach of contract cause of action should be rejected because the plaintiffs sought only nominal damages. The Ministry argued that “nominal damages should never be awarded in a class action as it would not favour the plaintiffs but rather their counsel, since the latter would be the only ones effectively standing to benefit financially from the outcome.”

The Certification Judge said that this nominal damages argument was “interesting and strong” but better decided when the Court heard the case on the merits.

Preferable Procedure: Ministry’s Efforts Not Enough Because No Damages

After losing the hard drive, the Ministry made efforts to protect the impacted people, including:

  • announcing the data had been lost;
  • creating a toll free phone number for people to find out if their data had been lost;
  • advising people that they should request copies of their credit reports;
  • advising people that they could buy credit protection from the credit reporting agencies;
  • mailing letters to 333,000 people whose information had been lost and offering them the credit protection of a note on their credit files; and
  • creating a SIN registry to require more scrutiny before changes were made in respect of lost SINs.

The Ministry argued that these efforts were preferable to a class action. (For a detailed post about the Supreme Court’s approach to preferable procedure, click here.)

The Certification Judge did not agree that the Ministry’s efforts were preferable. She said none of the Ministry’s efforts offered compensation to impacted people. In addition, none of the other possible options – other than bringing an individual action – would lead to the possibility of compensation. As a result, she found the class action to be the preferable procedure.

What’s Next?

The Certification Judge’s decision has been appealed. How the Federal Court of Appeal will address these issues remains to be seen.