In the case of Stuart William Evans & Ors v JNP Group Consulting Engineers Limited [2026] EWHC 2175 (Comm) the Circuit Commercial Court in Birmingham held that retirement letters agreed between a company and its retiring shareholders and directors amounted to a full and final settlement of all claims between the parties – despite the absence of express words to that effect. The decision serves as a reminder that the courts will look at the substance and commercial context of an agreement, not simply the labels attached to it.

Our Commercial Disputes and Risk Advisory Team look at the decision and highlight the key takeaways.

How did the dispute arise?

The dispute stemmed from a business restructuring that took place in December 2016. The businesses of two separate LLPs (JNP North and JNP South) were transferred to a company under the terms of business sale agreements (the BSAs) – with capital accounts being converted into Directors' Loan Accounts (DLAs).

The company became JNP Group Consulting Engineers Limited (JNP, or the Defendant) and Mr Evans, Mr Walters and Mr Wood (together the Claimants) were the members of JNP North who became shareholders and directors of JNP following the restructure.

In February 2016, well in advance of the BSAs being entered into, members of both LLPs agreed to a remuneration structure calculated according to a specified method. This structure would result in total remuneration for JNP North members of £390,000 – providing the new company performed as well as an average of the two LLPs over the preceding three years (the February Agreement).

The financial performance of JNP in 2017 was not as had been anticipated and this was attributed largely to failures by the former JNP North offices to collect Aged Debts and convert work in progress into cash. Uncollected Aged Debts from 2016 were subsequently written off and capital accounts adjusted accordingly.

The relationship between the former members of JNP North and JNP South broke down and the Claimants retired from JNP in 2018. Each of the Claimants signed a retirement letter which covered the financial arrangements relating to their exit (the Retirement Letters). The Retirement Letters confirmed the total amount payable to each claimant in relation to DLAs, salary, pension and shares, and they included confirmation of any deductions made in respect of the Aged Debt write offs.

What claims did the parties bring?

The Claimants subsequently claimed for additional sums they alleged were due to them on retirement, including claims for additional remuneration due under the February Agreement and balances outstanding on their DLAs. In response the Defendant counterclaimed against each Claimant for breaches of warranties given in one of the BSAs regarding the value of Aged Debts transferred from JNP North to JNP.

Did the retirement letters settle all claims?

The Commercial Court held that they did and dismissed both the claim and the counterclaim.

Why did the court find a full and final settlement?

The court found that each of the claims advanced by the Claimants for remuneration, payments for shares and payment of sums due to them under their DLAs were compromised by their respective Retirement Letters. The court accepted there were no express terms in the Retirement Letters confirming the agreement reached was in full and final settlement of all claims between the Claimants and JNP, however it determined that, as a matter of construction of the Retirement Letters (being contracts providing the terms upon which addressee was retiring) the effect of the letters was just that.

Each letter confirmed details of the director's salary, pension, shares and DLA - and what would be paid on retirement in respect of each. The letters confirmed a "Total to be paid" and set out the timeframe for payment.

The court accepted that whether the effect of each Retirement Letter was to compromise any claim that the recipient may have had against the Company was a question of construction

The principles of contractual construction confirmed in the Supreme Court case of Providence Building Services Limited (Respondent) v Hexagon Housing Association Limited ([2026] UKSC 1) required an objective and contextual approach, allowing the court "to ascertain the meaning which the contract would convey to a reasonable person having all the relevant background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract" and apply business or commercial common sense as relevant.

Taking into consideration the meaning of the words used in the letters, the circumstances in which the letters were signed and commercial common sense, the Court determined that the Retirement Letters created a full and final settlement of all claims between the parties.

Why was the counterclaim also dismissed?

The court dismissed JNP's counterclaims on the same basis, although there were some additional features of the Retirement Letters which supported them being construed as in full and final settlement of JNPs claims under the BSAs. In particular, the Retirement Letters were drafted by JNP and comprehensively covered the financial terms of each Claimant's departure, including making provision for deductions to be made from the DLA in respect of unrecovered Aged Debts.

This was the same subject matter as JNP's counterclaim for breach of warranty against the Claimants, and JNP was aware of the breaches of warranty when the letters were drafted but made no attempt to exclude or reserve rights in relation to those claims.

What did the Court say about commercial common sense?

The conclusion that the Retirement Letters compromised all claims between the parties was reinforced by commercial common sense. It did not make commercial sense for JNP to make the agreed payments to the Claimants while retaining the right to claim for bad debts it already knew about, just as it would be commercially irrational for the Claimants to agree retirement terms and staged exit payments while remaining exposed to substantial claims by JNP.

Both the claim and the counterclaim were dismissed.

What happened to the February Agreement?

It is also interesting to note that while the Claimants had argued that the February Agreement was binding on JNP on completion of the merger, the Court held that (even leaving the Retirement Letters to one side) it could not bind JNP because JNP did not exist when the February Agreement was made. Section 51(1) of the Companies Act 2006 prohibits pre-incorporation contracts from binding the company and such contracts could not be ratified post-incorporation.

Key takeaways

This decision is another reminder of the need for clear and unambiguous drafting to detail the terms of any agreement reached between parties, particularly in the context of a settlement (or when there is a "parting of the ways").

Clear drafting on these points, which were clearly in contemplation at the time of the Retirement Letters, would have avoided the time and costs of the proceedings which followed. There is usually merit in ensuring that all of the financial terms of a departure are addressed in a single, comprehensive document (or a suite of documents, as the situation requires).

Whilst it would be dangerous to rely on this being the factual outcome in every such scenario, this case also confirms that full and final settlement wording will not necessarily be needed for an exit agreement to act as a full and final settlement of all claims between the parties.

Should a company (or indeed an 'exiting' shareholder or director) intend to preserve a potential claim, such claims should be expressly provided for (or, at the very least, it should be clear that rights are being expressly reserved) – otherwise there is a significant risk the right to bring the claim will be lost.

In this case the Court did confirm, on an obiter basis, that if the counterclaim had not been compromised by the Retirement Letters, it would have awarded just under £66,000 in damages to JNP. As a result of the ambiguous drafting, JNP lost the right to damages and both parties had to incur what would no doubt have been quite significant costs.

Employment law implications from January 2027

In an employment law context, it should also be noted that from 1 January 2027 any departure of any employee with more than 6 months' service should be accompanied by a statutorily compliant settlement agreement - if companies want to be sure that disputes about the value of equity interests are not to be dragged into an Employment Tribunal.

After 1 January 2027, qualifying employees may bring claims for unlimited compensation for unfair dismissal, which may well include amounts to compensate for loss of equity interests lost in connection with the termination of employment. A 'Retirement Letter' will not protect the ex-employer nor its shareholders in those circumstances unless it follows the statutory formalities.

If you would like to discuss this case further, or any dispute or employment issues arising, please contact our Commercial Disputes and Risk Advisory partners Sean Adams or Tom Cox, or contact a member of our Employment team.