Nordenfelt v. Maxim, Nordenfelt Guns and Ammunition Co

"Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. Ltd" [1894] AC 535 is a 19th century English case decided by the House of Lords. It defines the 'blue pencil test' as a method for deciding whether contractual obligations can be partially enforced when the obligation as drafted in the contract has an element of illegality.

The dispute was about restraint of trade.
Thorsten Nordenfelt, a manufacturer specialising in armaments, had sold his business to Hiram Stevens Maxim. They had agreed that Nordenfelt ‘would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way for a period of 25 years’.

The court held that:
* The provision prohibiting Nordenfelt from making guns or ammunition was reasonable.
* The providing banning competition ‘in any way‘ was unenforceable as an unreasonable restraint of trade.

The question on severability was whether the reasonable restriction could be enforced when it was in the same contract as an unreasonable and unenforceable restriction. The court used the test of striking out (with a blue pencil) words containing unreasonable provisions would leave behinda contractual obligation that still made sense. If it did, then the amended contract would be enforced by the court.

In this case, the unreasonable restraint was severable, and the court enforced the amended agreement that Nordenfelt "for the next 25 years, would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way."

References

Study Pack Chapter L7 LAW OF CONTRACT III published by Financial Training