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Matthew Harvey asks Can you Stay that Counterclaim?

09 November 2016

Matthew Harvey asks Can you Stay that Counterclaim?

Originally published as part of Matthew Harvey's The Talk Around Chambers.


The effect of the Civil Procedure Act 2010 (CPA) continues unabated.  In Littore v Rabobank, a judge (relying on the CPA) took the unusual step of staying a counterclaim, pending the trial of the claim.
 
Here, a bank claimed payment of a debt of $90M against particular customers.  The claim took into account the proceeds of sales of certain assets subject to the bank’s securities.
 
By counterclaim, the customers alleged that the assets were under-sold by $2M.
 
On the bank’s application, the Court froze funds in the customers’ accounts.  This was subject to an exception that frozen funds could be used for legal costs in the proceeding.
 
The bank applied, under s 49(1) of the CPA, for an order staying the counterclaim.  One of the customers then made an affidavit that the secured assets were under-sold by about $120M.  There was no application to amend the counterclaim.
 
The judge held that:
 
1.         The new values attributable the sold assets were “implausible to the extent of being fanciful”.
 
2.         The evidence showed that any possibility that the customers could formulate a sufficiently large counterclaim was “so remote it could be discarded”.
 
3.         The legal costs’ exception to the freezing order was a factor in favour of a stay.
 
The judge concluded that the overarching purpose under the CPA required the counterclaim to be stayed, until determination of the bank’s claim.
 
The Court of Appeal dismissed the customers’ application for leave to appeal, concluding that there was no error in the judge’s exercise of discretion.
 
This case shows that the CPA can be deployed in creative ways to cut through the dross some parties raise to “put-off the inevitable” or to cloud the issues.