Counterclaiming in legal proceedings in Queensland

It is not uncommon for parties to a dispute to each believe that an action lies against the other arising from the same facts. Where this occurs, and one party (Plaintiff) has commenced proceedings against the other party (Defendant) in Queensland, the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) allows the Defendant to commence their own proceeding against the Plaintiff within the original proceeding, rather than requiring the Defendant to commence a separate legal action. This is known as a counterclaim. In this article we consider the nature of a counterclaim and the rules and circumstances that govern its use in proceedings in Queensland Courts.

What is a counterclaim?

A counterclaim is a mechanism available to a Defendant who believes that they have an legal claim against the Plaintiff (and others, if any) which arises on the same facts as those relating to the original proceeding. What this means is, should the facts and circumstances giving rise to the Plaintiff’s action against the Defendant also disclose an action available to the Defendant against the Plaintiff (and others, if any), then instead of the Defendant being required to commence its own action, it can counterclaim within the present proceeding so as to make the proceeding focus on both actions (per Rule 177 of the UCPR).

As Rule 175 of the UCPR states, a counterclaim has the effect of requiring the parties to act as if the Defendant was the plaintiff and the Plaintiff was the defendant to the counterclaimed action.

For example, a Plaintiff and the Defendant may be party to a contract, which each says that the other breached. A counterclaim means that each party can bring an action against the other for breach of the contract without needing to commence separate proceedings.

Is a counterclaim the same as a set off?

A set off is a form a defence available to the Defendant which allows the Defendant to argue that the amount claimed by the Plaintiff should be offset by an amount owed by the Plaintiff to the Defendant (Rule 173 of the UCPR).

A set off, while similar to a counterclaim (as the Defendant is claiming against the Plaintiff), is not required to form part of a counterclaim. However, where the amount claimed under the set off is greater than the amount of the claim by the Plaintiff, then the set off may be treated as a counterclaim, regardless of whether it has been set out as one (Rule 173(2)).

When can a counterclaim be made?

As a counterclaim is made in response to a Claim commenced by the Plaintiff, the counterclaim must be made after the issue of the Plaintiff’s Claim (Rule 176). However, Defendants should not interpret this as allowing them to file a counterclaim at any time after the proceedings have been commenced. Rule 179 provides that the counterclaim must be filed at the same time as the Defendant’s Defence. As a Defendant’s Defence is due twenty-eight (28) days after the service of the Claim (Rule 137), the counterclaim will also be due twenty-eight (28) days after the service of the Claim.

A further consideration is whether or not the initial proceeding remains on foot. As a counterclaim can only be made (as the name suggests, counter to a Claim), should the initial Claim no longer be on foot (whether by settlement, discontinuance or other reasons), the Defendant cannot lodge a counterclaim. For example, in Toms v Fuller [2010] QCA 73 the Plaintiffs had sought to discontinue their proceeding against the Defendant. After the Plaintiffs had withdrawn their proceeding, the Defendant tried to file a counterclaim. The Court of Appeal noted that it was not possible for the Defendant to file a counterclaim where there was no such claim to counter against. As the Court of Appeal stated at paragraph 34:

‘The operation of UCPR 177 depends upon whether there being a proceeding against a defendant who may counterclaim. If there is no proceeding, there can be no counterclaim. Once an action is discontinued it is no longer a proceeding.’

However, where a counterclaim was filed prior to the discontinuance of the Plaintiff’s claim, then the counterclaim remains a proceeding against the Plaintiff, and the Defendant may continue to proceed (Rules 183 and 311).

A further consideration is whether the cause of action which the Defendant seeks to use for the basis of a counterclaim is time-barred. That is to say that the time in which the cause of action ought to have been brought has expired, otherwise known as a ‘limitation period’. The advantage of using a counterclaim arises by operation of section 41 of the Limitation of Actions Act 1974 (Qld) which provides that a cause of action plead in a counterclaim will be deemed to have been commenced on the same date as the Claim in which the counterclaim attaches. This means that the limitation period will be determined from the date that the Claim is filed, rather than the date that the counterclaim is filed. This is of assistance to Defendants who, for one reasons or another, take a lengthy period to commence their counterclaim, which may otherwise have been time-barred. The benefit of commencing an action by counterclaim for this reason was briefly discussed by McMurdo J in Australand Corporation (Qld) Pty Ltd v Tang [2009] QSC 221 at [19]. While the counterclaims were flawed for other reasons, the time-limitation benefits of a counterclaim were noted by his Honour.

