Severance

An Introduction to the matter in Contract

In many contracts that are found to be void or unenforceable for illegality, or because they are in restraint of trade, it is likely to be the case that it is only part of the arrangement which is objectionable. To what extent can the contract be split into its constituent parts, with one part being found valid, and the objectionable part unenforceable? There are two aspects to this, namely severance of the consideration and severance of promises, for example, A agrees to pay B £1,000 if B will fraudulently obtain a valuable painting and frame it. The first part of this contract, involving the fraud is illegal, but the second part, for the framing, is prima facie a perfectly legal arrangement. If B does what is required, and then sues for the £1,000, the issue of the severance of the consideration will arise. B’s consideration for the promise to pay the £1,000 consists of both an illegal and a legal act. Can the two be separated? In other words, can B recover the £1,000 simply for framing the picture? If the action is by A, however, in relation to B’s failure to frame the picture, the question concerns the separation of the promises.

Severance of consideration

For severance of consideration to be allowed, the lawful part of the consideration must be more important than the unlawful part. The approach will in general be ‘all or nothing.’ Thus in the example of the painting, given in the previous section, B would either be able to claim the full £1,000, or nothing at all (which would be the more likely outcome). This may not apply however, if it is possible to assign a precise value to different parts of the contract. This occurred in Ailion v Spiekermann, where the contract to pay the illegal premium could be severed, because a precise amount could be assigned to the illegal part of the agreement.

Severance of promises

The attempt to sever promises occurs most frequently in relation to restraint of trade cases, where the wish is to ‘edit out’ from a list of restrictions those which make the restraint too wide, but to leave the rest in force. There have traditionally been two elements to the courts’ approach, namely, the ‘Blue Pencil Test’ and the requirement that the nature of the contract must be retained.

The Blue Pencil Test

The Blue Pencil Test means the severance must be possible simply by cutting out the offending words. The court will not become involved in redrafting the contract. Thus in Mason v Provident Clothing Co, the court refused to substitute the phrase ‘in Islington,’ for ‘within 25 miles of London.’ In Goldsoll v Goldman, on the other hand, a covenant in the sale of a jewellery business contained a restriction on dealing in ‘real or imitation jewellery’ in any of a long list of countries. This was too wide both as regards scope (the business was only concerned with imitation jewellery) and geographical area (the business was limited to the UK). Both restrictions could be narrowed, however, by simple deletions of the words ‘real or,’ and the list of countries other than the UK, and this the court agreed to do. 

Nature of the contract must be retained

The requirement that the nature of the contract must be retained seems to derive from Attwood v Lamont, but it is quite difficult to apply. In Attwood v Lamont, the plaintiff owned a general outfitters. The defendant was employed in the tailoring department as a tailor and cutter. He found that his contract of employment bound him, after leaving his employment, not to be concerned in trade or business of a tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen’s, ladies’ or children’s outfitter. It was suggested that the clause could be made reasonable by cutting out all the trades except ‘tailor.’ The Court of Appeal refused to do this, treating the covenant as an entirety, intended to cover all aspects of the plaintiff’s business. To sever it would be to affect its nature. 

The current approach

It may well be that the tests outlined in the previous two sections will not nowadays be applied so strictly by the courts. In Lucas (T) & Co Ltd v Mitchell, for example, the deletion left the phrase ‘any such goods’ in the contract. It was necessary to look at the deleted clause in order to see what ‘such goods’ meant, but the deletion was nevertheless allowed to stand. In this case the court rejected the view that widely-phrased restrictions should be given their literal meaning. Instead it had to be interpreted within the factual context in which it had been put forward. Such an interpretation is likely to lead to the restraint, as redefined, being regarded as reasonable, thus obviating the need to consider severance.