Kulkarni v Gwent Holdings Ltd & Ors: when is a breach of contract capable of remedy?

The Court of Appeal’s decision in Kulkarni v Gwent Holdings Ltd & Ors reminds parties to shareholders’ agreements to think carefully about what they want the consequences of breaches to be – and in particular, whether parties should be given the opportunity to remedy them. It also stresses the importance, where a remediable breach does occur, of taking quick action to put it right for the future.   

The facts

Mr. Kulkarni and Gwent Holdings Ltd entered into a shareholders’ agreement. The agreement stated that a breach by either party would trigger a compulsory share transfer mechanism, but only if the breach was both: (i) “material and persistent”; and (ii) if capable of remedy, not remedied within a certain period.

Gwent committed a number of breaches which it admitted were “material and persistent”. It also admitted that those breaches amounted to repudiatory breaches at common law (i.e. that they were sufficiently serious to give rise to a common law right on the part of Mr. Kulkarni to terminate the agreement should he so wish). Gwent nonetheless contended that the compulsory transfer mechanism had not been triggered: the breaches were capable of remedy, and it had remedied them. 

Mr Kulkarni contended that the breaches had not been remedied – and that as a matter of principle, a repudiatory breach could never be remediable.

The decision

The Court of Appeal held that Gwent’s breaches were both capable of remedy and had in fact been remedied, even where they amounted to repudiatory breaches at common law. There was no general principle that a repudiatory breach could never be capable of remedy. Had the parties intended repudiatory breaches to be irremediable, they could – and should - have said so in the agreement.

The Court also confirmed that it would treat the question of whether a breach had been remedied as a practical one – the party fixing the breach would not need to erase the fact that it had happened from history, but instead focus on putting it right for the future.

Key takeaways

• Parties entering into shareholder agreements should consider carefully the different types of breach which may occur and spell out what their intended consequences are.
• A contractual process enabling breaches to be remedied before they attract adverse consequences can be useful.
• Any party wishing to avail themselves of such a process should act quickly to rectify their breach on a forward-looking basis, bearing in mind the guidance in this decision and taking legal advice where necessary.

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