Stuart William Evans & Ors v JNP Group Consulting Engineers Limited [2026] EWHC 2175 (Comm)

[2026] EWHC 2175 (Comm)Case No CC-2024-BHM-000018IN THE HIGH COURT OF JUSTICEVenue BUSINESS AND PROPERTY COURTS IN BIRMINGHAMCircuit Commercial Court (KBD)Date 14 August 2026
Before
HIS HONOUR JUDGE CHARMAN (Sitting as a Judge of the High Court)
Between
STUART WILLIAM EVANSClaimantsMICHAEL JOHN WALTERSClaimantJOHN ARTHUR WOODClaimantJNP GROUP CONSULTING ENGINEERS LIMITEDDefendants
Mr Soofi Din (instructed by Flint Bishop Limited) for ClaimantsMs Sarah Clarke (instructed by Gardner Leader LLP) for DefendantsHearing Hearing dates: 20 – 24 April, 27 – 30 April, 1 May, and 3 June 2026
JUDGMENT(draft judgment: 6 August 2026)This judgment was handed down remotely by circulation to the parties’ representatives at 10.30 am on 14 August 2026 and by release to the National Archives
[1]This claim arises from a business restructuring which completed on 31 December 2016. Prior to that date, the Claimants (“Mr Evans,” “Mr Walters” and “Mr Wood”) were members of a limited liability partnership (“LLP”) through which they carried on business as civil engineers from offices in Brighouse and Sheffield. The name of their business was JNP Northern LLP, and I refer to it in this judgment as “JNP North.” They shared some resources and worked in collaboration with another LLP with the name JNP Engineers LLP, which carried on business as civil engineers from offices in Chesham and Leamington and which is referred to in this judgment as “JNP South.”[2]The members of JNP North and JNP South met periodically to discuss their respective businesses and the collaboration between them. Following a review of their businesses carried out by Mr Nicholas Byfield, including through a business known as Five Ninths and later through a business known as DSA Advisory (“DSA”), at or about the beginning of 2016, they began discussions to merge the two LLPs into a new company. The Defendant (“the Company”) was formed and via Business Sale Agreements dated 31 December 2016 the members of the two LLPs transferred the assets of the LLPs to the Company in exchange for shares in the Company. The capital accounts which each of the members of the two LLPs were converted into Directors Loan Accounts (“DLAs”) with the Company. The former members of the LLPs also entered into a Shareholders Agreement relating to the Company (“the SA”).[3]The Company began trading by carrying on the former businesses of the LLPs at the beginning of 2017. Its financial performance was not as had been anticipated. Those managing the Company considered that a major reason for this was the poor performance of the offices formerly operated by JNP North. Ultimately there was a breakdown in the relationship between the former members of JNP South and Mr Evans and he retired from the business in May 2018. The management of the Company decided not to declare any dividends on the shares owned by the former members of JNP North. Both Mr Walters and Mr Wood retired from the Company later in 2018. Each received a payment on their retirement in respect of the balance said to be owing on their DLA with some adjustments and other payments.[4]Each of Mr Evans, Mr Walters and Mr Wood brings a claim to recover sums which they say that they were entitled to on their retirement, but which was not paid to them. The Company defends the claim and counterclaims for breach of warranties given by the former members of JNP North in the Business Sale Agreement they entered into (“the BSA”) as to the value of the aged debt transferred to the Company. However, the Company’s primary case is that all of the sums due to each of the Claimants from the Company were agreed in full and final settlement on their respective retirements. The Company accepts that if this part of its defence to the claim succeeds, then the counterclaim does not arise.[5]I have had the benefit of both opening skeleton arguments and written submissions from counsel, Mr Din for the Claimants and Ms Clarke for the Defendant. They differ in style. Mr Din’s focuses on the big picture and the injustice which he says that the Claimants have suffered at the hands of the Defendant. Both Ms Clarke’s documents are lengthy and detailed on matters of law and of fact. I have found all four documents to be of assistance, and I am grateful for them, and to counsel for the constructive approach they adopted to what has been a protracted dispute arising from a transaction which completed over nine and a half years ago. The Issues[6]There is an agreed list of issues which was prepared for the CCMC in January 2025. It sets out more than 35 issues. That list of issues is too lengthy to be of practical use in this judgment and includes points of detail which are unhelpful as a list of issues for trial. Starting from that list but with some adaptations to reduce the number of issues, I consider that the following list of issues covers all of the matters in dispute and requiring determination:(a) Was there an agreement between the Claimants and the Defendant as to the Claimants’ remuneration packages from the Defendant (“the Rewards Agreement”) reached at the meeting on 24 February 2016 and, if there were such an agreement or agreements, what remuneration packages were agreed?(b) Was any such agreement varied at a subsequent meeting?(c) To the extent that there was such an agreement and that it is open to the Claimants on the pleadings to claim one, was any such agreement adopted by the Defendant or varied so as to include it as a party, or binding on the Defendant by reason of an estoppel by convention arising, and if so, when?(d) If there was a binding agreement between the Claimants and the Defendant as to the Claimants’ remuneration packages from the Defendant, when did the entitlement to payment of any unpaid remuneration arise, when did the cause of action for non-payment accrue, and is the claim to recover it statute barred?(e) Pursuant to the SA, was Mr Evans entitled to be paid £6,000 in respect of his “E” Entitlement Shares upon retirement?(f) Pursuant to the SA, were the Claimants owed the following amounts upon retirement in respect of sums unpaid under their Directors’ Loan Accounts: (1) Mr Evans - £45,263.25? (2) Mr Walters - £ 23,279.56? (3) Mr Wood - £26,327.53?(g) Was any such agreement or liability of the Company to pay the Claimants the claimed remuneration compromised, varied, or discharged by one or more of the: (1) Claimants’ service contracts? (2) Business sale agreements? (3) Retirement Letters? (4) Share Buyback Agreements? (5) Promissory estoppel, estoppel by convention or waiver?(h) Was the counterclaim compromised by the Claimants’ Retirement Letters?(i) If the counterclaim has not been compromised, did the Claimants breach warranty 4A and/or 5 of the Business Sale Agreement?(j) If the Claimants are in breach of warranties 4A and/or 5, what sum is due from them to the Defendant by reason of such breach(es)? The Witnesses[7]I heard from a total of 10 witnesses at trial. The three Claimants rely upon their own evidence and that of the wife of Mr Evans, Kathleen Evans.[8]Mr Evans was cross examined for nearly two and half days and some of the cross examination was at least implicitly critical of some of his past behaviour. Unsurprisingly, as a result, parts of his evidence were in the nature of self-justification rather than simply answers to the questions he was asked. Mr Evans was also argumentative at times and demonstrated to some extent, the style of communication for which he was criticised by others during 2017. However, he also generally sought to give clear answers to the questions he was asked and made appropriate concessions. As with each of the witnesses, there were instances where I have some doubt as to his recollection of matters which occurred between eight and eleven years ago. Allowing for that, I found him to be an essentially honest witness.[9]Mr Wood gave his evidence in a clear and straightforward way. He was open and direct as to what he could and could not now recall and made appropriate concessions. He conceded that there were matters that due to the passage of time he was unable to recall in detail and that the passing of time meant that it was possible that parts of his recollection could be inaccurate or incomplete. His volunteering that he continued to view the main protagonists of the conduct about which he complained as good people in all matters other than money, together with the mild-mannered way in which he gave his evidence, demonstrated that he is not motivated by malice but seeking what he considers is fair and what he is entitled to. I found him to be an entirely honest witness.[10]Mr Walters was cross examined at less length than Mr Wood and considerably less than Mr Evans. He gave straightforward and direct answers to questions and generally made appropriate concessions. I found him to be an honest witness.[11]Kathleen Evans’ evidence was on a narrow point. She gave straightforward and direct answers to the questions she was asked and was clear as to the extent of her recall. I found her to be an honest witness who was simply reporting her recollection and seeking to assist the court.[12]The Defendant called evidence from its managing director, who is also a shareholder and former member of JNP South, Andrew Lee; former shareholder and former member and senior partner of JNP South, Alan Brackley; former shareholder and former member of JNP South, Michael Hamilton; Mr Lee’s personal assistant, Anne Coop; former accounts manager for the Company and before that, employee of JNP South and accounts manager for JNP South and JNP North, Susan Channer; and the accountant and business adviser who prepared the proposal for the merger of the LLPs into the Company and advised on the merger then the running of the Company in the initial period, Nick Byfield. Mr Byfield also became a shareholder in the Company with a modest holding and following a group restructure, was a shareholder in its holding company.[13]Mr Lee was also cross examined at considerable length. The most striking feature of his evidence was the sheer number of questions to which his answer was “I don’t recall” or some similar response. As I have already observed, the lengthy period since the events in issue means that an inability to recall everything that occurred or particular details is to be expected. However, Mr Lee’s answers, if all accurate, indicate that his recollection of what occurred is very sketchy. This is surprising given his close involvement in almost every matter in dispute. He appeared nervous at the beginning of his evidence, and I make some allowance for that, but he gave evidence for close to two days in total and there was no change in how he did so once he became used to the experience. I was left with the impression that he had made little or no effort to remind himself of points of detail or to review key documents before going into the witness box. In my judgment, where Mr Lee gave a substantive answer to a question, it was an honest statement of his recollection or belief. However, when tested by cross examination, his recollection of what occurred is generally poor and lacking in detail. Further, where he was at risk of giving an answer which he perceived to be unhelpful to the Company’s case, he had a tendency to fall back on professed lack of recollection.[14]Ann Coop gave her evidence in a straightforward way and was clear as to what she did and did not know at the time in issue and as to the extent of her recollection, which she acknowledged was aided by consulting the minutes of meetings which she had prepared. I formed the view that she has an inclination to be loyal to Mr Lee, for whom she has worked for a considerable time. Despite that, I found her to be an essentially honest witness.[15]I found Mr Brackley to be an impressive witness. He engaged directly with the questions he was asked and where he had a recollection, gave a clear and succinct answer. He was also clear about what he could not recall and candid as to the limitations of his role in events occurring at a time when his focus was on bringing in business and getting work done rather than management matters. It is clear that at the time, an important factor guiding his activities was his own imminent retirement. He made appropriate concessions. It is clear that his role was at times fairly peripheral to the matters in issue, but I found him to be an honest witness and his evidence to be helpful, so far as it went.[16]Mrs Channer gave her oral evidence in a direct and straightforward way. She was clear as to what she could and could not recall. I found her to be an honest witness.[17]Mr Hamilton gave his evidence in a straightforward and open way. His involvement in many of the matters in dispute was also rather peripheral, although he was at many of the important meetings relating to the matters in dispute. He readily acknowledged that his recollection of anything beyond generalities is largely absent. I found him to be an entirely honest witness but one whose recollection on points of detail is very limited.