CIVIL PROCEDURE BACK TO BASICS 38: THE DEFENCE TO COUNTERCLAIM

The previous post was about the “reply”. The rules relating to a Defence to Counterclaim are different. Very importantly the timing of the defence to counterclaim is different.  There is an obligation on a claimant to properly and fully plead their defence to the counterclaim.

A REPLY

If the Defence does not contain a counterclaim a Reply is not mandatory.

A DEFENCE TO COUNTERCLAIM

If the Defence contains a counterclaim, however, then a Defence to the Counterclaim is mandatory. A failure to file a Defence to the counterclaim gives the Defendant a right to apply for judgment in default. As we have seen recently there is no guarantee that a court will exercise its discretion to set the default judgment aside.

THE RULES RELATING TO DEFENCE TO COUNTERCLAIM

The rules here are more complex.

Defendant’s counterclaim against the claimant

CPR 20.4

“20.4
(1) A defendant may make a counterclaim against a claimant by filing particulars of the counterclaim.
(2) A defendant may make a counterclaim against a claimant –
(a) without the court’s permission if he files it with his defence; or
(b) at any other time with the court’s permission.
(Part 15 makes provision for a defence to a claim and applies to a defence to a counterclaim by virtue of rule 20.3).
(3) Part 10 (acknowledgment of service) does not apply to a claimant who wishes to defend a counterclaim.

THE OBLIGATION TO FILE A DEFENCE TO THE COUNTERCLAIM

CPR 20.3 states

“20.3
(1) An additional claim shall be treated as if it were a claim for the purposes of these Rules, except as provided by this Part.”

Significantly 20.3(3) states

“(3) Part 12 (default judgment) applies to a counterclaim but not to other additional claims.”

So Part 12 (default judgment) applies to counterclaims.

TIME FOR SERVICE OF THE DEFENCE TO COUNTERCLAIM

A party filing a Defence to a Counterclaim is under more pressure than the original defendant.  There is no acknowledgment of service stage.  The Defence to Counterclaim must be served within 14 days of service of the Counterclaim (20.3.3).

Further it is clear from the judgment of Master Matthews in Muhammad -v- ARY Properties Limited[2016] EWHC 1698 (Ch) that a Defence to Counterclaim is not a formality and a full and detailed Defence to the points made in the Counterclaim is required.

OTHER POINTS ABOUT THE  REPLY AND DEFENCE TO COUNTERCLAIM

Practice Direction 15 contains important provisions about the nature of a Reply and Defence to Counterclaim.

  1. A Reply and Defence to Counterclaim should normally form one document.
  2. There are different time limits for the filing of a Reply and the Defence to Counterclaim. Consequently the court will normally order that the Reply and Defence to Counterclaim be filed at the same time.
  3. However a defendant cannot rely on a court making such an order. Where the court does make an order the Reply and Defence to Counterclaim can form separate documents.

PRACTICE DIRECTION 15

“3.2  Where a claimant serves a reply and a defence to counterclaim, the reply and defence to counterclaim should normally form one document with the defence to counterclaim following on from the reply.
3.2A  Rule 15.8(a) provides that a claimant must file any reply with his directions questionnaire. Where the date by which he must file his directions questionnaire is later than the date by which he must file his defence to counterclaim (because the time for filing the directions questionnaire under rule 26.3(6) is more than 14 days (small claims track) or more than 28 days (fast track and multi-track) after the date on which it is deemed to be served), the court will normally order that the defence to counterclaim must be filed by the same date as the reply. Where the court does not make such an order the reply and defence to counterclaim may form separate documents.”

A DEFENCE TO A COUNTERCLAIM THAT IS INADEQUATE IS LIABLE TO BE STRUCK OUT

Muhammad -v- ARY Properties Limited[2016] EWHC 1698 (Ch) Master Matthews found

  • A short Reply and Defence to Counterclaim was inadequate and was liable to be struck out.
  • The Defence to Counterclaim should comply with CPR 16.5 and give reasons for the denial of allegations and details of the claimant’s case with appropriate particularlity.
  • It was no answer to state in the Defence that an allegation lacked particularity and was “embarrassing”,  it had been open to the claimants to ask for further information.
  • A proposed amended Reply and Defence to Counterclaim did not fully comply with CPR 16.5 and a peremptory order was made giving the claimants a last opportunity to plead their case properly.

THE CLAIM

The claimants were bringing an action for moneys allegedly due, rectification of a property register and possession of a property. The First Defendant filed a defence and counterclaim. The claimants filed a short Reply and Defence to Counterclaim. The Defendant applied to strike out the Reply and Defence.

