Doctrine of Blue Pencil

The Blue Pencil Doctrine carves out the enforceable from the unenforceable to ensure that the essence of a contractual agreement remains intact while discarding any overreaching or unreasonable clauses. This doctrine, with its roots in English and American jurisprudence, has evolved into an important tool for maintaining the sanctity of contracts, particularly those involving restraint of trade or non-compete clauses.

What is the blue pencil doctrine?

The Blue Pencil Doctrine allows a court to selectively strike out or edit specific provisions of a contract that are deemed illegal, unenforceable or contrary to public policy, while leaving the rest of the contract intact and enforceable. This doctrine is based on the idea of “severability,” meaning that if the offending portions of the contract can be removed without affecting the overall purpose or meaning of the contract, the remainder can still be enforced.

The term “blue pencil” originates from the practice of using a blue pencil to edit or censor written documents. The Blue Pencil Doctrine is applied in various jurisdictions to ensure fairness and uphold the parties’ intentions in contracts, while also maintaining legal standards and public policy considerations.

Evolution of doctrine of blue pencil

The doctrine of blue pencil originated in contract law, particularly concerning contracts in restraint of trade. It allows courts to enforce parts of a contract while striking out unenforceable or unreasonable clauses. This rule was first established in the case of Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co Ltd, where the court struck down part of a covenant by metaphorically running a blue pencil over it.

The term “blue pencil” was used by Lord M.R. Sterndale in Attwood v. Lamont, emphasising that courts can sever parts of a contract that are excessive in terms of area, subject matter or customer classes, provided such restrictions are expressed as separate negative obligations.

The application of the doctrine of blue pencil varies across states, with some adopting a strict approach (allowing only the striking out of overbroad provisions) and others adopting a liberal approach (allowing the rewriting of overbroad provisions).

In Mason v. Provident Clothing and Supply Co. Ltd., it was noted that blue pencil severance should be used sparingly and only when the part being removed is clearly severable, trivial and not part of the main purpose of the restrictive covenant.

A threefold test was suggested for the applicability of the blue pencil rule:

(a) the unenforceable provision can be severed without modifying the remaining wording,

(b) the remaining terms are still supported by adequate consideration and

(c) the severance does not materially change the parties’ bargain.

Different interpretations of the rule exist, with Lord Bridge in Daymond v. South West Water Authority suggesting a test of substantial severability, while Lord Lowry in Dunkley v. Evans stated that textual severance is possible only if it passes the substantial severance test.

The blue pencil rule has faced criticism, with some courts holding that it cannot apply to unenforceable definitions within non-compete covenants, as the amendment would require modifications to other contract provisions.

Application of blue pencil rule

In India, the application of doctrine of blue pencil is grounded in the Indian Contract Act, 1872, which states that a contract becomes void if any part of its consideration or object is unlawful. This principle allows for the separation of valid clauses from invalid ones within a contract.

The case of Babasaheb Rahimsaheb v. Rajaram Raghunath illustrated the application of the doctrine of blue pencil in Indian contracts, where the court held that separable clauses can be treated independently, allowing the valid parts of an agreement to stand even if one clause is void.

The doctrine of severability was further applied in D. S. Nakara v. Union of India, where the court retained the beneficial part of a memorandum to apply it to pensioners irrespective of their retirement date.

In India, the blue pencil doctrine extends beyond the restraint of trade covenants to include arbitration clauses. In Sunil Kumar Singhal and another v. Vinod Kumar, the court severed the offending part of an arbitration clause, demonstrating the application of the blue pencil doctrine in contracts with clauses that are redundant, unnecessary or opposed to public policy.

The Supreme Court in Shin Satellite Public Co. Ltd. v. Jain Studios Limited emphasised the importance of ‘substantial severability’ over ‘textual divisibility’ in determining the validity of an agreement. The court held that trivial or technical parts of a contract should be severed to retain the main or substantial part if it is legal, lawful and enforceable. This approach aligns with Lord Bridge’s views, affirming that the doctrine of blue pencil requires substantial severability for its application.

The blue pencil principle in India is applied not only to contracts in restraint of trade but also to arbitration clauses and other contractual contexts. The courts focus on separating valid clauses from invalid ones to preserve the enforceable parts of a contract, emphasising the principle of substantial severability.

Conclusion

The Blue Pencil Doctrine remains an important tool in the arsenal of contract law, allowing courts to preserve the enforceable elements of a contract while excising the unreasonable. Its application across different legal systems highlights the universal need for a mechanism to balance the interests of contract parties while maintaining the integrity of contractual agreements.

As contract law continues to evolve in response to changing business practices and societal norms, the Doctrine of Blue Pencil will undoubtedly be subject to further scrutiny and refinement. The ongoing debates surrounding its use reflect the broader tensions between contractual freedom, fairness and the role of the judiciary in contract enforcement.

Ultimately, the doctrine’s future will be shaped by its ability to adapt to the complexities of modern contracts while upholding the foundational principles of contract law.