[18]Mr Byfield engaged directly with the questions he was asked. Despite having been in the role of an adviser rather than a participant, his recollection of points of detail was generally rather better than that of the participants themselves. His use of language in answering questions was mostly precise and considered. He was challenged as to his partiality and stood his ground, saying that he would have given the same witness statement whichever side asked him for it, without apparently appreciating that it does not follow that he is necessarily impartial. I found him to be an honest witness who genuinely sought to be impartial. However, I consider that he did favour the side of those giving evidence for the Defendant to some extent, due to their approach to matters and to the running of the business of the Company being much closer to his view as to how businesses should be run. Mr Byfield also purchased shares in the Company and held shares in another group company. Therefore, like the Claimants and Mr Lee, he has a financial interest in the profitability of the Company. I bear these matters in mind when considering his evidence. I do not consider that in general, they undermine the reliability of his evidence as to what he observed and recalls in relation to matters in dispute. The Experts[19]Each side called expert forensic accountancy evidence, and each expert filed a report. Both reports were clear and evidence based with suitable explanations of reasoning to support the conclusions reached. They also prepared a report of their meeting it was clear that they agreed many matters and that the areas of disagreement between them were mostly as to the correct approach to matters where evidence was lacking or contradictory or the transaction documents somewhat lacking.[20]Mrs Hart, for the Defendant gave oral evidence only to correct an error in her report. Mr Din did not wish to cross examine her and addressed her position by way of submissions only. Mr Donaldson for the Claimants was cross examined. I found him to be an impressive witness. He made appropriate concessions and gave direct and focussed answers to the questions he was asked. Mr Donaldson also provided clear explanations for the matters where his opinion or approach differed from that of Mrs Hart. Approach to the Evidence and Fact Finding[21]I have considered and borne in mind all of the oral evidence and the evidence included in the trial bundle, including the evidence introduced during the trial. I cannot sensibly summarise everything I heard or read in evidence or determine each and every dispute of fact however tangential its relevance and I do not propose to do so. I have however considered and taken into account everything that was before me and I will refer to the evidence as necessary throughout this judgment. I have attempted to distil into this judgment only such material as is necessary for the parties to understand what I have decided and why. My not mentioning a particular matter should not therefore be treated as my having overlooked it.[22]When considering the evidence, I bear in mind the observations of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 Comm at paragraphs [15] - [22]. These include that:(a) Memory is especially unreliable when it comes to recalling past beliefs, which are revised to make them more consistent with present beliefs.(b) The process of civil litigation itself subjects the memories of witnesses to powerful biases because witnesses often have a stake in a particular version of events.(c) Considerable interference with memory is introduced into civil litigation by the procedure of preparing for trial; the effect of the process of preparing to give evidence is (1) to establish in the mind of the witness matters in his or her own statement (whether they be true or false) and (2) to cause the witness’s memory of evidence to be based increasingly on this material and later interpretations of it rather than on the original experience of events.[23]Leggatt J went on to state that in commercial cases, the best approach is to base findings of fact on inferences drawn from documentary evidence and known or probable facts, rather than the recollections of witnesses. As explained by Floyd LJ in Martin v Kogan [2020] FSR 3, a proper awareness of fallibility of memory is necessary but does not relieve judges of the task of making findings of fact based upon all of the evidence.[24]This approach applies to all cases and not just commercial ones, as explained by Mostyn J in Carmarthenshire County Council v. Y [2017] EWFC 36:
“In my opinion this approach applies equally to all fact-finding exercises, especially where the facts in issue are in the distant past. This approach does not dilute the importance that the law places on cross-examination as a vital component of due process, but it does place it in its correct context.”
[25]In addition, as was observed by Arden LJ in Wetton v Ahmed [2011] EWCA Civ 610 at [14], contemporaneous written documentation is also important in assessing credibility.[26]Several of the most important of the factual issues in this case turn on what was and was not said at meetings. As I have indicated, while I found the oral evidence of the witnesses to be generally honest, their recollections of what was said and by whom at meetings in 2016, 2017 and 2018 is imprecise and in some cases absent. Therefore, this is a case where documentary evidence is of particular weight.[27]In this case, Ms Coop gave evidence as to how the minutes of meetings were taken and prepared by her, circulated in draft and later approved. I accept that evidence and find that the minutes of meetings were diligently prepared and are generally the best evidence of what occurred at the meeting. Mrs Channer gave evidence as to the preparation of the internal accounts of the LLPs and then the Company. I accept her evidence and find that the financial records and accounts of both the LLPs and the Company were diligently prepared and are reliable and accurate evidence of the financial position of the LLPs and of the Company from time to time.[28]For all of these reasons, this is a case where the contemporaneous documents, including minutes, accounts and email correspondence, are generally the most reliable evidence of what occurred. (a) Was there an agreement between the Claimants and the Defendant as to the Claimants’ remuneration packages from the Defendant (“the Rewards Agreement”) reached at the meeting on 24 February 2016 and, if there were such an agreement or agreements, what remuneration packages were agreed?[29]Before turning to the factual question which arises from this issue, I address the law as to the starting point. The Law[30]It is trite law that in order for a binding agreement to be made, there must be an offer and an acceptance, which may be made expressly or by conduct, and that the agreement must be supported by consideration. The agreement must also be made by each party with the intention that it be legally binding.[31]The Claimants’ case is that a binding agreement was made between them and the Company at a meeting on 24 February 2016. That is before the Company was incorporated on 16 June 2016. It is axiomatic that the Company cannot have entered into a binding contract before it was incorporated because at that time it did not exist. This situation is also provided for in the Companies Act 2006 (“the 2006 Act”) at section 51 (1), which provides:
“A contract that purports to be made by or on behalf of a company at a time when the company has not been formed, has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.”
Facts

Facts

[32]Mr Din submits that an agreement was reached at a meeting on 24 February 2016, (“the 24 February Meeting”), which was referred to as a “Board of Management Group Meeting”. Those attending included each of the Claimants and Mr Lee, Mr Brackley and Mr Hamilton. The Claimants say that it was agreed that the members of JNP North would, following the merger of the businesses of JNP North and JNP South into a new company, be entitled to total annual remuneration from the new company of £390,000 between them. Further, they say that it was agreed that the former members of JNP North could share that sum between them as they chose and could arrange to take such remuneration in the most tax efficient manner. Mr Din says that the offer was made by Mr Lee on behalf of the company to be formed, that if the members of JNP North transferred its business and assets to the new company, it would pay them such remuneration.[33]For the Company, Ms Clarke submits that no such final or binding agreement was made at the 24 February Meeting. The Company contends that what was agreed was a performance related remuneration package for each of the former members of both LLPs and that agreement was reached much later, as part of the wider agreement reached between those members to merge their respective business into the Company.[34]Having considered all of the documentary and oral evidence as to what it was agreed at the 24 February Meeting that the remuneration of the Claimants would be following the transfer of the business and assets of JNP, I make the following factual findings that I consider relevant to this issue, for the reasons given:(a) Prior to December 2016, JNP South’s work was more oriented towards housebuilders and JNP North’s towards industrial and commercial work and JNP South was considerably more profitable than JNP North. This is agreed between the parties.(b) Members of the two LLPs from time to time had looked previously at the possibility of merging their respective businesses and of incorporation to reduce tax liabilities and enable departing members to obtain payment for a share of goodwill. This is also agreed and was the evidence of Mr Brackley, who had at one time been a member of both LLPs.(c) In mid-2015, Five Ninths was instructed by JNP South to carry out a review of that business and suggest improvements. It reported in August 2015 and was then instructed to carry out a similar review of JNP North and did so. This is also agreed between the parties and is explained in Mr Byfield’s evidence.(d) Following the production of the report into JNP North, DSA was instructed to prepare a framework and reward structure document for a single merged business (“the DSA Report”). The first DSA Report was produced and sent to members of the LLPs on 15 February 2016. There were a number of drafts of the DSA Report, each building on and varying earlier drafts. All of this is agreed between the parties and is described in general terms in Mr Byfield’s evidence.(e) A meeting took place in Oxford between Mr Lee representing JNP South, Mr Evans representing JNP North, and Mr Byfield, on 16 February 2016. This is also agreed and minutes record what was discussed. At that meeting, an agreement of sorts was reached. Mr Lee regarded it as an agreement in principle to combine the businesses into a new corporate vehicle. This understanding was reflected in emails sent by Mr Lee to the other members of JNP South referring to a deal having been done. Mr Evans maintains that the agreement did not go that far and that he had only agreed to the proposal being presented to the members of JNP North. Since Mr Lee does not suggest that there was more than an agreement in principle, nothing turns on who is correct. I note that the emails sent by Mr Lee at the time are consistent with his having the same understanding at the time as he now reports. Equally, Mr Evans emailed Mr Byfield on 19 February stating that he and the other members of JNP North were not happy with the proposals. In my judgment, the evidence indicates that Mr Lee believed that there was an agreement in principle to the proposal set out in the then current DSA Report, but the extent of Mr Evans’ assent at the meeting on 16 February 2016 was subject to further consideration. This reflects the enthusiasm that Mr Lee always had for the proposal as is clear from both his oral evidence and the emails he sent at the time, and the greater scepticism of Mr Evans reflected in his oral evidence and contemporaneous emails to his colleagues at JNP North.(f) Mr Evans sent an email to Mr Byfield on 19 February 2016, making clear that the members of JNP North were unhappy with the proposal. This and other communications point out that while JNP South was considerably more profitable per partner than JNP North, this was at least in part due to partners having recently left JNP South causing a substantial increase in profits per partner. Mr Evans also pointed out that an additional effect was that members in JNP South had much more equity in their LLP as a result. He expressed the concern that the effect of the proposed merger of the businesses would leave members of JNP North with responsibility for paying out on their retirement the large capital accounts of members of JNP South and Mr Brackley in particular. Mr Byfield’s response indicates that he shared Mr Lee’s view that an agreement in principle had been reached on 16 February.(g) A meeting took place between Mr Lee and Mr Evans on 22 February 2016. Whether Mr Evans had gone back on what had been agreed in principle on the 16th or his position at that meeting had been misunderstood, at the meeting on the 22nd, Mr Lee and Mr Evans agreed that various concerns expressed by Mr Evans could be addressed as the matter was progressed and details worked out. This is recorded in an email from Mr Evans to Mr Byfield the same day.(h) The 24 February Meeting was held in Leamington Spa attended by the 8 members of the two LLPs. The minutes of the meeting are headed “Minutes of Board of Group Management Meeting.” The minutes record that the financial figures presented to the 16 February meeting were presented to this larger meeting (i.e. the then current version of the DSA Report) and also record that the financial structure has been agreed by all partners. That indicates that what was approved was the financial matters in the DSA report. The minutes also record presentations being given as to intended company structure and management.