It is common practice for contracts to include a right for a
party to terminate the contract if the other party breaches the
contract and fails to remedy that breach within a specified
time. There are many different formulations of that right used
in contracts. The most common are as follows:
Example 1: A party can terminate if the other party
commits a breach and fails to remedy that breach within
Example 2: A party can terminate if the other party
commits a breach that is capable of remedy and fails
to remedy that breach within x days;
Example 3: A party can terminate if the other party
commits a breach:
that is incapable of remedy; or
that is capable of remedy and fails to remedy
that breach within x days.
So how do you determine if a breach is capable of
What Is A Remediable Breach?
In determining whether a breach is a capable of remedy (or a
'remediable breach') the courts take the view that the
test, in most cases, is focussed on putting things right for
the future. The breaching party must therefore remove the past
effects of the breach (to the extent possible) and
remove the future effects of the breach.
By way of analogy, courts have likened the concept of a
remediable breach to a disease where the effects of the disease
cannot be cured because they have already occurred, but where
the cure is the act of subduing and removing the symptoms for
However, the courts recognise that there are some breaches
that will not be capable of remedy, such as a breach of
confidentiality. Similarly, by way of extrapolation, it seems
likely that failure to do something by a time specified in a
contract will always be capable of remedy (by doing that thing
by a later date and compensating the other party for the loss
flowing in the intervening period) unless the doing of that
thing by the specified time is essential.
Interestingly, where the termination clause specifies a time
for remedy, the courts have adopted a two step analysis. The
first step is to ask whether the breach is capable of remedy
(in the sense described above), ignoring the time specified in
the contract. The second step is, assuming the breach is
capable of remedy, to ask whether it has in fact been remedied
in that time.
As with all contractual issues, the actual wording of the
contract must be construed. Going back to termination under the
three example clauses set out above:
Example 1: The innocent party will be only able to
terminate if the breach is not remedied within x days,
regardless of whether or not the breach is capable of
Example 2: The innocent party will be only able to
terminate if the breach is capable of remedy and is not
remedied within x days. The innocent party will not be
entitled to terminate if the breach is incapable of remedy
(because it is simply not addressed by the clause). However,
the innocent party may still be able to terminate at common
Example 3: The innocent party will be only able to
terminate if the breach is incapable of remedy or the breach is
capable of remedy and is not remedied within x
A Word Of Warning
As a general principle, if a party issues a termination
notice and does not have grounds to do so, that purported
termination will amount to a repudiation of the contract
allowing the other party to terminate the contract and recover
loss of bargain damages. Given the seriousness of such
consequences, it is important to know exactly when a breach is
remediable and when a termination notice can be validly
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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