The Blue Pencil Test – Severance of unenforceable contract terms

by | Apr 24, 2017 | Blog Posts

Contracts can be long and complex documents. Despite the time and effort that is often put in to drafting them they do still sometimes contain clauses that are unenforceable, or otherwise of no effect in law.
When it is a whole clause that is invalid (then subject to a severability clause in the contract) it is often easy just to exclude that particular clause from the contract. But what happens where only part of a clause is invalid and the rest of the clause is perfectly enforceable? This type of problem occurs most commonly in the case of exclusion clauses that often try to exclude liability for things that cannot be legally excluded (such as personal injury). In these cases, is the whole clause bound to fail?
The answer is no. In cases such as this the courts adopt what is known as the “blue pencil test”. This test dates back to the 1898 case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Limited. In this case, the House of Lords held that the court has the power to remove (or strike through with a blue pencil) portions of a contractual clause that are unenforceable. This leaves the remaining part of the clause intact.

Goodlife Foods Ltd v Hall Fire Protection Ltd

A good recent example of the blue pencil test in action is the case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC). This case concerned a clause in a contract that sought to exclude any consequence (including personal injury or death) that arose from the sale and use of a product. Any attempt to exclude liability for personal injury or death is invalid pursuant to s.2(1) Unfair Contract Terms Act 1977. The approach that the court took was to invoke the blue pencil test, delete the section of the clause referring to personal injury or death, leaving the rest of the exclusion clause intact.
There are limits, however, to when and how the blue pencil test can be employed. The court must not use the blue pencil test to change the actual agreement between the parties; the clause that remains must still reflect the provision’s original meaning and the parties’ intentions (minus the offending part). Further, the clause that remains must still leave behind a provision that makes sense. If the effect of the blue pencil test is to render a contractual clause nonsensical, then it cannot be used. In such cases, the whole clause must fail.
If you have a query or dispute in relation to a contract, our commercial dispute resolution team can help. Call us today on 0800 988 7756 for a free consultation.
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