(i) There is conflicting oral evidence as to what was agreed at the 24 February Meeting: (i) The evidence of Mr Evans is that the agreement of the model contained in the DSA Report was a binding agreement and included agreement that the total remuneration for former members of JNP North would be £390,000, so that all members of the LLPs had agreed to such remuneration. (ii) The evidence of Mr Walters is also that at the meeting, the details contained in an identified spreadsheet which formed part of the model included in the DSA Report and provided for total remuneration for the members of JNP Northern of £390,000, was agreed by all the members of both LLPs. (iii) The evidence of Mr Wood is that he was presented with a remuneration package, shares and final goodwill that were based on the profits of the LLPs from the years 2013 – 2015, which allowed for a total remuneration package of £390,000- for the four members of JNP North and that it was approved at the meeting on 24 February. (iv) All three Claimants also say that it was agreed that the sum of £390,000 could be apportioned between the four members of JNP North as they chose. They also each say that inclusion of payment by way of dividends was there to enable tax efficiency. (v) Under cross examination, none of them were able to recall particular words used by anyone which may have constituted such an agreement. (vi) Mr Lee’s oral evidence is that as at the 24 February meeting, the DSA Report was not final and that although it was agreed to proceed with the merger and restructuring, the details remained to be worked out. He maintained that there was an agreement in principle to the future remuneration structure but not to particular amounts. Further, the agreement in principle was not a final agreement as there remained many more matters to be discussed and details to be worked out, further revisions and updating of the DSA Report was intended and in fact occurred, and a final agreement would only be entered into when the transaction documents had been finalised. Mr Lee says that was his understanding of the position and that was also clear at the meeting. He is also unable now to recall particular words used at the meeting. (vii) Mr Brackley’s evidence is that he has very limited recollection of the meeting on 24 February and does not recall matters of detail. (viii) Mr Hamilton gave no oral evidence as to what occurred at the 24 February meeting. (ix) The minutes of the meeting make no reference to any such agreement but as I have noted, include that the financial structure proposed in the DSA report was agreed.(j) Having heard each of them cross examined, I accept that each of the Claimants believed that there had been an agreement that they would be paid remuneration in accordance with or consistently with what was included in that version of the DSA Report before the meeting. However, it was also clear from their cross examination that they did not really understand what the DSA Report and the financial modelling in it was, and indeed it appears that they still do not fully understand it.(k) Mr Wood, apparently unwittingly, alluded during cross examination to the point that the figures included in that draft of the report were a model of what their remuneration would be if the new company performed in accordance with the average performance of the LLPs in the years 2013 – 2015. A key feature of the DSA Report is that it was a model. It provided indicative figures based upon assumptions. What it proposed was that actual remuneration would depend upon the actual performance of the merged business. The figure of £390,000 was neither a cap nor a floor on their remuneration.(l) What was agreed was that the remuneration would be calculated on the basis set out in the model using the figures for the actual performance of the merged business with the respective shares of the profit made by the merged business distributed between the former LLP members in the proportions stated in the model. This is what was meant by the words in the minutes:
“The financial structure for the restructuring has now been agreed by the partners.” (m) It is inherently unlikely that many months before the intended merger was going to take place, it would be agreed what the actual amount of the remuneration of the LLP members was to be after the merger had taken place. Any such agreement would have concerned the remuneration of the members of JNP South as well and would have been an agreement for total members’ remuneration of in the region of £1 million or so, regardless of the performance of the business and without taking into account the likely short-term effect on profitability of the merger itself. It would be surprising if the members had agreed to any such thing. (n) Whilst I consider that some of the members of the LLP might be described as commercially naïve, I find that Mr Brackley was reasonably commercially sophisticated. Further, although he was not present at the 24 February meeting, the members were being advised by Mr Byfield, who in my judgment, would have advised strongly against any such arrangement had it been proposed. (o) The part of the DSA Report containing the figures which the LLP members agreed set out the basis for their remuneration, is the page which sets out the average profits of each of the LLPs and the allocation of those profits to the members of that LLP. It applies a multiple of 3.5 to each average profit figure to arrive at a valuation of each and of the combined business and sets out “Notional Salaries” for each member. It stated notional salaries in respect of the partners in JNP North, of £100,000 for each of Mr Evans and Mr Wood and £90,000 for Mr Walters. It also gave a figure of £100,000 for Mr Derek Smith who was then a member of JNP North, giving total notional salaries for those members of £390,000. (p) Mr Din submits that the Claimants were aware that they would not have control of the new company. I accept that submission, although I have some doubt that they fully appreciated the potential consequences of that. I find that they were aware that their lack of control meant that they could not determine their own remuneration in the way that they had done as members of the LLP and were concerned to have some comfort that their remuneration could not be arbitrarily and unfairly determined, before they would agree that the proposed merger go forward. It is inherently likely that would have required some assurance as to their future income post-merger and the members of JNP South were aware of and understood that concern. Further, in answer to a question from me at the end of his cross examination, Mr Lee was clear that whilst there remained matters to be agreed, following the meeting on 24 February, it was not open to the members of the LLPs to come back and seek to change what he called “the fundamental aspects of the deal”
. It was also clear from Mr Lee’s answers that the respective shareholdings and hence entitlement to dividends and the model by which remuneration was to be arrived at were such fundamental aspects. (q) In my judgment, the parties did intend the agreement as to future remuneration reached at the meeting to be binding as between those at the meeting, in the event that the merger of the LLPs was implemented.[35]In the light of these findings, I further find that it was agreed at the 24 February Meeting that if the proposed merger went ahead, the LLP members would receive remuneration from the new company calculated in accordance with the model set out in the DSA Report produced at the meeting, and that the agreement reached that remuneration would be calculated in that way was intended to be binding as between those at the meeting. I further find that it was agreed between the members that the sums allocated to those who would be former members of JNP North could be allocated between those members as they agreed between themselves. It was an agreement between the individuals who were to be members of the new company that they would provide that their respective remuneration from the new company would be calculated in accordance with the DSA model.[36]The amount of the entitlement to remuneration therefore depended upon the application of the DSA Model to the performance of the Company. If, as proved to be the case, the Company’s profits were lower than the average profits of the LLPs over the preceding three years, then the actual sum which the former members of JNP North were entitled to when calculated using the model in the DSA Report from the actual profits would be lower than £390,000.[37]It was an implied term of the agreement that members were only entitled to require that payment of any part of the remuneration due to them in the form of dividends in the event that the Company had sufficient distributable reserves to enable such dividends to be lawfully paid. The implication of such a term is so obvious that it goes without saying and is also necessary to give business efficacy to the agreement. Mr Din accepted when making his submissions that the right to dividends was conditional on the Company being able to lawfully declare them.[38]Ms Clarke made submissions as to the lawfulness of any agreement by shareholder-directors to take their remuneration by a mixture of salary and dividends on terms that the amount of the remuneration is fixed and the proportion of it to be taken as dividends will be determined at the end of the year when the extent of the company’s ability to declare dividends is known. She referred me to two authorities arising in the context of insolvency, which indicate that shareholder-directors cannot take payment of remuneration by way of modest salary and deductions from directors’ loan accounts with the intention that the deductions be cancelled out by future dividends, but with the right to treat the deductions as salary if payment of the intended dividends does not prove possible.[39]Ms Clarke raised the point because parts of the evidence of the Claimants indicated that either this is what they had agreed, or at least, this is what they thought that they had agreed. However, I have found that what was in fact agreed was that the amount of remuneration to which the Claimants were entitled was calculated by reference to the actual profits of the Company. That finding combined with other findings in this judgment means that I do not need to determine whether on the facts of this case such an agreement would have been lawful.[40]That agreement was not (and could not have been at that time) binding on the Company, as the Company did not exist and section 51 (1) of the 2006 Act prohibited it. In any case, as I have found, the parties did not intend or purport to bind the Company to what they agreed at the 24 February Meeting. (b) Was any such agreement varied at a subsequent meeting?[41]The Particulars of Claim pleads that in or about July 2016, work carried out by DSA resulted in final advice in the form of a report titled “JNP Group Framework for Incorporation Directors’ Reward Structure July 2016” and that the report incorporated the remuneration model agreed at the meeting on 24 February 2016. I find that is what occurred.[42]However, there was no change to the basis of remuneration for the members of JNP North in the later report, the only change being that Mr Evans’ share of the remuneration if the new company was as profitable as the average of the preceding three years of the LLPs was increased to £105,000, Mr Walters’ share was increased to £95,000 and the shares of Mr Smith and Wood were reduced to £95,000. The total for the JNP North members remained £390,000. Again, these figures were notional or indicative as they assumed that the new business made the same profits as the two predecessor businesses had averaged over the preceding three years. It was not a statement or guarantee that the former members would be remunerated in those amounts in any event. As before, their actual remuneration could be higher or lower.[43]In my judgment, this did not amount to a variation to the agreement made between the members of the LLPs on 24 February.[44]No other alleged variation agreed at a meeting is pleaded and no evidence was advanced at trial to show any other such variation. Indeed, Mr Evans, who provided the most lengthy and detailed witness statement on behalf of the Claimants, states at paragraph 31 of his witness statement that following the agreement reached at the meeting on 24 February 2016, nobody questioned it again. (c) To the extent that there was such agreement and that it is open to the Claimants on the pleadings to claim one, was any such agreement adopted by the Defendant or varied to include it as a party, or binding on the Defendant by reason of an estoppel by convention arising, and if so, when?[45]The Claimants’ pleaded claim as to how the Company was bound by the agreement reached between the LLP members at the meeting on 24 February 2016 is as follows:
“14. The defendant, by its sole director and sole shareholder Mr Lee, understood, knew of and by its conduct agreed to pay to the members the rewards packages referred to above; 14.1 The LLP members (including Mr Lee) had agreed in February 2016 to the transition of the LLPs to a new company in consideration of, inter alia, receiving the reward package referred to at paragraphs 5 to 12 above. 14.2 DSA were advising that the members post transition should receive the reward packages referred to above. With the acceptance of the DSA Report and in consideration of the said reward packages the members and the defendant agreed to enter the transition and the transactional documents referred to below. 15. Further or alternatively, post transition to a new company, the defendant ratified the said agreement for payment of the said reward packages. This was done in or about April 2017 by Mr Lee instructing Candales Ltd to prepare and send out to the claimants remuneration packages that reflected the agreed remuneration packages modelled by DSA in February and July 2016. 16. Further or alternatively, the LLP members (including the claimants) and the defendant (through Mr Lee its director and sole shareholder) assumed and believed that the said award packages would be paid by the defendant and upon that convention entered into the transactional documents so that it would be wrong to permit the defendant to resile from the said convention.”
[46]Pleadings serve an important purpose. As Dyson LJ stated in Al-Medenne v Mars UK Ltd [2005] EWCA Civ 1041 at [21]:
“It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone.”
It is not to adjudicate on all disputes which are the subject of evidence and/or argument.[47]In Ali v Dinc [2022] EWCA Civ 34, Birss LJ, giving the judgment of the Court of Appeal, explained at [25] that a trial judge is not governed by unnecessary formality and may permit departure from a formally pleaded case where it is just to do so and therefore consistent with the Overriding Objective.[48]By CPR 16.4, the Claimants are required to plead the facts upon which they rely. On the question of whether, and if so how, the Company became bound by the agreement made at the meeting on 24 February 2016, restricting the Claimants’ case to those facts pleaded is not to require unnecessary formality and is consistent with the Overriding Objective. Justice requires that the Company is aware of the case advanced as to how it is bound by that agreement and that it has the opportunity to respond to that case.[49]As Ms Clarke submits, it is long-established that an agreement purporting to be made by a company before its incorporation cannot be made binding on the company by means of its ratification by the company. This was made clear by the decision in Kelner v Baxter (1866) L.R. 2 C.P. 174.[50]In his submissions, Mr Din did not dispute this proposition of law. It follows that the claim in paragraph 15 of the Particulars of Claim that the 24 February agreement was ratified by the Company must fail as a matter of law. For completeness, in my judgment, it would also fail as a matter of fact. There was no purported ratification. The instructing of Cansdales (who were the Company’s accountants at the time) to prepare documents containing an analysis of how remuneration might be taken and taxed by the former LLP members and to send them to the Claimants, did not come close to amounting to an offer by the Company to pay such remuneration to the Claimants. Nor is there any evidence (or even facts alleged) capable of proving that any such offer was accepted. Further, on the facts alleged and the evidence advanced at trial, there was no consideration for any such agreement.[51]In his submissions, Mr Din advanced the Claimants’ case on the basis that the agreement as to what the Claimants’ remuneration was to be predated the incorporation of the Company but became binding on the Company as a result of either a subsequent agreement made between the Claimants and the Company or that the Defendant is estopped from denying the existence of that agreement.[52]The facts pleaded in the Particulars of Claim enable this to put in two alternative ways. Either by the agreement alleged in paragraph 14.2 between the Company and the Claimants to enter into of the transactional documents in consideration of the Company paying to the Claimants the remuneration agreed at the meeting on 24 February 2016; or pursuant to an estoppel by convention as pleaded at paragraph 16.[53]Mr Din submits, and I agree, that as stated in Howard v Patent Ivory Manufacturing Company (1888) 38 Ch.D 156, it is possible that a contract purported to be entered into by a company pre-incorporation may be made as a new contract with the company post-incorporation. Whether such a contract was actually made is a question of fact.[54]The “transactional documents” referred to in the Particulars of Claim are defined as the BSA and the SA. The BSA provided for the transfer of the business and assets to JNP North to the Company on 31 December 2016.[55]Each of the Claimants also entered into a service agreement with the Company. Each service agreement was, so far as is relevant to this issue, in identical form.[56]In my judgment, the claim that a collateral agreement was made between the Claimants and the Company that the Claimants would receive the remuneration that had been agreed on 24 February, in consideration of the entering into of the BSA and/or the SA, is not made out by the evidence. The Claimants have not put forward any evidence which shows or seeks to show that any such agreement was made between them and the Company to enter into the BSA or the SA. There are no documents created at around the time that those agreements were entered into which constitute, evidence or refer to such an agreement. There is no oral evidence of any offer or any acceptance by any party which could constitute such an agreement. Nor is there any conduct from which such a binding agreement could be made or implied.[57]Further, the making of such an agreement is contradicted by the express terms of the BSA and the SA. If it were the case that the entering into of either the BSA or the SA by the Claimants and the transfer of the business and assets of JNP North were on terms that they receive remuneration in accordance with the agreement made at the meeting on 16 February or any particular remuneration, then an agreement for such remuneration would be a term of the transfer of the business. It would be expected to be provided for in the BSA. However, not only is there no mention of such an agreement in the BSA but it includes at clause 12.2 an entire agreement clause which provides as follows:
“12.2 This Agreement and the documents referred to in it constitute the entire agreement between the parties and supersedes and replaces any previous agreement, understanding, undertaking, representation, warranty and arrangement of any nature whatsoever between the parties relating to the subject matter of this Agreement. This clause shall not exclude any liability for or any remedy in respect of fraudulent misrepresentation.”
[58]The inclusion of this provision in the BSA in the absence of a provision dealing with remuneration is also a strong indicator that no such remuneration agreement was made between the Claimants and the Company. Further, even if there had been an oral agreement along the lines contended for in the Particulars of Claim and by Mr Din in his submissions, that agreement would have been a condition of the transfer of the business and assets to the Company and would have been excluded by the entire agreement at clause 12.2.[59]The Company is a party to the SA. The absence of any reference in the SA to any agreement that the Claimants are to be entitled to any particular remuneration from the Company is also evidence indicating that there was no such agreement.[60]There is no reference to or indication of any such agreement in the Directors’ Service Contracts either. They simply refer to payment of a salary in an amount left blank.[61]Accordingly, not only is there no evidence of any agreement between the Claimants and the Company prior to or at the time of the entering into of the transactional documents, but the terms of those documents indicate that there was no such agreement. From that evidence I find that no agreement between the Company and the Claimants that they would be entitled to be paid remuneration in accordance with the model in the DSA Report, or that they would be entitled to any other particular remuneration (other than pursuant to their rights under their service agreements, the SA and the articles of association) was made.[62]The estoppel by convention pleaded in paragraph 16 of the Particulars of Claim is also said to arise at the time of the entering into of the transactional documents, as it is the entering into of them which is said by the Claimants to be their detriment or change of position in reliance on the convention that the agreement made at the 24 February meeting was binding on and/or would be implemented by the Company.[63]As Ms Clarke submits, the law as to estoppel by convention was considered and helpfully summarised by Lord Burrows in the Supreme Court in Tinkler v HMRC [2021] UKSC 39 at paragraphs 45 – 53. As Ms Clarke says, although that case was concerned with estoppel by convention in the absence of any alleged contract, the same main principles apply in a contractual context, as Lord Burrows indicated in his judgment at paragraph 78.[64]Lord Burrows reviewed the authorities and after doing so, based his statement of the relevant principles on the judgment of Briggs J in Revenue and Customs Commissioners v Benchdollar Ltd [2009] EWHC 1310 (Ch), as slightly amended to incorporate a point made by the Court of Appeal in Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023. At his paragraph 45, Lord Burrows cited with approval paragraph 52 of Briggs J’s judgment which reads as follows:
“In my judgment, the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings … are as follows. (i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. (ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it. (iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. (iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties. (v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”
[65]However, Lord Burrows said at paragraph 50, that Briggs J’s first principle requires slight amendment as indicated by Hildyard J in Blindley Heath, to make clear that something must be shown to have ‘crossed the line’ sufficient to manifest an assent to the assumption.[66]It is notable that these principles focus first on what is done by the party said to be estopped. They require that the party to be estopped makes an expression of the common assumption by words or conduct towards the other party. The expression must be sufficient to ‘cross the line’, so that the party to be estopped has assumed some sort of responsibility for it by conveying his understanding of it to the other party in a manner that indicates his expectation that the other party will rely on that expression.[67]As Ms Clarke submits, there is no evidence here that the Company even shared a common understanding as to their remuneration with the Claimants. Nor is there any evidence that it made any expression at all that it held such an assumption. Neither Mr Evans nor any of the other Claimants gave any evidence to indicate any expression of such an assumption by the Company towards them. There was no such expression of an assumption or even reference to one in any of the contemporaneous documents to which I have been referred.[68]In those circumstances, no convention arose between the Claimants and the Company, and the Company is not bound by any convention.[69]It follows that there is no agreement or convention binding the Company that the Claimants receive remuneration in accordance with the DSA Model. Therefore, the claim in respect of unpaid remuneration fails. (d) If there was a binding agreement between the Claimants and the Defendant as to the Claimants’ remuneration packages from the Defendant when did the entitlement to payment of any unpaid remuneration arise, when did the cause of action for non-payment accrue, and is the claim to recover it statute barred?[70]As I have found that there was no such agreement binding on the Company, this issue does not arise. (e) Pursuant to the SA, was Mr Evans entitled to be paid £6,000 in respect of his “E” Entitlement Shares upon retirement?[71]When the assets of the LLPs were transferred to the Company, each of the LLP members received as part of the consideration for the transfer an allotment of 2,000 shares referred to in the SA as “Entitlement Shares”. The Entitlement Shares were issued as a separate class of shares for each former LLP member, and it was pursuant to their rights as holders of those shares that the former members were to share in the profits of the Company by way of dividends. Mr Evans’ Entitlement Shares were designated as class E shares.[72]Mr Evans brings a claim for payment of the nominal value of his class E shares following his retirement. The other Claimants do not bring such a claim in respect of their Entitlement Shares.[73]The SA includes provisions of the type commonly found in agreements relating to private companies with shareholder-directors who work in the business. It provides that when a shareholder ceases to be an employee of the Company, the Company is to serve notice on them, the effect of which is that the departing employee is deemed to have served a transfer notice in respect of all of his shares in the Company. The sum payable for the departing shareholder’s shares depends upon whether he is deemed a Good Leaver or a Bad Leaver. If he is a bad leaver his shares will be purchased at par, that is £1 per share. If he is a good leaver, his shares are to be purchased a “fair value” pursuant to a valuation carried out by the auditors. Clause 9.8 (a) provides that a shareholder leaving by reason of retirement after 31 July 2019 is a Good Leaver. Clause 9.8.2 provides that anyone who is not a Good Leaver is a Bad Leaver.[74]Mr Evans’ employment was terminated by reason of his retirement. As he retired earlier than 31 July 2019, he did not meet the definition of a ‘good leaver’. Mr Din did not suggest that he did and nor was it submitted that there was any agreement that Mr Evans be treated as a ‘good leaver’. There is nothing included in Mr Evans’ witness statement to suggest that he met the definition of a ‘good leaver’ either. It follows that on his retirement; Mr Evans was a ‘bad leaver’ under the SA and entitled to nominal value for his shares. The nominal value of his Entitlement Shares was £2,000. That is what he is entitled to for those shares, subject to the defence raised by the Company.[75]The Company relies upon two documents in defence of that claim. First Mr Evans’ Retirement Letter dated 11 May 2018, which was sent to him by Mr Lee on behalf of the Company following meetings and discussions as to what Mr Evans was entitled to on his retirement. In relation to the Entitlement Shares, the Retirement Letter provides that “The shareholders agreement states only the company can purchase the 2,000 E entitlement shares and at their nominal value of £1. However, as you are fully aware the value of these shares has depleted so no value will be paid for these shares.”[76]Mr Evans signed and returned the Retirement Letter. He did so with some annotated manuscript comments next to his signature, under the statement “Agreed in principle. Outstanding matters are as follows” and listed various matters, none of which relate to the purchase of his E Entitlement Shares, or any of his shares. The Company says that accordingly, any sum which Mr Evans may have been entitled to was compromised by his signing the Retirement Letter.[77]The Company was subsequently advised by its solicitors that the agreement for the surrender of the Entitlement Shares in the Retirement Letter did not comply with the 2006 Act. The Company says that its then solicitors prepared a formal share buyback agreement and sent it to Mr Evans for signature by him and Mrs Evans (some of the shares being held in her name) in January 2019. Stock transfer forms for the transfer of all of the shares in the Company held by Mr and Mrs Evans were also sent. The Company has produced a copy of that share buyback agreement signed by each of Mr and Mrs Evans. The circumstances in which the signatures were provided is disputed.[78]Mr Din accepts that if Mr and Mrs Evans signed the agreement then they are bound by it. Their evidence is that Mr Evans was sent stock transfer forms from Cansdales, the accountants, in July 2018, for signature by them both. They signed and returned those forms.[79]Then in December 2018 or January 2019, Mr Evans was sent the signature pages for an agreement, but not the agreement itself, under cover of a compliments slip from Clark Holt, solicitors for the Company, stating that it related to the share buyback. They signed the signature pages and returned them. This is the oral evidence of them both, maintained under cross examination.[80]In response, Ms Clarke submits that it is inherently unlikely that a firm of solicitors would act in such a way. She also points out that the witness to the Evans’ signatures was not called to give evidence.[81]I agree that it seems unlikely that solicitors would send out a signature page or pages to a non-client without the agreement to which the signatures were to go and without a covering letter of explanation. However, the Company did not call a witness from Clark Holt to dispute that the signature pages were sent out on their own. Not only did Mr Evans give clear and direct evidence on this point but Mrs Evans did too. I consider that it is also inherently unlikely that Mrs Evans, whose evidence only goes to this issue, would come to court to give untrue evidence about such a matter. Other than that, it would be surprising if a solicitor would act in such a way, there is no basis for rejecting her evidence. Further, although I have not accepted all of his evidence on all points, I regard Mr Evans to be an essentially honest witness.[82]In my judgment, the most likely occurrence on the evidence I have heard is that the signature pages were sent to them as the Evans describe, and they signed and returned them despite not having sight of the share buyback agreement. They did so because they knew that Mr Evans had agreed about 7 months earlier to give up his Entitlement Shares for no consideration in the Retirement Letter, and they knew that they had already signed and returned share transfer forms relating to the shares. Therefore, as they saw it, they had already transferred the shares, and the signature of the buyback agreement made no difference.[83]Neither counsel made submissions as to whether the Retirement Letter was binding and enforceable with regard to the Entitlement Shares, despite its allegedly not being in compliance with the relevant provisions of the 2006 Act. Nor do I have any information as to why a further agreement was needed and what it was that was defective about the existing agreement.[84]In my judgment, Mr Evans made a binding agreement to transfer his Entitlement Shares for no consideration when he signed and returned the share transfer form relating to them. He also did so again when he signed the share buyback agreement. He knew that he was putting his name to an agreement to the transfer of his shares for no consideration when he did so, and that he had already transferred the shares. He was not concerned about the precise terms of that agreement. Therefore, Mr Evans cannot now claim payment for the shares. (f) Pursuant to the SA, were the Claimants owed the following amounts upon retirement in respect of sums unpaid under their Directors’ Loan Accounts: (4) Mr Evans - £45,263.25? (5) Mr Walters - £ 23,279.56? (6) Mr Wood - £26,327.53?[85]Each of the Claimants brings a claim for what they say is an outstanding balance due to them on their respective DLAs. They each say that the sum paid to them on their retirement was not the full outstanding balance on their DLAs because each was subject to unauthorised deductions to reflect debts owed to and/or work in progress of JNP North which was moved across to the Company but in respect of which payment was not recovered by the Company. This issue turns on whether the Company was entitled to make deductions from the Claimants’ DLAs in respect of debts brought across from JNP North which were not recovered by the Company.[86]It is common ground that during 2017, the Company encountered substantial cashflow difficulties. The Company says that the sole or main cause of the cashflow difficulties was the failure of the former offices of JNP North to collect debts brought over from JNP North into the Company and to turn the work in progress brought over from JNP North into the Company into cash. I do not accept that those matters were the sole or even the main cause of the Company’s cashflow issues in early 2017. Mr Evans was the Company’s finance director at the time and I accept his evidence that he foresaw the cashflow squeeze, which was initially caused by the large payments of tax in respect of the former LLP members’ income tax on remuneration from the LLPs which was paid at the end of January and the costs of implementing the merger. I also accept his evidence that this pressure led to the former LLP members taking payment by way of deduction from their DLAs in the months following the transfer of the businesses to the Company to ease the pressure on cashflow.[87]Mr Evans’ evidence is that by September 2017, the exceptional costs had been largely paid. I also accept that evidence. From September 2017, I find that the failure of the Company to bring in the anticipated amounts of cash was the predominant cause of continued cashflow issues.[88]I further find that it was the failure of the offices formerly belonging to JNP North which were particularly unsuccessful in bringing in anticipated cash, meaning that the Company was disproportionately reliant on cash being brought in by the former offices of JNP South. This is supported by the documentary evidence referred to at the meeting of the owners of the Company on 5 September 2017 (“the 5 September Meeting”) and was also the evidence of Mrs Channer, who at the time managed cashflow in her role managing the Company’s Accounts Department, and whose evidence I accept.[89]The “Owners Group Meetings” were meetings of all of the shareholders in the Company and generally took place quarterly. Although they could have been held as General Meetings of the Company, they were not and did not purport to be. The Owners Group meeting on 14 June 2017 included a discussion of office performance following a financial report prepared by Mr Evans. This is recorded in the minutes of that meeting. The minutes also record that it was agreed by all that Mr Lee and Mr Byfield visit each office to observe how each of them project manage and take forward best practice from each office.[90]The next Owners Group meeting was the 5 September Meeting. The Company relies upon an agreement reached at the 5 September Meeting between all of the members of the former LLPs. The Company says it was agreed that each of the Owners were to “actively pursue aged debts dating from 2016 from the offices which they ran and that any such debts not collected by the end of November 2017 would be written off and the relevant Owners’ capital accounts adjusted by the outstanding amount. The Owners were to continue to pursue debts after November and any debts recovered would be reflected in a readjustment of the Owners’ capital accounts”. The previous two sentences are direct quotations from the minutes of the 5 September Meeting. The minutes also set out the aged debt of each office as a figure and as a percentage of turnover. It is notable that the aged debt of the Sheffield and Brighouse offices each exceeded the aged debt of the other three offices combined and together stood at more than three times the total for the other three offices combined. Each was also more than 100% of invoicing target and the figure for Sheffield was nearly 300% of invoicing target.[91]The Company says that the minutes are an accurate record of what was agreed by everyone at the 5 September Meeting. Mr Lee, Mr Bradley, Mr Hamilton and Mr Byfield were at the meeting and say that the minutes of the meeting are an accurate record. Ms Coop prepared the minutes and also confirmed that they are accurate. She maintained that anyone who disputed the accuracy of minutes could always raise points on them. She explained that she prepared the minutes of all meetings and sent the draft to Mr Lee before sending them out. Both she and Mr Lee gave evidence that anyone disputing the minutes of any meeting could do so by contacting them when the minutes were sent out. They say that nobody raised any criticism of the minutes of the 5 September Meeting either when they were sent out or when they were considered as the first item at the next meeting and approved. The minutes of the 5 September Meeting were agreed as a true record of that meeting at the next Owners Group meeting on 6 December 2017, as recorded in the minutes of that meeting.[92]The terminology used in the minutes is slightly incorrect as the Owners no longer had capital accounts in the LLPs. Their respective capital accounts had been converted into their DLAs with the Company when the merger took effect. However, the meaning of the words used in the minutes is clear and the meaning (as opposed to the accuracy) is not disputed.[93]The minutes of the Owners Group meeting on 6 December record the presentation of a spreadsheet by Mr Lee and record specifically the agreement at the 5 September Meeting to deduct the uncollected aged debt from the DLAs which was reflected in Mr Lee’s spreadsheet. The minutes of that meeting were in turn approved at the next Owners Group meeting in February 2018. There is no suggestion that any of the Claimants either voiced disagreement in the 6 December meeting or raised any issue with the minutes of it.[94]Each of the Claimants says that he did not agree to the deduction from their DLAs of sums in respect of uncollected aged debt arising at the former offices of JNP North. However, each also says that they did not say so at the 5 September Meeting and nor did they challenge the accuracy of the minutes when they were circulated or when they came to be approved at the following meeting. They say that the atmosphere at the 5 September Meetings was such that they believed that they would not be listened to had they raised any objection. They also say that had they raised any objection to any part of the minutes of that or any other meeting, their objection would have been ignored, or at least not result in any change to the minutes.[95]Mr Lee’s evidence contradicts this. He maintained under cross examination that each member present at the meeting orally communicated their agreement.[96]In my judgment, it is unlikely that anyone recollects who said what at a meeting attended by eight people in September 2017. All the more so where that person is Mr Lee who as I have already observed, answered a very large number of questions at trial with “I do not recall.” On this point I prefer the evidence of the Claimants and find that none of them stated their agreement. Mr Evans says that he pointed out the Company could not charge its debts to employees and Mr Wood says that he stated that he had paid tax and national insurance on the money in his DLA. Neither of those comments states a disagreement with the proposal.[97]In the few days after the 5 September Meeting, both Mr Evans and Mr Wood sent emails in which they expressed concerns about how the meeting had been conducted, but they did not state in their emails that they objected to the deduction from DLAs of unrecovered debts. It would have been the obvious time to say so if, as they claim, they felt unable to voice objection in the meeting itself. I find it striking that there was no email between themselves recording or referring to their disagreement either at the time or when the minutes were circulated.[98]The inherent difficulty with the position maintained by the Claimants is that whilst each says that they did not agree to the bad debt reduction, each also accepts that they did not express any such disagreement at the time, or when the minutes recording that everyone had agreed to the proposal were circulated, or when deductions consequent on the agreement were made to their DLAs, or even, (save arguably in the case of Mr Evans which I will come to below) when they signed their Retirement Letters.[99]In my judgment, all of this evidence establishes that the Claimants accepted that the deductions would be made from their DLAs. They were not happy about it and later wished that they had not done so, but at the meeting they went along with the proposal by saying nothing against it and by not communicating that they disagreed with it. I find that the minutes record accurately what occurred at the 5 September Meeting and that the Claimants did by their conduct in not raising any dispute or resistance acquiesce and therefore agree at the meeting to the making of the deductions which the minutes record were agreed to.[100]It was not contended that their agreement amounted to a binding contract and no submissions were made that the agreement made at the meeting had any particular legal status beyond the fact of the agreement. Notably, although the Owners Group meetings were in substance meetings of the shareholders in the Company, it was not suggested that the agreement made at the 5 September Meeting amounted to an ordinary resolution of the Company.[101]Accordingly, each of the Claimants agreed to deductions being made to their respective DLAs pro rata in the amount of the debts brought over to the Company from JNP North which remained unrecovered at the end of November 2017. The consequential deductions made from their respective DLAs were therefore made with their agreement and are not recoverable.[102]Mr Evans also raised on the first day of trial disputed deductions from his DLA in respect of premiums paid by the Company for a life insurance policy he had. No such claim is pleaded in the Particulars of Claim or referred to in Mr Evans’ witness statement. In my judgment, it is not open to Mr Evans to raise this claim for the first time at trial. Further, any such claim is not supported by evidence from Mr Evans, so it is not made out.[103]It follows that the Claimants’ claim for payment of balances outstanding on their DLAs is dismissed. (g). Was any such agreement or liability of the Company to pay the Claimants compromised, varied, or discharged by one or more of the:(1) Claimants’ service contracts?(2) Business sale agreement?(3) Retirement Letters?(4) Share Buyback Agreements?(5) Promissory estoppel, estoppel by convention or waiver?[104]Again, due to my finding that there was no agreement binding on the Company prior to the entering into of the BSA and SA, this issue does not arise in respect of any agreement as to the Claimants’ Remuneration. However, as there was substantial argument about the effect of the written agreements entered into by the Claimants on any claims that they otherwise had, I will address the effect of those agreements on the claim. Service Contracts[105]The Claimants’ service contracts each contained an entire agreement clause providing that the service contract constituted the entire agreement between the parties concerning the employment. However, had there been an agreement as contended for by the Claimants, that agreement would have related to dividends to which they would have become entitled by virtue of their shareholdings and the Company’s profits, which they would be entitled to. Therefore, I do not consider that the service contracts would have operated to compromise, vary or discharge such an agreement if one had been made between each of the Claimants and the Company. The BSA[106]The BSA includes the entire agreement clause which I have set out at paragraph 57 above. In my judgment, had I found that there was an agreement as contended for by the Claimants, entered into between the Claimants and the Company in consideration of the entering into of the transactional documents, or simply in consideration of the agreement to the merger of the LLPs, I would also have found that such an agreement was a previous agreement between the parties relating to the subject matter of the BSA – specifically, clause 3 of the BSA which sets out the consideration for the Claimants’ interests in JNP North. Therefore, any such agreement would have been replaced by the BSA and consequently superseded by it as a result of the entire agreement clause. The Retirement Letters[107]Each of the Claimants entered into a Retirement Letter with the Company. Each Retirement Letter set out the amounts to be paid to them on their retirement. The Retirement Letters relating to Mr Walters and Mr Wood are in substantially identical form, which is unsurprising as they retired within about a month of each other. That relating to Mr Evans is very similar.[108]As Mr Din points out, none contain an entire agreement clause or any statement that the agreement was in full and final settlement. However, each does include a final paragraph which says “Please sign below to confirm that you are in agreement with the contents of this letter and will abide by the content of the Shareholders Agreement. If you have any questions or concerns regarding the above, please contact me.”[109]Each of the Claimants signed their Retirement Letter. Mr Evans did so with added manuscript annotation, which I will consider separately.[110]Each Retirement Letter set out the balance on the relevant DLA and how it was arrived at, with an opening balance on merger as at 1 January 2017 which was carried across from the closing balance of the individual’s capital account with JNP North. Each then includes an explanation of adjustments to reflect their entitlement to remuneration. It is then stated in each that the value to be paid is to be after deductions for bad debts brought across to the Company. The adjustments were set out on an attached spreadsheet. In each case, the adjustments made in respect of debts brought across from JNP North but not collected is provided for in accordance with what was agreed at the 5 September Meeting.[111]Each letter then goes through each of salary and pension, the classes of shares owned by the individual and dividends, and states what will be paid on retirement in respect of each. Each letter then includes a short table setting out what is to be paid for each and the total to be paid. The table is under the heading “Agreed Payments Value” and the last line of the table reads “Total to be paid to you” then gives the figure reached by adding together the other figures in the table. Finally, it states the timeframe for payment and refers to the timeframe for payment provided for in the SA.[112]Each of the Retirement Letters is a contract which provides for the retirement of the addressee on the terms provided for in it. Whether the effect of each Retirement Letter was to compromise any claims that the recipient may have had against the Company is a question of its true construction. That is a question of law.[113]The approach to be taken to questions of contractual construction is well-established, having been addressed in a number of appellate decisions in recent years. A convenient, authoritative, and up to date summary of the applicable principles was set out by Lord Burrows in Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1 at [21] to [23] as follows:
““[21] The modern approach in English law to contractual interpretation is to ascertain the meaning of the words used by applying an objective and contextual approach. As was said by Lord Hoffmann in his seminal speech in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 ("ICS"), at p 912, the aim of contractual interpretation is 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." His Lordship also explained that business (or commercial) common sense may be relevant. In contrast, declarations of the subjective intentions of the parties and, for reasons of practical policy, previous negotiations cannot be used in determining what the contractual language means. [22] In Arnold v Britton [2015] UKSC 36; [2015] AC 1619, the Supreme Court clarified that the words used by the parties are of primary importance so that one must be careful to avoid placing too much weight on business common sense (or purpose) at the expense of the words used; and one must be astute not to rewrite the contract so as to protect one of the parties from having entered into a bad bargain. [23] In Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173, Lord Hodge, with whom the other Supreme Court Justices agreed, pointed out, at para 12, that contractual interpretation ‘involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated...’.”
[114]Dealing first with the Retirement Letters of Mr Wood and Mr Walters, in my judgment, both the meaning of the words used in the circumstances in which they were signed and commercial commonsense point the same way. The meaning of the words is that they provide for the settlement of all sums due from the Company to the addressee on his retirement in respect of his employment, his DLA, and his shareholding, and for the timescale for the payment of those sums. This is also what commercial commonsense strongly points to. It would not make commercial sense for either the Company or the individual to make a partial agreement of what was due on the individual’s retirement. The effect of each of Mr Wood’s and Mr Walters’ Retirement Letters was to compromise all sums due between the parties on their respective retirements.[115]The meaning and effect of Mr Evans’ Retirement Letter is the same, subject to the effect, if any, of the manuscript annotations he added when signing it. The annotations made by Mr Evans were:
“Agreed in principle. Outstanding matters are as follows: • Explanation and agreement of Directors Loan. • Aged debts to be charged against account to be finalised over time. LLP debts have had income tax paid on them • S Evans to be treated similarly to J Wood, D Smith and M Walters with regard to dividends (remuneration in Newco) • Car allowance to be paid for Jan-Mar 2017” • Explanation and agreement of Directors Loan. • Aged debts to be charged against account to be finalised over time. LLP debts have had income tax paid on them • S Evans to be treated similarly to J Wood, D Smith and M Walters with regard to dividends (remuneration in Newco) • Car allowance to be paid for Jan-Mar 2017”
[116]Counsel did not address the legal effect of these annotations, but Ms Clarke did address their effect in the event that they modified the terms upon which Mr Evans retired. In my judgment, by signing and returning his Retirement Letter with the annotations, Mr Evans did not accept that offer made by the Company in the Retirement Letter but made a counteroffer which was in the same terms but subject to the modifications made by the annotations.[117]I accept Ms Clarke’s submission that the annotations do not change the legal effect of the Retirement Letter to compromise the claims Mr Evans had against the Company as employee, director and shareholder. I also accept her submission that the annotations do not change the effect of the agreement to compromise Mr Evans’ claim to payment of salary, pension and dividends. They do give him the right to be paid his car allowance and to be treated similarly to Mr Wood, Mr Walters and Mr Smith. Mr Evans has not pleaded a claim that he did not receive his car allowance or that he was treated less favourably with regard to dividends than they were nor said so in his witness statement.[118]I also agree with Ms Clarke that the annotations relating to Mr Evans’ DLA do not affect the agreement of the principle of deductions being made in respect of bad debts of JNP North. Rather, the words used in the annotation actually confirm the principle of such deductions.[119]The annotation does provide for the final amount of such deductions to be finalised over time. The Company paid out Mr Evans’ DLA in accordance with the figures provided to him with his Retirement Letter and in the details provided in and with the Retirement Letter set out what the Company considered was due to Mr Evans in respect of his DLA. The extent of the “time” is not specified. In those circumstances, the law implies that the final amount of the deductions will be resolved within a reasonable time (see Lewison: The Interpretation of Contracts (8th ed) at para 6.156, approved by the Court of Appeal in Yoo Design Services Ltd v Illiv Realty PTE Ltd [2021] EWCA Civ 560).[120]Given that the Company had set out in and with the Retirement Letter what it considered the balance on Mr Evans’s DLA to be, it was for him to challenge those figures within a reasonable time. A reasonable time was sufficient time for Mr Evans to consider the matter and prepare a response. In my judgment, a reasonable period for Mr Evans to challenge the DLA figures was 3 months from the date when the Retirement Letter was concluded; that is by 16 August 2018. That gives Mr Evans a reasonable time to examine the figures and prepare his response and is also a reasonable period after which the Company is entitled to the certainty of knowing that the figures are final.[121]Mr Evans did not challenge the DLA figures in that period. He did not in fact challenge them until he sent an email to Rachel Thwaites, the Company’s HR Manager, on 24 March 2021 at 23.10. In my judgment, that was far too late. It is clear from the terms of that letter that Mr Evans raised the issue at that time because Ms Thwaites had informed him that the Company was about to make the final payment necessary to clear all of the sums owed to him and was doing so earlier than it was required to do under the terms of the SA. It is also clear from Mr Evans’ oral evidence, that he delayed raising points until the money provided for in the Retirement Letter had almost all been paid as he feared that if he raised queries at the time, the Company would have ceased making the periodical payments towards the sum due to him as provided for in the SA and he needed that income. Whilst that is an understandable human response, it is not an answer to the requirement to notify the Company of any figures he disputes within a reasonable time.[122]Mr Evans did write to Mr Lee on 1 November 2019 referring to steps he had taken in March and April 2018, the period shortly before his retirement, and saying that as a result of that work payments were made to the Company. Mr Evans stated that those actions and sums meant that he met the criteria for payment of dividends as stated in the Retirement Letter. Not only was that letter too late to raise queries in respect of the deductions from the DLA but it did not do so. It acknowledged that the Retirement Letter governed what was due to Mr Evans by seeking to argue that he met its criteria to be entitled to payment of a dividend.[123]It follows that each of the claims advanced by the Claimants for remuneration, payment for their shares and payment of the sums due to them under their DLAs was compromised by their respective Retirement Agreements in any event. Buyback Agreements[124]I have already addressed the effect of Mr Evans’ Share Buyback Agreement and that it compromised any claim he had in respect of payment for his shares. The Share Buyback Agreements signed by Mr Wood and Mr Walters also compromised any claims they had in respect of their shares, but neither of them advanced any claim in respect of their shares. Ms Clarke did not seriously argue that the Share Buyback Agreements compromised matters other than the sale of the shares, and she was right not to do so. They were only concerned with the buyback of shares and did not affect any other matters. Estoppel / Waiver[125]Given my conclusion that each of the claims was compromised by one or more of the agreements, the Company’s case as to estoppel or waiver does not arise. (h) Was the counterclaim compromised by the Claimants’ Retirement Letters?[126]The Company advances a counterclaim against each of the Claimants for breaches of warranties that they gave in the BSA relating to debtors and to work in progress. Ms Clarke accepts that if the Retirement Letters were in full and final settlement of all claims between the parties then the counterclaim does not arise.[127]I have found that the respective Retirement Letters were in full and final settlement of all claims between the parties, in Mr Evans’s case subject to the annotations. The annotations do not affect any sums claimed to be due from him by reason of breach of warranty.[128]In my judgment, the reasons that I have already given as to why the Retirement Letters were in full and final settlement of all claims that the Claimants had against the Company are also reasons why the same documents were in full and final settlement of all claims that the Company had against the Claimants. There are also additional features of the Retirement Letters which point towards their being construed as in full and final settlement of all of the Company’s claims, including any claims in respect of alleged breaches of warranties given in the BSA. They are that:(a) Each of the Retirement Letters were drafted by the Company and sent by it to the addressee.(b) By the date of each Retirement Letter, the Company was aware of the non-payment of each of the debts in respect of which it now seeks to counterclaim for breach of warranty but makes no reference to them in the Retirement Letters.(c) Each of the Retirement Letters provide for the retirement of the relevant Claimant, the repayment of the balance due on his DLA and for his ceasing to be a shareholder in the Company. They dealt with the payment of all sums which were or may be due to the addressee.(d) The terms of the Retirement Letters provide for deductions to be made from the DLAs to reflect aged debts brought across from JNP North which had not been recovered; so, they make provision for the same subject matter in respect of which the counterclaim is advanced.(e) Each of the Retirement Letters address all of the matters in respect of which sums may be due from the Company to the relevant Claimant and expressly states that no payment will be made in respect of some matters and why.(f) Each of the Retirement Letters specifies the time for payment of each of the sums payable by the Company under it.(g) None of the sums to be paid is expressed to be subject to any claims that the Company may have against the addressee or subject to any other matters.[129]The factual circumstances in which the agreement stated in each of the Retirement Letters was made and commercial commonsense point to the terms of each of them being in full and final settlement of any claims that the Company may have had against each of the addressees. Each Retirement Letter was prepared after discussion between the addressee and Mr Lee on behalf of the Company, during which what was to be paid by the Company in respect of the addressee’s DLA and what deductions were made from it were discussed. Each was prepared and then signed in contemplation of the addressee’s retirement and ceasing to be a shareholder of the Company, albeit in Mr Walters’ case with the intention that he continue to work part time for three months following his retirement and in Mr Wood’s case, that he work for the Company on a consultancy basis pursuant to a new contract following his retirement.[130]Further, for each of the Claimants to agree to retire on the basis of specific payments being made over a specified period while still being potentially liable to make substantial payments to the Company, and for the Company to agree to make those payments while intending to retain the right to bring claims for substantial sums in respect of bad debts of which it was already aware, does not make commercial sense.[131]For all of these reasons, the Company compromised any claims that it may have had against each of the Claimants on the terms of their respective retirement letters and the Counterclaim is dismissed. However, it is necessary for me to address the Counterclaim to indicate what, if anything, I would have awarded in respect of it if it had not been compromised. (i). If the counterclaim has not been compromised, did the Claimants breach warranty 4 and/or warranty 5 in Schedule 3 of the Business Sale Agreement?[132]Clause 5 of the BSA provides the following in respect of warranties: “‘5.1 Each of the Vendors severally warrants in respect of himself only that each Warranty is true and accurate as at Completion. 5.2 The Vendors acknowledge that the Purchaser has entered into this Agreement in reliance upon the Warranties and on the undertakings contained in clause 6 … ‘5.4 Warranties qualified by the expression "so far as the Vendor is aware" are deemed to be given to the best of that Vendor's knowledge, information and belief after having made all reasonable enquiries into the subject matter of the relevant warranty.’[133]The warranties themselves are set out at Schedule 3 to the BSA and those relevant to the Counterclaim are:
“4. So far as the Vendor is aware: a) the amounts due from debtors of the LLP as at Completion will be recoverable in the [sic] full in the ordinary and proper course of business;’ ‘5. All material information whether factual or otherwise, given by the Vendor to the LLP or the Purchaser relating to the business activities, affairs or assets or liabilities of the LLP was when given, and is now, complete and accurate in all material respects and not misleading in any respect.”
[134]The parties each rely on expert forensic accountancy evidence as to the quantum of the Counterclaim. They have each treated the warranty as to amounts due from debtors as being the amounts invoiced by JNP North but remaining unpaid at completion of the transfer on 31 December 2016. The Claimants’ expert, Mr Donaldson, has based his valuation evidence on JNP North’s accounts for the eighteen months to 31 December 2016 and the bad debt list with those accounts (“the Closing Accounts”), each of which were finalised on or about 15 February 2017. Ms Clarke submits that both the experts’ interpretation of the warranty and Mr Donaldson’s use of the Closing Accounts are wrong.[135]I set out the approach to be taken to questions of contractual construction at paragraph 113 above. I apply those principles in construing the warranties.[136]Ms Clarke submits that the experts’ interpretation is not consistent with the natural meaning of the words of warranty 4. She says that the correct interpretation is that what is being warranted is that all sums which have been invoiced but not paid by debtors at the date of completion will be recoverable in full. Ms Clarke also points out that the construction has the advantage of simplicity in application, as it means that the debts being warranted are readily identifiable from the books and records of JNP North available at completion. Ms Clarke emphasises that the warranty as expressed is unqualified by reference to accounts (even though warranty 3 does refer to accounts). She observes that the purpose of the warranties is to allocate risk between the parties, and she says that warranty 4 clearly allocates the risk of non-recovery of book debts to the Claimants.[137]Mr Din accepts that the form of warranty 4 with no reference to accounts or any other qualification is unusual but he submits the literal meaning of the words contended for by Ms Clarke does not make commercial sense in particular on the facts of this case where the wider transaction is the merger of the two LLPs into a single company in which the former LLP members will be the shareholders, rather than a usual arms’ length business sale. He points out that the deal was done long before and was that the assets of JNP North including the debts, were to be transferred to the Company in exchange for previously agreed shares and the amount of those shares was not dependent on the value of the assets generally or the debts in particular. Mr Din relies on the evidence of Mr Evans that the question of including no warranties was raised and there was not particular objection to proceeding in that way from anyone, but the solicitors said that warranties were usual and so standard form warranties were included. It was not a case of any of the warranties being individually negotiated or there being any negotiation about them at all. Mr Din also emphasises that warranty 4 provides that debtors will be “recoverable” and not the debts will be recovered. He says that this shows that the warranty is not absolute but includes a degree of contingency.[138]In my judgment, the literal reading of the words favours Ms Clarke’s construction of warranty 4. I am conscious of the importance of the words used and of the danger of rewriting the clause to protect the Claimants from having entered into a bad bargain. However, I agree with Mr Din that such a provision does not make commercial sense. In what might be described as a usual arms’ length transaction, such a warranty would refer to particular accounts and would refer to the debtors included in the relevant accounts less the amount of any provision made for bad debts in the accounts. Further, in a usual arms’ length transaction, vendors would usually make disclosures against the warranties. The evidence is that the Claimants were not asked or advised to consider making disclosures against warranties in this case. I also note that the warranties are expressed to be given after the warrantors have made all reasonable enquires into the subject matter of the warranty.[139]I have difficulty in accepting that the parties intended that the LLP members warrant that the amounts recoverable were the amount shown in the accounts as debtors ignoring any provision in the accounts for bad debts. Warranty 4 does not identify the amounts due from debtors to which it refers. The amount could only be ascertained by looking at the books and accounts of JNP North to see what amounts are due as at Completion. The warrantors have provided in the accounts of JNP North for a provision for bad and doubtful debts. Self-evidently, where provision has been made in the accounts for bad and doubtful debts, the figure for debtors alone is not an amount which is correct so far as the warrantors are aware and their examination of the debtors has led to the making of the provisions. All parties to the BSA were aware that there was such provision in the accounts. In my judgment, despite the literal meaning of the words used in warranty 4, a reasonable person having all of the background knowledge which both parties had would consider warranty 4 to be of the sums owed less the provision for bad and doubtful debts made in the accounts of JNP North. It follows that the interpretation of warranty 4 which the experts used is the correct one.[140]The list of issues previously agreed also refers to warranty 5. However, it has not been argued that the information provided is incorrect in anyway other than in respect of the recoverability of debts. The information provided included the provision for bad and doubtful debts. Therefore, warranty 5 does not add anything to warranty 4 for the purposes of the Counterclaim, which is in respect of the recoverability of book debts.[141]It follows from my conclusion as to the construction of warranty 4 that the Claimants will be in breach of it. If, and to the extent that, there were debts included in the figure for debtors in the accounts of JNP North which were not in fact recoverable in the ordinary course of business, not provided for adequately in the provision for bad and doubtful debts in those accounts, and which the Claimants were, or on reasonable enquiry would have been, aware were not recoverable in full or in part. I will consider whether there were such debts, and if so which ones, later in this judgment.[142]I accept Ms Clarke’s submission that debts recoverable “in the ordinary course of business” does not include debts which can only be recovered following legal proceedings. Whilst I accept that involvement in construction adjudications was not very unusual for JNP North, adjudication involves significant management time and reduces the amount of time available for the engineers involved, often one of the members of JNP North, to earn fees. I agree that a debt which is only recoverable following adjudication is worth less to JNP North and to the Company than one which will be paid by the client on invoice.[143]I also agree with Ms Clarke that debts which were disputed by the debtor or the subject of on-going negotiation with the debtor and debts where the debtor’s willingness or ability to pay the sum invoiced were in doubt would be caught by the warranty. However, for reasons I have already given, such debts which were included in JNP North’s provision in its accounts for bad and doubtful debts would not be caught.[144]I then come to the question of whether the figure for such debts is to be that in the accounts prepared and in existence on 31 December 2016, or the figure shown in the accounts prepared as at that date, which were not completed until February 2017.[145]The Claimant’s expert, Mr Donaldson, proceeds on the basis that the figures as at completion of the BSA on 31 December 2016 are those which appeared in JNP North’s accounts as at that date, which were prepared in February 2017. The Defendant’s expert, Mrs Hart, does not.[146]Ms Clarke for the Company says that Mr Donaldson’s approach may be understandable from an accountancy point of view but is not the correct approach here. She says that the question of the debtors warranted by JNP North as at completion must be determined on the basis of the information available at completion, whereas the accounts prepared in February 2017 take into account hindsight as they are based on information some of which only became apparent after completion. Further, those accounts were not available at completion.[147]Mr Din disagrees. He points out that while the question of liability for breach of contract falls to be determined when the contract is made, the quantum of the damages payable by reason of breach is determined later.[148]In my judgment, both counsel are correct, but Mr Din’s point does not assist the Claimants. Ms Clarke is correct that the warranty is given as at the date of completion and it is trite law that the question of whether it has been breached is determined as at that date. The value of the debtors which is warranted is the value that appears in the books of JNP North as at completion. As at that date, the figures included as a result of changes made and shown in the accounts drawn up in February 2017 did not appear in those accounts.[149]Mr Din’s point is a correct statement of the legal position but reliance on it here overlooks the practical reality of considering whether warranty 4 was breached. Whether the correct figures were included in the accounts as they were on the date of completion determines liability for the breach of warranty 4 in respect of recoverable debts as well as the quantum of those debts.[150]As Mr Din submitted, it is common and probably usual in a business sale agreement for provision to be made for completion accounts to determine the financial position as at completion, which as Mr Din says, as a practical matter can only be done after the date of completion. In this case, the BSA did not include any such provision. That means that it was incumbent on the Claimants as vendors to check the accuracy of the accounts of JNP North as at the completion date, including whether the sums included for debtors, and as I have found, the provision made for bad and doubtful debtors, is accurate and up to date. I have no doubt that the Claimants were unaware of that need and that it was not explained to them, but that is not relevant to the true meaning of the warranty that they gave.[151]For these reasons, in my judgment, questions of breach of warranty 4 fall to be considered as at 31 December 2016, being the date of completion, and by reference to the debtors and provision for bad and doubtful debts which were included in the accounts of JNP North in existence at that date. (j). If the Claimants are in breach of warranties 4A and/or 5, what sum is due from them to the Defendant by reason of such breach(es)?[152]The usual measure of damages for a breach of warranty claim is the difference between the value of the assets sold if the warranty were true and the actual market value of those assets. Here, both sides’ experts agree that the difference between the value of the debts as warranted and their actual value. Both Mr Din and Ms Clarke made their submissions on that basis.[153]It is then necessary to consider each of the debts listed in the schedule to the Defence and Counterclaim. The experts also refer in their Joint Statement to some debts which are not included in the schedule. By reason of their not being included in the schedule, claims in respect of those debts have not been pleaded. I would therefore not award any damages to reflect those debts.[154]As I have noted, the accountancy experts have considered each debt listed in the schedule and proposed a figure in respect of them. I have agreed with their construction of warranty 4. Therefore, where they are agreed on the appropriate sum in respect of a debt included in the schedule, I accept their evidence and would award the sum which they have agreed.[155]The differences between them are in most cases a consequence of their different approach to the taking into account of the accounts for JNP North as at 31 December 2016 which were prepared in February 2017. Mr Donaldson has reflected what is in those accounts in his figures whereas Mrs Hart has not. For reasons that I have already given, in my judgment, Mrs Hart is correct not to refer to those accounts as they were not in existence at the date when the BSA was entered into and the warranties given. My starting point is therefore Mrs Hart’s figures in respect of the debts referred to in the schedule to the Defence and Counterclaim as stated in the Joint Statement.[156]There remain some differences between Mrs Hart’s figures and Mr Donaldson’s which are not explained by Mr Donaldson’s use of the later accounts. Those debts and my conclusions in respect of them are:(a) Marshall Homes - the main explanation for the difference in respect of the debts relating to this debtor is provision made in the accounts prepared in February 2017. The debts went to adjudication on 5 December 2016, and the adjudicator’s award was not available until January 2017. Mrs Hart deals with this by allowing for the difference between the amount included for the debts in the July 2016 accounts of JNP North, less the amount provided for as bad/doubtful in those accounts and less the amount actually recovered at adjudication. In my judgment, that is the correct approach, and I would therefore award the figures she allows for those debts in her report.(b) Derbyshire Community Health – Mr Donaldson makes no allowance in respect of this debt of £2,546 when calculating the quantum of the Counterclaim, as he says that there is no evidence that the invoice was disputed as at completion and therefore it was reasonable to assume that the debt would be recovered in the ordinary course of trading. