The recent Court of Appeal decision in Kulkarni v. Gwent Holdings Ltd and Another[1] confirms that repudiatory breaches may be remediable, and that the court will take a practical rather than a technical approach when determining whether a breach is capable of remedy.
Background
The case concerned breaches of a shareholders’ agreement (SHA), which the appellant, Rohit Kulkarni, and the first respondent, Gwent Holdings, entered into with the second defendant, St. Joseph’s Independent Hospital. The SHA provided for a compulsory transfer of shares in certain circumstances, including ‘the Shareholder committing a material or persistent breach of this agreement which, if capable of remedy, has not been so remedied within 10 Business Days of notice to remedy the breach being served by the Board’.
Following the souring of relations between Kulkarni and Gwent Holdings, the latter committed three breaches of the SHA. It allotted to itself shares belonging to Kulkarni, it purported to terminate the shareholder agreement, and it refused to recognise Kulkarni’s appointment of a director to the company. Shortly afterwards, however, in a dramatic U-turn, Gwent Holdings returned the shares with a view to registering them in Kulkarni’s name and approved Kulkarni’s appointment of director.
Despite Gwent Holdings’ change of heart, Kulkarni issued proceedings claiming that as a result of the material breaches committed by Gwent, the compulsory transfer of shares provision had been triggered. He argued that there was no need to serve a notice on Gwent Holdings to remedy the breaches because the breaches were repudiatory, and therefore, by their very nature, incapable of remedy.
By the time the case came to trial, Gwent Holdings had admitted that all three breaches were ‘material’, and that the first two were repudiatory. It argued, however, that they were all capable of remedy and had in fact been remedied.
The High Court dismissed Kulkarni’s claim, and he appealed.
The Court of Appeal’s decision
The Court of Appeal unanimously dismissed Kulkarni’s appeal.
Conducting a review of the case law on the consequences of repudiatory breaches, the court noted the Court of Appeal’s decision in Bournemouth University Higher Education Corp v. Buckland,[2] in which the court stated that, ‘the alternative courses which may be taken in response to a repudiatory breach leaves no space for repentance by a party which has not simply threatened a fundamental breach or forewarned the other party of it but has crossed the Rubicon by committing it. From that point all the cards are in the hand of the wronged party: the defaulting party cannot choose to retreat’. However, it clarified that that case was not authority for a principle that repudiatory breaches cannot be remedied. That case was concerned with the common law consequences of a repudiatory breach, which gives the wronged party a choice between accepting the repudiation and terminating the contract, or affirming the contract; it was not concerned with the meaning of ‘capable of remedy’ as used in a contractual provision.
The court concluded that the relevant case law showed that, in general, determining whether a breach of contract (including a repudiatory breach) is capable of remedy within the meaning of a contractual provision should be a ‘practical rather than technical’ exercise in which common law rules as to repudiation have no place. Accordingly, the fact that a breach is repudiatory will not, of itself, mean that it is incapable of remedy.
Turning to whether the breaches in this case were remediable, the court applied the established principle that ‘remedy’ should be interpreted as a ‘cure’, so the court should be concerned with establishing whether matters can be ‘put right for the future’,[3] and that ‘the mischief resulting from a breach … can be removed’.[4] This is a forward-looking exercise which does not consider whether it is possible to retroactively nullify the consequences of a breach.
In this case, all matters had been put right for the future: the shares had been returned and could be registered in Kulkarni’s name; the purported termination of the SHA had changed nothing for Kulkarni in practical terms and was resolved by Gwent Holdings, accepting that its notice to terminate was ineffective; and while exclusion from management could result in irremediable consequences, in this case, Gwent Holding’s initial refusal to recognise Kulkarni’s appointment of director had not made any difference to the running of the company at that time.
Key takeaways
As ever, the dispute would have been avoided if the point had been clarified in the contract. Contract drafters should consider expressly addressing whether a repudiatory breach will be deemed to be irremediable or not.
Parties faced with a breach and considering whether that breach is remediable should be aware that a remedy does not need to nullify any damage already done – it just needs to be capable of being put right for the future. This is a more generous test than parties may assume it to be. Given that failure to make a correct determination in this regard could result in the wronged party committing an accidental repudiatory breach itself, it is important to seek legal advice before acting.
[1] [2025] EWCA Civ 1206.
[2] [2010] EWCA Civ 121.
[3] See F L Schuler v. Wickman Machine Tool Sales Ltd [1974] AC 235.
[4] Savva v. Hussein (1996) 73 P&CR 150.
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