Severability clause – to avoid invalidity of a contract

• Contracts
• SME

A contract specifies what the parties have agreed to. It sometimes happens that a contract contains unenforceable or even unlawful contractual clauses.

If a contract contains an unlawful or unenforceable contractual clause, there is a risk – depending on the legal system and the type of unlawfulness – that the entire contract will be declared invalid. Contracts under Swiss law would only be declared null and void if it can be assumed that the contract would not have been concluded at all without the invalid provision. Thus, under Swiss law, nullity usually only affects the invalid provisions.

The omission of an entire contract is not in the interest of the parties.

It is advisable to include a so-called severability clause in all contracts. This contractual clause essentially states that the invalidity or unlawfulness of contractual provisions does not lead to the invalidity or nullity of the entire contract. That is, all provisions that are not illegal or unenforceable continue to apply. This is already stated in the law for contracts under Swiss law, but only under the condition that it can be assumed that the contract would have been concluded even without the invalid provision. Because proving that “the contract would have been concluded even without the invalid provisions” can be extremely time-consuming under certain circumstances, a severability clause is also recommended for contracts governed by Swiss law.

Replace invalid provision with enforceable provision

The severability clause further states that the illegal or invalid provision shall be replaced by a provision which is enforceable and legally permissible.

It is not in the interest of the parties to have to renegotiate now to replace an invalid provision with a valid one. The severability clause should therefore state that the new provision should correspond as far as possible to the original purpose of the invalid provision. This is important because the invalid provision was part of a whole (i.e. a contract) and because the contractually agreed balance should not be disturbed by replacing an invalid provision by a valid one.

New provision to be deemed agreed

Finally, the severability clause should also state that the new, valid, admissible provision is automatically deemed to be agreed, because only this ensures that neither party can use the renegotiation of a provision as an opportunity to renegotiate the entire contract. If the severability clause does not say this and the parties cannot agree, then in the end a court will decide what is to apply anew. This is also not in the interest of the contracting parties.

A possible wording for a severability clause:

“Should individual provisions of this contract be invalid or unenforceable or become invalid or unenforceable after the conclusion of the contract, the validity of the remaining provisions of this contract shall remain unaffected. The invalid or unenforceable provision shall be replaced automatically (without further negotiation by the parties) by a valid and enforceable provision whose effects come as close as possible to the economic purpose of the invalid or unenforceable provision.”

Because the omission of a provision in a contract due to invalidity or impracticability leaves a gap in the contract, the result is similar to what would have happened if the parties had forgotten to regulate a certain point from the beginning, i.e. as if the contract had been incomplete with respect to a certain point from the beginning. Therefore, the severability clause can also be declared applicable to the filling of contractual gaps accordingly. Therefore, at the end of the severability clause, one may add, for example, the following wording:

“The foregoing provisions shall apply mutatis mutandis in the event that the contract proves to be incomplete.”

AMATIN AG  Rechtsanwälte / Rechtsberatung  │  Attorneys at Law / Counselors  │  Conseiller Juridiques / Avocats