Introduction
Severance, in contract law, allows the removal of unenforceable terms while keeping the rest of the agreement valid. Davis v Smith [2011] EWCA Civ 1603 explains the rules for severance, showing how to identify the parties’ original goals. The Court of Appeal’s decision states that intentions must be judged based on the contract’s language and context at the time it was made, not later personal opinions. To decide if severance applies, courts must check whether removing the invalid term changes the agreement’s main goal.
The Objective Test of Intention in Davis v Smith
The Court of Appeal in Davis v Smith used an objective method to identify the parties’ intentions about severance. The court ignored arguments about the parties’ views after signing. It focused on what a reasonable person, knowing the facts both parties knew when making the contract, would see as their intentions. This method keeps contract interpretation consistent and limits disputes caused by biased later claims.
The "Blue Pencil" Test and Its Application
The “blue pencil” test lets courts delete unenforceable terms without changing the rest of the text. However, courts cannot add or rearrange words in ways that change the agreement’s main goal. In Davis v Smith, the Court of Appeal used this test strictly, stating that severance fails if removing the invalid term makes the contract useless or changes its core purpose. The case shows why precise drafting matters to avoid severance disputes.
Severance and the Preservation of Contractual Purpose
A major issue in severance is whether removing a term destroys the contract’s main aim. If the invalid term is so important that its removal leaves the rest of the contract without effect, severance is refused. Davis v Smith confirms this rule, showing courts will not alter agreements to save them from unenforceable terms.
Examples of Severance
For example, a business sale contract with an unreasonably wide non-compete clause might allow severance if the invalid area can be removed without destroying the clause’s fair goal. But if the entire non-compete clause is unenforceable and its removal leaves no protection for the buyer, severance would be refused.
The Effect of Davis v Smith on Contract Drafting
Davis v Smith provides lessons for drafting contracts. It emphasizes using clear, exact, and legal terms. Adding a severability clause—stating that the rest of the contract stays valid if a term is unenforceable—can help argue for severance. But such clauses are not final; courts will use the principles from Davis v Smith to decide fairness.
Conclusion
Davis v Smith [2011] EWCA Civ 1603 explains severance rules in English contract law, focusing on objectively judging the parties’ original goals. The case shows the limits of the "blue pencil" test and the need to keep a contract’s main purpose. By pointing out risks in unclear drafting, Davis v Smith strengthens the need for exact terms and severability clauses where suitable. The decision remains a major source for resolving severance issues, showing how individual terms relate to the contract’s overall goals. Using the principles from Davis v Smith helps stop entire agreements from failing due to single unenforceable terms.
