Court Of Appeal Confirms Repudiatory Breaches Were "Capable Of Remedy" For The Purposes Of A Deemed Transfer Provision In A Shareholders' Agreement

The decision shows the need for precise drafting and strict compliance with notice provisions.

The Court of Appeal has upheld a decision that a deemed share transfer clause was not triggered following material breaches of a shareholder agreement, as the breaches were capable of remedy and no notice of remedy had been served as required by the clause – and in any event the breaches had been remedied: Kulkarni v Gwent Holdings Ltd & Anor [2025] EWCA Civ 1206.

The decision highlights the importance of precise drafting and strict compliance with notice provisions, both in the context of shareholder agreements and more generally. While each case will turn on its facts and the precise wording of relevant contractual provisions, the decision sheds light on the likely interpretation of a clause that stipulates a consequence where there is a breach of contract which, if capable of remedy, has not been remedied following service of a notice to remedy. In particular, the decision suggests that the consequence will not be triggered by a remediable breach unless a notice to remedy has in fact been served.

The decision also suggests that, in considering whether a breach is capable of remedy within the meaning of such a clause, the court will take a practical rather than technical approach, with the key question being whether the breach can be put right for the future. The question of whether or not the breach is repudiatory at common law is unlikely to be relevant to that assessment. However, the fact that a breach is repudiatory may have other consequences, such as entitling the innocent party to terminate the agreement at common law (unless the common law right to terminate has been displaced by the relevant contractual provisions).

Background

The case concerns a shareholders' agreement (the "SHA") entered into between Mr Rohit Kulkarni, Gwent Holdings Limited ("Gwent") and St Joseph's Independent Hospital Limited (the "Company"). The SHA recorded Mr Kulkarni as the owner of 1,652 A Shares in the Company, but in fact he had been issued with only a single A share.

A dispute arose regarding the future direction of the business. Mr Kulkarni was purportedly dismissed and subsequently resigned both as a director and employee of the Company. Thereafter, Gwent caused the Company to allot to itself the remaining 1,651 shares attributed to Mr Kulkarni under the SHA. It also wrote to Mr Kulkarni purporting to terminate the SHA, stating that the SHA was based on "a fundamental flaw" in that it incorrectly described Mr Kulkarni as owning 1,652 A Shares when he, in fact, only owned one A Share and "did not properly subscribe for, nor was he issued with, any additional 1,651 A Shares".

Mr Kulkarni sent letters of claim to both Gwent and the Company, and also sought to exercise his right under the SHA to appoint a director to the board of the Company. Gwent initially sought to resist this, claiming that Mr Kulkarni had rescinded the SHA. However, the Company subsequently recognised Mr Kulkarni's right to appoint a director and also wrote to Gwent requesting the return of the 1,651 A Shares so that they could be transferred to Mr Kulkarni.

Mr Kulkarni brought the present proceedings alleging that Gwent had breached the SHA, including by procuring the allotment of the A Shares to itself, by purporting to terminate the SHA and by refusing to recognise Mr Kulkarni's proposed appointment to the board. As a consequence, Mr Kulkarni claimed that Gwent was deemed to have served a Transfer Notice for the sale of its shares, pursuant to clause 7.1(d) of the SHA, which provided as follows:

Gwent accepted that its procured allotment of the A Shares and its purported termination of the SHA both amounted to "material" breaches (within the meaning of clause 7.1(d)), and that these breaches were repudiatory in nature. The High Court held that the delay in appointing Mr Kulkarni's nominated director was also a breach, and that all of the breaches were "persistent" as well as "material". However, it concluded that each had been capable of remedy, and was in fact remedied. On that basis, the High Court held that Mr Kulkarni was not entitled to a declaration in respect of the deemed service of a Transfer Notice.

