Problems When Applying Blue Pencil Test

Francotypp–Postalia Limited v Whitehead [2011] EWHC 367(Ch)

This case involved a dispute between franchisor and franchisee relating to the "Restricted Area" in post termination covenants. It was defined in the non-compete covenant as not only the Territory (i.e. the franchisee's previous territory) but also the territories of the franchisor's other franchisees and distributors. The franchisor acknowledged that the definition of Restricted Area was too wide to be enforceable, so it proposed to validate it by applying the blue pencil test to take out all reference to areas other than the Territory.

The High Court (Peter Smith J) reviewed the case law and approved the 3 condition test set out in previous cases for a contract to remain effective after severance of the provision: