Capable of remedy? Stobart runs out of road

Published Date
May 25, 2022
When a termination provision states that a party can terminate an agreement where that breach is “capable of remedy” and the party in breach fails to remedy the breach within a specified timeframe, a recent High Court decision provides useful guidance on when a breach will be deemed to be “capable of remedy”. 

When the former CEO of the Stobart Group, Andrew Tinkler, stood down from his position in 2017, he founded an advisory company called Stobart Capital to help originate and develop investment ideas for the Stobart Group (now Esken). 

Under a management agreement between Esken and Stobart Capital a termination provision provided that the agreement could be terminated with immediate effect if a party committed a material breach of its obligations “and (where such breach is capable of remedy) fails to remedy such breach within 28 days”. 

Previous authorities which have considered whether a breach was “capable of remedy” have differed in emphasis on whether “capable of remedy” means: 

  1. that past damage caused by the material breach must be capable of being entirely undone or nullified; or 
  2. that the material breach can be put right in the future (even if some existing damage caused by the material breach remains). 

For example, in Force India v Etihad the court held that a breach was not “capable of remedy” because, by an analogy with the improper publication of confidential information, the changing of a racing car’s design to remove the association of a sponsor was a breach not capable of being remedied. Once the advertising had been withheld from the car the damage had been done and it was irrelevant whether the party in breach corrected it in the future. 

In this case the court had to consider whether Stobart Capital was in breach of the management agreement for failing to present any transaction opportunities or provide any corporate finance or consultancy services between February 2018 to March 2019. Esken contended that these breaches were not “capable of remedy” because the particular transaction opportunities that had allegedly not been presented to Esken over this period would have been lost forever. 

The court held that that in assessing whether a material breach was “capable of remedy” the key consideration was whether matters could have been put right for the future, rather than previous actions necessarily needing to be obviated or nullified, and therefore the breaches were capable of remedy (consistent with the decision in Schuler v Wickman Machine Tool Sales)

It is notable that in both Schuler and this case the relevant obligation was an ongoing obligation over an extended period of time which likely informed the court’s willingness to find that the breaches were “capable of remedy”. 

Notwithstanding that finding, the court held that Esken validly terminated the management agreement on another basis.

Judgment: Stobart v Esken

Ed: we try not to include long quotes, but this from the Schuler case is quite good at explaining the issue.

The question then is what is meant in this context by the word ‘remedy’. It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place and in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied .... On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach ... by disclosure of confidential information could not be said to be remedied by a promise not to do it again.” 

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