Decision

The Court of Appeal (Newey LJ, Asplin LJ, and Lewis LJ) upheld the decision of the High Court and dismissed Mr Kulkarni's appeal. The principal issues considered on appeal were as follows:

• Is a shareholder who commits a material or persistent breach of the SHA deemed to have served a Transfer Notice pursuant to clause 7.1(d) of the SHA, regardless of whether the breach is remedied unless the Company's board serves notice to remedy the breach?
• Is a repudiatory breach of the SHA necessarily incapable of remedy for the purposes of clause 7.1(d)?
• Was the Judge in any event wrong to conclude that Gwent's breaches of the SHA were remediable?

Role of a notice to remedy

The judge had held that, where a breach is capable of remedy, the plain reading of clause 7.1(d) was that no Transfer Notice is deemed served until a notice to remedy has been served and has expired.

Mr Kulkarni argued, to the contrary, that where a shareholder had committed a material or persistent breach which was remediable, they would be deemed to have served a Transfer Notice unless a notice to remedy had been served and acted upon. In other words, in the absence of a notice to remedy, it was irrelevant whether the breaches had in fact been remedied.

The Court of Appeal disagreed with Mr Kulkarni's interpretation of clause 7.1(d), finding that a shareholder is not deemed to have served a Transfer Notice merely by committing a (remediable) material or persistent breach – the breach must also be unremedied following service of a notice to remedy. The court noted that it would be very odd if the parties had intended a shareholder who had committed a "material or persistent" breach but remedied it promptly to be in a worse position than one who did nothing until served with a notice to remedy. The court rejected the argument that its construction of the clause meant there would be no remedy available in the case of a remediable breach, if the wrongdoer prevented the Company serving a notice of remedy. Depending on the circumstances, the innocent shareholder might be able to accept a repudiatory breach as terminating the contract, or to claim damages for any loss, or to bring an unfair prejudice petition under s.994 of the Companies Act 2006.

Can a repudiatory breach be capable of remedy?

Mr Kulkarni argued that as, a matter of law, a repudiatory breach of the SHA could never be "capable of remedy" for the purposes of clause 7.1(d) of the SHA and, as such, there was no need for the Company's board to serve a notice to remedy. The judge had rejected this argument, and the Court of Appeal agreed with the judge.

It held that a repudiatory breach of the SHA was not necessarily incapable of remedy. If the parties had intended a repudiatory breach to be considered irremediable, they could have said so.

The court referred to various authorities, including Bournemouth University Higher Education Corp. v Buckland [2010] EWCA Civ 121 which it said was authority for the proposition that, at common law, a repudiatory breach of contract cannot be "cured" by the contract breaker and the innocent party retains the right to walk away from the contract. However, Buckland addressed the position at common law and was not concerned with the meaning of "capable of remedy" as used in a contractual provision. It therefore shed no light on the question of whether a breach was "capable of remedy" within the meaning of clause 7.1(d).

The case law showed that, when determining whether a breach of contract is "capable of remedy" within the meaning of a contractual or statutory provision, a "practical rather than technical" approach should normally be adopted, and the common law rules as to repudiation have no place in that assessment.

Were the breaches remediable?

Mr Kulkarni argued that, in finding that the breaches were capable of remedy, the judge had failed to have regard to the seriousness of the breaches, the motive with which they were committed and their broader impact. He argued that there was more to remediability than reversing the outcome alone, and the longer the breaches persisted, the more they departed from remediability.

The Court of Appeal rejected those arguments. Whether or not a breach was capable of remedy should be interpreted in a "common sense way", using a practical rather than technical approach. The court cited Schuler v Wickman [1974] A.C. 235, where it was held that to remedy meant to "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".

Applying those principles, the Court of Appeal considered that the judge was right to hold that the breaches were capable of remedy. Returning the A Shares to the company had reversed that breach, Gwent's purported termination of the SHA had changed nothing in practical terms and all that was needed to remedy it was Gwent's acceptance that the notice to terminate was ineffective, and Mr Kulkarni's nominee director had ultimately been appointed. While, in principle, exclusion from management can have irremediable consequences, the delay had had no practical effect on the running of the Company in the circumstances.

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.