Court of Appeal: Repudiatory breaches of contract were “capable of remedy”

In Kulkarni v Gwent Holdings Ltd and another company [2025] EWCA Civ 1206, the Court of Appeal clarified the approach to determining whether a repudiatory breach of contract is capable of remedy, focusing on whether the breach can be put right for the future.

The Court upheld a decision that material breaches of a shareholders’ agreement were “capable of remedy” within the meaning of the relevant clause in the agreement. The common law position that a repudiatory breach cannot be cured was not relevant to this assessment. The “material and persistent” repudiatory breaches were ultimately capable of remedy on construction of the agreement when taking a forward-looking, practical approach to remediation.

Background

Mr Kulkarni (Kulkarni) was an employee and shareholder in a hospital that entered administration in February 2020. He secured investment from Gwent Holdings Limited (Gwent), which agreed to fund a new company, St Joseph's Independent Hospital Limited (the Company), to acquire the hospital. Kulkarni, Gwent and the Company entered into a shareholders’ agreement (SHA) that stated that Kulkarni and Gwent each held a large portion of shares. In reality, Kulkarni only held a single share acquired on incorporation due to a mix of regulations and principles applicable to the private healthcare market and enterprise investment schemes.

Following a dispute, Kulkarni resigned as a director and employee. Gwent then procured the Company to allot shares to it and sought to terminate the SHA on the basis that Kulkarni had neither subscribed for nor been issued the additional shares (save for the single share acquired on incorporation). Kulkarni responded with letters of claim and sought to exercise his right under the SHA to appoint a director, which was refused. Gwent later reversed its position, appointed Kulkarni’s nominated director and returned the disputed shares to the Company, which were transferred to Kulkarni upon payment.

Nonetheless, Kulkarni issued proceedings alleging that Gwent had breached the SHA by:

1. Procuring the allotment of shares purportedly allotted to Kulkarni in the SHA to itself;
2. Purportedly terminating the SHA; and
3. Refusing to recognise the appointment of Kulkarni’s director appointee.

Kulkarni alleged that these breaches meant that Gwent was deemed to have served a Transfer Notice for its own shares, on proper construction of clause 7.1(d) of the SHA, which stated:

“A Shareholder is deemed to have served a Transfer Notice […] immediately before any of the following events: […] (d) 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 (acting with Shareholder Consent).”

Gwent accepted that breaches (a) and (b) were material, persistent and repudiatory. The High Court held that all three breaches were also material and persistent. However, it found that all breaches were capable of remedy and had been remedied. Therefore, Kulkarni was not entitled to a declaration that a Deemed Transfer Notice had been served.

Three of the five issues considered in the Court of Appeal were:

• Issue 1: Whether a shareholder who commits a material or persistent breach of the SHA should be deemed to have served a Transfer Notice under clause 7.1(d) (regardless of whether the breach is remedied), despite no notice to remedy being served;
• Issue 2: Whether a repudiatory breach of the SHA is capable of being remedied for the purposes of clause 7.1(d); and
• Issue 3: Whether the High Court was correct to conclude that the breaches were remediable.

Decision

Issue 1

The Court of Appeal upheld the High Court’s interpretation, which “chimed with commercial logic”, that no Transfer Notice is deemed served unless a notice to remedy is issued and the breach remains unremedied after ten business days. Kulkarni relied on the wording “immediately before” and “within” to support his interpretation, arguing that a Transfer Notice should be deemed served immediately before a material or persistent breach unless the breach is remediable, the Company had served a notice to remedy this breach, and it had not been remedied within that period. Ultimately, the Judge confirmed that it would be illogical for a shareholder who promptly remedied a breach to be in a worse position than one who undertook no remediation until after receiving a notice of breach.

Issues 2 and 3

Again, the Court of Appeal upheld the High Court’s decision that “the fact that certain breaches of the SHA were repudiatory in nature therefore did not, in itself, render them irremediable for the purposes of clause 7.1(d)”.

Common law has not expounded on the meaning of “capable of remedy” in the context of a contractual provision. Bournemouth University Higher Education Corpn v Buckland [2010] EWCA Civ 121 confirms that a repudiatory breach cannot be ‘cured’ at common law — the right to terminate is not subject to any possible remediation of the clause. However, the common law position did not help to interpret the meaning of “capable of remedy” within Clause 7.1(d). In these circumstances, parties should adopt a “practical rather than technical” approach to determine whether a breach was capable of remedy.

Clause 7.1(d) of the SHA referred to a “material or persistent” breach, but did not distinguish between repudiatory and non-repudiatory. By failing to do this, and later stating “if capable of remedy”, the clause acknowledged that even repudiatory breaches may be remediable. Had the parties intended to exclude repudiatory breaches from remediation, they would have done so expressly.

The Court also provided guidance that the irremediability of a breach should be interpreted in a “common sense way”. Its starting point was that remedy meant “cure so that matters are put right for the future”, rather than obviating or nullifying the original breach. Neither a failure to comply with an obligation on time nor a past breach of a negative obligation will necessarily, or even normally, result in irremediability. In this case, the breaches were found to be remediable because Gwent and the Company had “ensured that ‘matters [were] put right for the future’ and removed the ‘mischief’ caused”. As the breaches were found to be inconsequential before they were eventually remediated, it was sufficient to remedy the breaches going forward.

Key takeaways

The Court of Appeal’s decision demonstrates that the courts will seek to follow a practical (rather than technical) approach that aligns with commercial logic where a breach of contract may be both (a) repudiatory under common law; and (b) potentially remediable under contract law. Parties must draft clearly if they intend a repudiatory breach of the contract to be irremediable, as the facts and construction of the contract’s terms will be considered in determining whether a breach is capable of remedy. Where remediation is possible, parties should adopt a practical approach, focusing on whether the breach can be put right for the future rather than whether past harm can be undone.

As shown in this case, contractual rights (such as deemed Transfer Notices) may be subject to procedural conditions, and parties must follow the steps specified before such rights are triggered.

This post was prepared by Ewan-Nize Gerber, with thanks to Alex Jones for his assistance.