Briefcase: When breaches are capable of remedy

Speed Read

The Court of Appeal’s decision in Kulkarni v Gwent Holdings Ltd [2025] EWCA Civ 1206 provides important clarification on the interpretation of “capable of remedy” clauses in shareholders’ agreements and similar commercial contracts. Crucially, a repudiatory breach — a breach so serious it deprives a party of substantially all the benefit of the contract — can be capable of remedy. Parties should adopt a practical, fact-sensitive approach when determining whether a breach can be remedied.  The option of remedy should not be dismissed simply because the breach is repudiatory. The case also highlights the importance of following prescribed notice procedures when invoking contractual remedies.

Background

A dispute arose between the shareholders of an independent hospital, Mr Kulkarni and Gwent Holdings Limited (“GHL”), concerning multiple breaches of the shareholders’ agreement (“SHA”). The breaches included an improper allotment of shares  and an attempt by GHL to terminate the SHA.

GHL admitted the breaches and acknowledged that some were repudiatory. Mr Kulkarni commenced proceedings, claiming that the breaches triggered a compulsory transfer of GHL’s shares under clause 7.1(d) of the SHA (“Transfer Mechanism”). This clause permitted transfer where a shareholder committed a material or persistent breach which, if capable of remedy, had not been remedied within 10 business days of a notice to remedy being served by the board.

At first instance, the judge found that while GHL had committed repudiatory breaches they were capable of remedy and had, in fact, already been remedied. As no notice to remedy had been served, the Transfer Mechanism had not been triggered. Mr Kulkarni appealed.

Court of Appeal Decision

The Court of Appeal considered two main issues:

1. Whether a repudiatory breach can be “capable of remedy” for the purposes of a contractual clause; and
2. Whether the operation of clause 7.1(d) depended on the service of a notice to remedy.

Notice to remedy as a condition precedent

The the plain wording of clause 7.1(d) required a notice to remedy to be served before the 10-business-day period could begin. As no notice had been served, the Transfer Mechanism was never engaged. The Court rejected the argument that the Transfer Mechanism could be triggered automatically upon breach. The clause’s structure made notice an essential procedural step. This finding alone was sufficient to dispose of the appeal, but the Court went on to consider the remediability questions given their importance.

The Meaning of “Capable of Remedy”

Mr Kulkarni argued that a repudiatory breach could never be remedied. The contract is brought to an end unless the innocent party affirms it. The Court clarified that this principle applies at common law.  However, in this case the issue before the court was contractual interpretation. The question was not whether the repudiation could be withdrawn as a matter of election, but whether the breach was, in practical terms, “capable of remedy” within the meaning of clause 7.1(d).

On the facts, the trial judge had been entitled to find that the breaches in question were remediable. The improper allotments were reversed; funds were returned; the company’s share register was restored; the purported termination was treated as ineffective; and the board ultimately recognised the director nominated by Dr Kulkarni. These corrective steps meant that the mischief caused by the breaches had been addressed.

The Court emphasised a practical, rather than technical, approach when assessing remediability: whether the mischief caused by a breach can be rectified so that matters are put right for the future. 

In this instance, the appropriate remedies available were to reverse the wrongful allotment in shares (which had already occurred) and in relation to the wrongful termination, all that was needed was for the parties to confirm it was ineffective.

Deliberate conduct (wilfulness), seriousness of breaches, and motive may influence whether a breach is capable of remedy but these factors do not automatically render breaches irremediable unless significant lasting damage is caused.

Key Learning points

1. A breach being repudiatory does not, in itself, prevent it from being remedied under a contractual clause.
2. Where a clause requires a notice to remedy, it must be served before any contractual consequence arises.
3. If a repudiatory breach should automatically trigger exit or termination rights without an opportunity to remedy, this must be explicitly stated in the contract.
4. Termination of a contract is a high-risk area. Termination is usually a strategic decision which involves assessment of the whole context including the commercial and financial consequences, liability exposure and limitations, reputation and relationship management and quantification of loss (which can require expert evidence). 

Collaborators: Beth Wilson, Trainee solicitor