Davis v Smith [2011] EWCA Civ 1603

Facts

  • The case concerned the principles and application of severance in English contract law, specifically when an agreement contains unenforceable terms.
  • The parties disputed the effect of certain contractual terms and whether the removal of these terms, via severance, would preserve the remainder of the contract.
  • The Court of Appeal was required to determine the intentions of the parties at the time the contract was made and the effect of removing an invalid clause.

Issues

  1. Whether the severance of unenforceable terms could preserve the remaining agreement without altering its fundamental purpose.
  2. What method should be used to ascertain the parties’ original intentions regarding severance.
  3. How strictly courts should apply the "blue pencil" test in determining if a contract can survive the removal of invalid terms.

Decision

  • The Court of Appeal applied an objective test to determine the parties’ original intentions, disregarding their subsequent opinions.
  • The court employed the "blue pencil" test, permitting removal of unenforceable terms only where such removal did not alter the contract’s essential aim or render it ineffective.
  • The decision confirmed severance would be refused if excision of an invalid term defeated the remaining contract’s primary purpose.
  • The court stressed that severability clauses, while helpful, do not guarantee severance when core contractual objectives would be lost by removing problematic terms.

Legal Principles

  • Severance operates to preserve a contract where only part is unenforceable, subject to not affecting the contract’s main objective.
  • The objective test requires courts to assess what a reasonable person would consider the parties’ intentions at the time the agreement was made.
  • The "blue pencil" test limits severance to the removal of discrete unenforceable provisions, without redrafting or altering the remaining content or purpose.
  • Severability clauses may support, but do not override, the application of these severance principles.

Conclusion

Davis v Smith [2011] EWCA Civ 1603 establishes that severance in contract law depends on an objective assessment of whether removing an unenforceable term alters the contract's core purpose, with courts strictly applying the "blue pencil" test and not substituting parties' subsequent opinions for intentions at the time of contracting.

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