Under what condition can defense costs be recovered in a counterclaim?

Recovery of defense costs in a counterclaim is applicable when the original claim is found to be frivolous or brought in bad faith. In these scenarios, the legal standard is designed to discourage parties from filing claims that lack substantive merit or are intended to harass or intimidate the opposing party. Courts recognize that pursuing baseless claims can impose unnecessary financial burdens and emotional strains on defendants.

When a claim is deemed frivolous or made in bad faith, it reflects a misuse of the legal system, allowing the court to shift the burden of defense costs back to the party that initiated the claim. This serves both as a punitive measure against the party responsible for the meritless claim and as a means to uphold the integrity of the judicial process.

The other conditions outlined in the choices do not typically lead to a recovery of defense costs in a counterclaim. Dismissal for lack of evidence primarily concerns the strength of the claim rather than its merit. While settlements out of court conclude matters amicably, they usually involve negotiated terms without a determination of merit. Finally, a resolution without trial does not inherently indicate the nature of the claims involved, and therefore does not automatically justify defense cost recovery.