THE MASTER’S COMMENTS ON THE DEFENCE AND COUNTERCLAIM IN THAT CASE

  1. The Claimants’ Reply to the amended Defence and defence to counterclaim of the First Defendant is dated 9 October 2015. It was not signed by counsel, and was evidently drafted by the Claimants’ solicitors. It consists of eight short paragraphs, four for the Reply, and four for the defence to counterclaim. The latter read as follows:
“5. Paragraph 54 of the counterclaim is admitted, in that the Claimants sought and obtained the entry of the unilateral notice, but not that the Claimants had in any sense improperly altered the 2009 Charge.
6. The express and implied implications of dishonesty made at paragraphs 55 and 56 of the counterclaim are strenuously denied.
7. Paragraph 58 of the counterclaim is admitted, in that the Claimants do not agree to vacate the unilateral notice, but is denied as to the balance of that paragraph.
8. The entitlement to relief claimed at paragraph 59 of the counterclaim and in the Prayer to the counterclaim is denied.”
It will be noted that there is no pleading as to para 57 of the counterclaim (altered 2009 charge not executed by or on behalf of, and not a valid instrument binding on, the First Defendant).
  1. The Claimants’ solicitors subsequently provided what they called a “Clarification” of the reply and defence to counterclaim, dated 3 November 2015. It is six paragraphs long. It says in para 1 that it is to provide voluntary clarification of the Claimants’ case in relation to paras 55-57 of the Amended Defence and counterclaim of the First Defendant. In summary, the remainder says that during a meeting in Pakistan between the First Claimant and ARY, the latter produced a copy of the original 2009 charge and offered the Claimants the benefit of it. It was then altered in the way already described, and the director of Turquoise was asked for and gave his consent. It does not however plead to para 57 of the counterclaim.
  2. In the application notice issued on 12 January 2016, the First Defendant in the first instance seeks orders
“1. That the Claimants’ Defence to the First Defendant’s counterclaim be struck out;
  1. That Judgment be entered in the First Defendant’s favour on the First Defendant’s counterclaim for the relief sought in that counterclaim, because the defence to counterclaim served by the Claimants on 9 October 2015 (whether or not supplemented by the “Clarification” served on 3 November 2015)
a. Fails to comply with the requirements of CPR Part 16.5 in that it fails to respond to material allegations raised by the counterclaim at paras 55 and/or 56 and/or 57, does not explain denials set out in the defence to counterclaim and does not set out the Claimants’ version of events in respect of matters raised by the counterclaim;and
b. Discloses no reasonable grounds for defending the counterclaim.”
In the alternative the First Defendant seeks summary judgment. I will come back to that. For the moment I will concentrate on the striking-out part of the application.
Striking out
  1. CPR rule 3.4 provides:
“(1) In this rule and rule 3.5, reference to a statement of case includes reference to part of a statement of case.
(2) The court may strike out a statement of case if it appears to the court –
(a) that the statement of case discloses no reasonable grounds for bringing or defending the claim;
(b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or
(c) that there has been a failure to comply with a rule, practice direction or court order.”
CPR rule 16.5
  1. By the application notice, the First Defendant seeks to strike out the defence to counterclaim on two bases. The first is a failure to comply with CPR rule 16.5. The second is that there are no reasonable grounds for defending the counterclaim. As to the first of these, rule 16.5 so far as material provides as follows:
“(1) In his defence, the defendant must state –
(a) which of the allegations in the particulars of claim he denies;
(b) which allegations he is unable to admit or deny, but which he requires the claimant to prove; and
(c) which allegations he admits.
(2) Where the defendant denies an allegation –
(a) he must state his reasons for doing so; and
(b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.
(3) A defendant who –
(a) fails to deal with an allegation; but
(b) has set out in his defence the nature of his case in relation to the issue to which that allegation is relevant,
shall be taken to require that allegation to be proved.
[ … ]
(5) Subject to paragraphs (3) and (4), a defendant who fails to deal with an allegation shall be taken to admit that allegation.
[ … ]”
  1. In addition, the Practice Direction to CPR Part 16 provides (again, so far as material):
“10.1  Rule 16.5 deals with the contents of the defence.
10.2  A defendant should deal with every allegation in accordance with rule 16.5(1) and (2).
10.3  Rule 16.5(3), (4) and (5) sets out the consequences of not dealing with an allegation.
[ … ].”
  1. The First Defendant says that the defence to counterclaim does not comply with these rules. In particular, it says that:
1. In relation to para 55 it does not deal with the allegations as to the parties to the original 2009 charge, nor the allegation that the altered 2009 charge was not a genuine instrument; nor (if they are denied) does it give reasons;
2. In relation to para 56, no reasons are given for the denial;
3. Para 57 is not pleaded to at all.
In consequence, it says it “is left in the dark as to the case it will have to meet at trial”. It also says that the Claimants have had “every opportunity” to put things right.
  1. In my judgment there is some force in these criticisms of the pleading, and if it were to remain in this form there would be a basis for granting at least some relief (eg an unless order giving the party an opportunity to put the matter right). However, between the original and the adjourned hearing of this application, the Claimants prepared and served a proposed Amended reply and defence to counterclaim, settled by Mr Roseman. It is a much longer and more detailed document than the current version, some ten pages against less than two. In my judgment this sufficiently deals with the criticism set out above at no 3 in paragraph 18.
  2. But in my judgment it does not sufficiently deal with no. 1 or no. 2. As to no. 1, it is still not clear what the Claimants say about the allegations as to the parties to the original 2009 charge, or the allegation that the altered 2009 charge was not a genuine instrument, and nor (if denied) is it explained why. The claim that the averment is “embarrassing” is not enough. If the Claimants wished more information about this allegation they could have asked for it. As to no. 2, it is simply unclear whether the Claimants are proffering paragraphs 8 and 11 as reasons or not. If they are not, they need to give reasons. If they are, it is unclear what the reasons actually amount to.
  3. Whilst it appears that the First Defendant has no objection in principle to this amendment being permitted, but has something to say about the costs, I do not think I can leave the matter once raised in this state. But given the willingness of the Claimants to amend to put right pleading defects, it would not be right for me to strike out immediately when there is no reason at this stage to suppose that these problems cannot be put right. What I propose therefore to do is to make an unless order giving the Claimants 14 days to produce a draft amended reply and defence to the First defendant’s defence and counterclaim, which complies fully with CPR rule 16.5 and the Practice Direction para 10, in default of which I will refuse permission to amend and strike out the existing defence to counterclaim.

 A DEFENDANT CAN ENTER JUDGMENT IN DEFAULT ON A COUNTERCLAIM AND YOU MAY NOT BE SUCCESSFUL IN SETTING IT ASIDE

See another decision of Master Matthews in Goldcrest Distribution Ltd -v- McCole [2016] EWHC 1571 (Ch).