(b) Is the offer to settle the cross-claim severable from the offer of compromise for the plaintiff's claim?
35Whether or not the offer of compromise, insofar as it relates to the cross-claim, is tainted by the failure of the offer of compromise to comply with the Rules, the question remains whether the parts of the offer of compromise relating to the cross claim are capable of operating separately from the offer to settle the proceedings between the plaintiff and the defendant.
36The plaintiff submits that Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd (Federal Court of Australia, Spender, French and Lee JJ, 29 August 1995) is authority for the proposition that offers of compromise may be separated out into their component elements.
37The offer in Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd was not an offer of compromise, but a global offer to settle all claims on the basis, inter alia, of a payment of $90,000 into court in settlement of the whole of the litigation, which included claims on which the offeror ultimately failed at the trial. The terms of the offer of compromise were challenged before trial, on the basis that the offer did not split up the proposed settlement sum into amounts for each of the causes of action; following this challenge, the offer was withdrawn. The trial judge considered that the offer would have promoted the finality of litigation, and varied the costs order accordingly.
38However, the sum offered in Magenta Nominees Pty Ltd v Richard Ellis (Western Australia) Pty Ltd was in excess of the amount of the judgment, including interest, which the offeror ultimately obtained from the court in relation to those claims which succeeded. This was the reason for the trial judge making the orders that he did, even though some of the claims had failed. In the present case, the offer of compromise, considered in the same global way, fails to represent a figure anywhere near the verdict for the defendant in the main cause of action.
39I am aware of only one case where an offer of compromise has been asserted to contain "severable" components. In Mahony v Watson [2003] NSWCA 259 at [57]-[62], the Court of Appeal held that the rejection by the trial judge of three offers of compromise, two of which exceeded the amount recovered, amounted to an erroneous exercise of discretion. These offers included a specific, and limited, lump sum provision for costs which had been described by the trial judge as "manifestly inadequate" (at [58]); one of the reasons for the rejection at first instance of the application for indemnity costs, pursuant to Pt 39A r 25(6) District Court Rules 1970 (NSW), had been the unsatisfactory nature of limitations put on the costs components of these offers of compromise. (The principal reason was that the case at trial was different to the case as pleaded (see Fowdh v Fowdh [1993] NSWCA 100 at 10-11), which the Court of Appeal considered impermissible).
40The offers of compromise in Mahony v Watson would now be most unlikely to be regarded as complying with the Rules. The first reason is that the offers of compromise in Mahony v Watson committed what Old v McInnes now describes as a fatal error, namely they each made very specific provision for costs. Secondly, these offers went much further than that, in that the offers of compromise all proposed specific, limited costs orders for "manifestly inadequate" amounts of legal costs.
41The importance of Mahony v Watson is that Sheller JA comments at [58] that a submission was made to the trial judge that "those costs orders were severable and there could have been a rejection of that portion of the offer", an argument that the trial judge rejected. The rejection of this submission by the trial judge was part of the reason for the court's finding of the erroneous exercise of discretion. While their Honours did not ultimately rule upon the question of whether or not the costs were severable, it was clearly not a proposal that the court was prepared to reject out of hand. However, since the Court of Appeal in Mahony v Watson did not make such an order, these remarks should be viewed with caution.
42There are, in my view, two reasons why the terms of an offer of compromise are not capable of being severed in this fashion. The first is based on basic principles of contract law, namely that the terms of any offer, including a settlement offer, must be sufficiently clear for the offer must be capable of being accepted, thereby creating a binding contract. This is particularly the case with an offer to settle legal proceedings: Kemp v Ryan [2012] ACTCA 12 at [12]-[13] per Penfold, Burns and Marshall JJ. While the Court of Appeal in Kemp v Ryan was considering a Calderbank offer, the same must be the case for an offer of compromise. An offer of compromise is an offer which must be capable of acceptance, not a document requiring parsing and analysing.
43The ACT Court of Appeal in Kemp v Ryan referred to a number of decisions to this effect of the Federal Court (Perry v Comcare [2006] 150 FCR 319 at 55-57; Facton Ltd (formerly G-Star Raw Denim KFT) v Seo [2011] FCA 344; G M Holden Ltd v Paine (No 3) [2011] FCA 693), as well as to authority of long standing in Queensland (John Goss Projects Pty Ltd v Thiess Watkins White Constructions Ltd (in liq) [1995] 2 Qd R 591 at 595) and in Victoria (Grbavac v Hart [1997] 1 VR 154 at 160; M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 at [56]). An offer to accept only part of an offer of compromise, or a Calderbank offer, would not be an offer at all, but at best a counter offer.
44The second reason why the offer is not capable of acceptance is because the terms of the offer give no indication of severability. There is nothing in the offer of compromise (or in any Calderbank offer based on the offer of compromise) indicating any willingness to accept a partial acceptance of the proposed offer in relation to the principal proceedings or the cross-claim. In other words, there is no offer to settle part only of the proceedings.