Introduction
It is common practice for contracts to include a right for a party to terminate the contract if the other party breaches the contract and fails to remedy that breach within a specified time. There are many different formulations of that right used in contracts. The most common are as follows:
Example 1: A party can terminate if the other party commits a breach and fails to remedy that breach within x days;
Example 2: A party can terminate if the other party commits a breach that is capable of remedy and fails to remedy that breach within x days;
Example 3: A party can terminate if the other party commits a breach:
- that is incapable of remedy; or
- that is capable of remedy and fails to remedy that breach within x days.
So how do you determine if a breach is capable of remedy?
What Is A Remediable Breach?
In determining whether a breach is a capable of remedy (or a 'remediable breach') the courts take the view that the test, in most cases, is focussed on putting things right for the future. The breaching party must therefore remove the past effects of the breach (to the extent possible) and remove the future effects of the breach.
By way of analogy, courts have likened the concept of a remediable breach to a disease where the effects of the disease cannot be cured because they have already occurred, but where the cure is the act of subduing and removing the symptoms for the future.
However, the courts recognise that there are some breaches that will not be capable of remedy, such as a breach of confidentiality. Similarly, by way of extrapolation, it seems likely that failure to do something by a time specified in a contract will always be capable of remedy (by doing that thing by a later date and compensating the other party for the loss flowing in the intervening period) unless the doing of that thing by the specified time is essential.
Interestingly, where the termination clause specifies a time for remedy, the courts have adopted a two step analysis. The first step is to ask whether the breach is capable of remedy (in the sense described above), ignoring the time specified in the contract. The second step is, assuming the breach is capable of remedy, to ask whether it has in fact been remedied in that time.
Application
As with all contractual issues, the actual wording of the contract must be construed. Going back to termination under the three example clauses set out above:
Example 1: The innocent party will be only able to terminate if the breach is not remedied within x days, regardless of whether or not the breach is capable of remedy.
Example 2: The innocent party will be only able to terminate if the breach is capable of remedy and is not remedied within x days. The innocent party will not be entitled to terminate if the breach is incapable of remedy (because it is simply not addressed by the clause). However, the innocent party may still be able to terminate at common law.
Example 3: The innocent party will be only able to terminate if the breach is incapable of remedy or the breach is capable of remedy and is not remedied within x days.
A Word Of Warning
As a general principle, if a party issues a termination notice and does not have grounds to do so, that purported termination will amount to a repudiation of the contract allowing the other party to terminate the contract and recover loss of bargain damages. Given the seriousness of such consequences, it is important to know exactly when a breach is remediable and when a termination notice can be validly issued.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
