The Court of Appeal recently considered if a repudiatory breach is capable of remedy in Kulkarni v Gwent Holdings Ltd.
First things first – what is a repudiatory breach? Thinking back to law school, a repudiatory breach is a breach of contract which goes to the heart of that contract, depriving the innocent party of the intended benefit and giving them the right to either terminate the contract or accept the breach and affirm the contract.
In this case, the repudiatory breach occurred in the context of a shareholders agreement between Gwent Holdings and Kulkarni (SHA). The SHA contained a provision (clause 7.1(d)) which allowed for the compulsory transfer of shares by a shareholder (by way of a "Deemed Transfer Notice") in the event of that shareholder's death, bankruptcy, lack of capacity, or, crucially, that 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 (acting with Shareholder Consent)."
Mr Kulkarni claimed that Gwent Holdings had committed numerous breaches of the SHA, triggering the above clause and, therefore, the Deemed Transfer Notice. Gwent Holdings admitted to some of the breaches and agreed that some were material – even repudiatory – in nature. However, the High Court judge found that all of Gwent Holdings' breaches could be (and, indeed, had been) remedied. As a result, the judge held that clause 7.1(d) and the associated transfer of shares was not triggered.
Mr Kulkarni took the case to the Court of Appeal which considered several issues, including:
- Is a repudiatory breach of the SHA necessarily incapable of remedy for the purposes of clause 7.1(d)?
- Was the High Court judge in any event wrong to conclude that Gwent Holdings' breaches of the SHA were remediable?
Ultimately, the Court of Appeal agreed with the High Court decision, holding that "it is not the case that a repudiatory breach of the SHA is necessarily incapable of remedy for the purposes of clause 7.1(d)." The Court went on to say:
It seems to me that the case law shows that, when determining whether a breach of contract is "capable of remedy" within the meaning of either a contractual provision or a comparable statutory one, a "practical rather than technical" approach is, at least normally, to be adopted. It may be that, in a specific contract or statute, "capable of remedy" could, because of the particular context, mean something different. In general, however, a question as to whether a breach of contract is "capable of remedy" for the purposes of either a termination clause ... or a compulsory transfer provision such as clause 7.1 is to be determined in a "practical rather than technical" way in which common law rules as to repudiation have no place.
The Court went on to agree with the position in the High Court judgment that "the various breaches were 'capable of remedy'", citing Lord Reid's definition of "remedy" in Schuler v Wickman as meaning "...'cure so that matters are put right for the future' rather than 'obviate or nullify the effect of a breach so that any damage already done is in some way made good'." The Court also highlighted that "...the wilfulness of a breach will not usually, I think, matter."
What does this mean for you?
The case provides an interesting summary of the case law about repudiatory breaches and makes clear that, if you want a repudiatory breach to be considered irremediable, you need to specify that in the contract itself.
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.
