Nathan Davis discusses Bains v Arunvill Capital Limited and others [2020] EWCA Civ 545

Case Comment – Bains v Arunvill Capital Limited and others [2020] EWCA Civ 545 – Insufficient action taken to remedy a material breach.

This is an interesting case concerning whether the steps taken by the Appellant were sufficient for him to establish that he had remedied his material breach of contract.

The breach:

The parties had entered into a consultancy agreement for the Claimant/Appellant to provide services as a consultant. The contract permitted termination by a material breach clause which stated that:

“This Agreement may be terminated by either Party in the event of the other Party having materially breached any of the provisions of this Agreement and not having remedied such breach within 21 days after the service of written notice by the first Party requiring the same to be remedied.”

The Defendant/Respondent wrote to the Claimant by letter on 5 April 2016 asserting that they believed the Claimant was in material breach as he had stated verbally, and in writing, an intention not to perform his obligations under the contract and, therefore, submitted the material breach clause applied.

The purported remedy:

The Claimant responded on 20 April 2016 and stated that he did not accept he had stated such an intention, that he intended to perform his contractual obligations and therefore any breach should be considered remedied.

Despite the above assertion, no further services were provided by the Claimant. The Claimant then issued proceedings alleging there had been a breach of the material breach clause and that, in particular, the letter of the 20 April 2016 had remedied any breach. The Defendant’s position was that the Claimant’s mere assertion that he intended to perform his obligations was insufficient.

First instance and Appeal:

The Court of first instance held that there had been a material breach of contract because the Claimant had clearly refused to provide any further services and he asserted an intention to no longer perform his contractual obligations. The Court found that the breach had not been remedied by the Claimant: “[t]he proper remedy in the circumstances of this case is not merely the communication of an intention to work in an unspecified way, but it is to continue to provide the services which the claimant was contracted to provide”. The Court also held that the obligation upon the Claimant to provide services was a freestanding one; it did not require any input from the Defendant.

The appellate Court upheld the first instance decision. The Court noted that the background to the breach notice was that the Claimant had already ceased to perform his contractual obligations and was refusing to provide the same. It noted that the breach notice was that the Appellant was “refusing to resume work”. In those circumstances, it was considered that the obligation on the Claimant, to remedy the breach, was to resume work within the relevant time period. At best, the Claimant had merely given an indication he would work if, and when, asked to do so.

The sole ground of appeal was that the Courts’ below were wrong in law to find that the letter of the 20 April 2016 had not remedied the material breach.

Court of Appeal:

The Court dismissed the appeal. The following are of note:

1. The Court stated that this was not a case which raised significant issues of principle concerning the application and interpretation of material breach clauses but stressed that this was a decision on its facts;
2. The Court affirmed the approach to be taken in these cases was to determine:
   1. The specified material breach; and
   2. Whether it had been remedied.
3. The breach in this case was an actual state of affairs, it was not merely a theoretical threat to cease work, but had been carried out and continued to be so for the extent of the relevant time period;
4. Therefore, there was a failure to remedy the material breach because no services were provided within the relevant time.

Case comment:

Although this is a case which does not purport to raise any issue of principle regarding the application and interpretation of material breach clauses, it does convey an interesting example, in practise, of the Court’s determination of this issue.

Specifically, the Court confirmed that the approach in these cases is to follow a simple two step process: 1) has there been a material breach; and 2) if so, had it been remedied. However, the Courts’ decision demonstrates that the former informs the latter and, therefore, highlights the importance of grasping the nature of the material breach. For example, the Court distinguished the Appellant’s case from the scenario where the Claimant had only made a threat to cease providing services and had yet to carry this out. Had this been the scenario it is likely that the Court would have found that the Claimant’s letter would have been a sufficient remedy.

It is also significant to note that the Court at first instance held that the duty to provide services by the Claimant was a freestanding one. This negated the argument that the Claimant was not in the position to make good his stated intent. However, practitioners should note that this is a fact-specific decision and, if the Court had found otherwise, it appears that, taken in conjunction with his letter, the Claimant would have been entitled to wait until he was instructed to do something.