In Kulkarni v Gwent, the Court of Appeal found that "material" and "persistent" breaches of a shareholders' agreement could be remedied, even though they were grounds for terminating the contract.
Background
The dispute arose out of a shareholders' agreement between three shareholders of St Joseph's Independent Hospital: Mr Kulkarni, Gwent, and a new company acquiring the hospital. Under this Agreement, if a shareholder committed a "material or persistent breach" of the agreement, and did not remedy the breach within ten days of being served a notice, they would be taken to have offered their shares to the other shareholders through a "Deemed Transfer Notice". At the High Court, Gwent admitted to Kulkarni's multiple allegations of material and persistent breaches. These breaches were also admitted to be "repudiatory", meaning that common law rules would have allowed Kulkarni to terminate the contract.
There were still, however, three main issues for the Court of Appeal to consider. The first issue was a matter of interpretation of the shareholders' agreement, but the other two had broader significance. Namely, the court questioned whether a repudiatory breach is, by its very nature, incapable of remedy. It also considered whether, on the facts, Gwent's admitted breaches were remediable, and in fact remedied.
Repudiatory breach
It may seem contradictory that a breach that goes to the heart of the agreement can also be "put right for the future", to use the language of Schuler v Wickman. Nonetheless, the court held that the common law rules of repudiation "had no place" for the purposes of a termination clause or a compulsory transfer provision. Instead, a "practical rather than technical" approach should be adopted. If the parties had intended repudiatory breaches to be irremediable, they could have (and, for Kulkarni's purposes, should have!) said so.
"Remediable"
Having established Gwent's breaches were in principle remediable, the court went on to conclude that they had in fact been remedied, as the shares in dispute had been returned. In the High Court, this was summarized not as putting the genie back into the bottle, but rather the genie having "never truly left."
The court's wider attitude
Also of significance was the fact that a "Deemed Transfer Notice" in this agreement was capable of compelling the shareholder in breach to transfer his shares on potentially disadvantageous terms. The court referenced Re Coroin Ltd to highlight that it will generally be slow to "cut down" the normal rights of a shareholder.
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