The Court of Appeal finds wrongdoing shareholders can remedy a repudiatory breach

Kulkarni v Gwent Holdings Ltd [2025] EWCA Civ 1206

The question

Is a repudiatory breach incapable of remedy for the purposes of a compulsory transfer clause in a shareholder's agreement?

The key takeaway

Repudiatory breaches of contract are capable of being remedied so any contract drafting should specify if a repudiatory breach is to be considered irremediable. Whether or not a breach is remediable requires a practical assessment of the facts. Technical assessments of the breach are not helpful or necessary.

The background

Mr Kulkarni, a consultant surgeon and medical director at St Joseph's Independent Hospital (the Hospital) partnered with successful businessman Mr Lewis via his investment vehicle Gwent Holdings Limited (Gwent). Together, they agreed to invest in a company (the Company) to acquire the Hospital due to its owner experiencing financial difficulties. On 13 February 2020, Mr Kulkarni, Gwent and the Company entered into a Shareholders Agreement (the SHA) under which Mr Kulkarni was allocated 1,652 A Shares and Gwent was allocated 1,718 A Shares. In practice however, Mr Kulkarni held only one share, having believed he did not need to pay for the remainder.

Clause 3 and Schedule 2 of the SHA stated that certain actions of the Company – such as changes to its share capital or registration of new members – required the "Shareholder Consent" of Mr Kulkarni and Gwent. Clause 6 required shareholders wishing to transfer shares to give a "Transfer Notice" following which the Company would offer the shares to other shareholders for "Fair Value" or, if within 3 years of the SHA, a maximum of the lower of the subscription price paid for each share and the Fair Value of each share. Finally, under clause 7.1(d), a shareholder who commits a "material or persistent breach" of the SHA which, if remediable, has not been remedied within 10 Business Days of notice to remedy the breach, was deemed to have served a Transfer Notice immediately before the breach. Under Clause 6.7, a "Deemed Transfer Notice" "may not be withdrawn".

On 25 June 2020, following an ongoing dispute between Mr Kulkarni and one of the Gwent appointed directors of the Company over hospital management and Covid-19 shielding, Mr Kulkarni resigned as a director and employee of the Company. Mr Kulkarni failed to transfer his sole share in the Company to Gwent and on 28 August 2020, the Company served on Mr Kulkarni a notice to terminate the SHA alleging it was fundamentally flawed as Mr Kulkarni never actually held the full 1,652 A Shares allocated to him, and he only held 1 A share. The Company had also allotted Mr Kulkarni's 1,651 A Shares to Gwent.

Mr Kulkarni claimed Gwent had breached the SHA by (i) procuring the Company to allot the 1,651 A shares to itself; (ii) causing the Company to allot 2,000 B shares to itself: (iii) purporting to terminate the SHA (as above); and (iv) refusing to recognise Mr Kulkarni's appointment of Mr Hussain as a director of the Company (an appointment which Mr Kulkarni was entitled to make under the SHA). Accordingly, Mr Kulkarni argued that Gwent was deemed to have served a Transfer Notice under clause 7.1(d).

By the trial, Gwent had admitted that the first and third breaches were repudiatory and that the second breach was material. The High Court agreed that Gwent had breached the SHA and found all four breaches to be material and persistent. However, it found that all the breaches were remediable and had been remedied by Gwent returning the shares to the Company (which were then paid for by, and transferred to, Mr Kulkarni) and approving Mr Hussain's appointment. Similarly, the purported termination had "charged nothing" in practical terms as it was ineffective in law and Mr Kulkarni never accepted the repudiatory breach. Mr Kulkarni appealed against the Judgment.

The High Court also found that as no notice to remedy had been served, as required by clause 7.1(d), the 10 business day period to remedy had not started and could not have expired, accordingly no Transfer Notice was deemed served.

The decision

The main issue for the Court of Appeal (the Court) was whether Gwent was deemed to have served a Transfer Notice under clause 7.1(d) of the SHA, notwithstanding that the breaches had been remedied and no notice to remedy had been served. The Court also considered whether a repudiatory breach of the SHA was incapable of remedy.

Clause 7.1(d) of the SHA provided:

"A Shareholder is deemed to have served a Transfer Notice under clause 6.4 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)."

Mr Kulkarni argued that remediation was irrelevant and that a "material or persistent" breach triggered a Deemed Transfer Notice, subject to reversal only if the Company served a notice to remedy the breach (and the breach was cured within 10 business days). The Court rejected this interpretation, holding that a Deemed Transfer Notice only arises where breach is not remedied within 10 business days following service of a notice to remedy. The Court further noted that clause 6.7 expressly precluded withdrawal of a Deemed Transfer Notice, and emphasised that, given the consequence of a Deemed Transfer Notice was to compel the wrongdoing shareholder to transfer his shares and potentially for a lower price than what was paid, a narrower interpretation of clause 7.1 was appropriate. There may, however, be other remedies available: an innocent shareholder may be able to accept a repudiatory breach, claim damages for loss or seek relief for unfair prejudice under s.994 of the Companies Act 1996.

The Court also dismissed Mr Kulkarni's argument that repudiatory breaches are inherently incapable of remedy for the purposes of clause 7.1(d) and so there was no need to serve a notice to remedy. The Court noted that had this been the parties' intention, they could have (i) stated in the SHA that a repudiatory breach would be considered irremediable (which they did not do, and in fact, there was no reference to the word "repudiatory"); and (ii) drawn a distinction between repudiatory and other breaches (e.g. for the purposes of remediation). Clause 7.1(d) was drafted such that a "material or persistent" breach (which may or may not be repudiatory in nature) would be "capable of remedy". Drawing on established authorities, including Schuler v Wickman, the Court affirmed that when deciding whether a breach of contract is "capable of remedy" for the purposes of a contractual provision or a comparable statutory one, a practical approach should be taken, rather than a technical one. Ultimately, the Court upheld the lower court's findings that Gwent's breaches were remediable and had in fact been remedied. Whether or not remediation could have occurred within 10 business days was immaterial, as a notice to remedy had not been served.

Why is this important?

The Court has affirmed that, repudiatory breaches are not automatically incapable of remedy for the purposes of interpreting contractual provisions referring to remediable and irremediable breaches.

Rather, the remendability of a breach should be determined by way of a practical assessment, taking into consideration all the facts and whether the breach can be put right for the future. This principle is well-established in case law.

The court also emphasised that contractual transfer clauses in shareholder agreements should be narrowly interpreted, particularly where the transfer consequences on wrongdoing shareholders are punitive. The harsher the consequences, the clearer and more exact the clause wording must be.

Any practical tips?

Where the parties to contractual agreements intend repudiatory breaches to be irremediable, an express clause to this effect must be included in the contract. Similarly, what constitutes a "material" or "persistent" breach should be clearly defined in the agreement, along with the consequences of such a breach.

Winter 2025