Counterclaims against parties not named in the original proceeding

To this point we have referred to a counterclaim as being between the Defendant against the Plaintiff. However, that does not preclude the Defendant (where appropriate) also counterclaiming against other parties, even if they are not parties to the Plaintiff’s original Claim. Rule 178 provides that a Defendant may counterclaim against parties who are not the Plaintiff on the following basis:

the Plaintiff is also a party to the counterclaim; and
either:
- the defendant alleges that the other person is liable with the plaintiff for the subject matter of the counterclaim; or
- the defendant claims against the other person relief relating to or connected with the original subject matter of the proceeding.

Where the Defendant counterclaims against a party who was not a party to the Plaintiff’s original proceeding, the Defendant must:

make the counterclaim; and
serve the defence and counterclaim and the Plaintiff’s Statement of Claim on the person within the time allowed for service on a Plaintiff.

Therefore, while a counterclaim can be made against parties who were not originally party to the proceedings, the Plaintiff must remain a party to the counterclaim. For example, in Abacus Funds Management Ltd v Nethurst Pty Ltd [2003] QCA 423, the Court of Appeal refused the Defendants’ application for leave to deliver a counterclaim. One of the grounds for the refusal was that one of the claims sought to be made was not made against the Plaintiff, thereby infringing the requirement of r178(1)(a) that the Plaintiff must also be made a party to the counterclaim.

Further examples of the requirement for the Plaintiff to be a party to the counterclaim are shown in:

It should be noted that even if the requirements of rule 178 are complied with, the Court retains a discretion in rule 182 to exclude the counterclaim from the proceeding.

Effect of counterclaiming against non parties

If a person (or other entity) is joined pursuant to a counterclaim, that person becomes a party to the original proceeding (Rule 178(3)).

Where a Defendant prepares a counterclaim against a party who is not a party to the Plaintiff’s original proceeding, the new party must comply with chapters 2, 4 and 5 and chapter 9, part 1 of the UCPR, as if (Rule 178(4)):

the counterclaim were a proceeding started by a claim; and
the party making the counterclaim were a plaintiff; and
the party against whom the counterclaim is made were a defendant.

The counterclaim needs to be within the jurisdiction of the Court

When considering whether a counterclaim is appropriate, the Defendant must to determine whether the Court the Plaintiff’s proceeding is being heard in has the appropriate jurisdiction to hear the counterclaim. Should a party counterclaim in a Court without jurisdiction, the counterclaim will be dismissed. Examples of this occurring include Stubberfield v Whitman [2002] QDC 346 and Startune Pty Ltd v Ultratune Systems (Aust) Oty Ltd [1991] 1 QdR 192.

What form does a counterclaim have to take?

As with all Court forms, a counterclaim must be prepared, filed and served in the correct form (Rule 179). However, unlike most other Court forms, a counterclaim is not a standalone form, rather, it is attached to a Defence. Therefore, there are two (2) possible Defences which can be filed: straight Defences, and Defences with counterclaims. The correct form to use when lodging a counterclaim is a Form 18.

To counterclaim or initiate separate proceedings?

The decision whether a Defendant should counterclaim or commence separate proceedings requires the consideration of a number of factors. First and foremost, the Defendant must have a cause of action against the Plaintiff. Without a cause of action, the Defendant has no right to claim relief against the Plaintiff, and therefore no basis to commence an action.

Once the Defendant’s cause of action has been identified, the next steps are to ensure that the cause of action is capable of being used in a counterclaim. Primarily, the issues to be considered are:

does the cause of action arise on the same facts relevant to the Plaintiff’s cause of action; and
does the cause of action operate in the same jurisdiction as the Plaintiff’s cause of action (can the same Court hear both matters).

Ultimately, the Courts retain a discretion to exclude a counterclaim and make such directions as it considers appropriate (Rule 182).

Take aways

Litigious matters can be complex; whether that be the facts of the matter, the legal rules regarding the conduct of the proceeding or both. It is important that those who are involved in legal proceedings to understand their rights and how they are best able to enforce and protect them. The ability to counterclaim is a valuable one, and may save all involved the expense of separate trials. When considering whether or not a counterclaim is suitable to your circumstances, seeking legal advice is important.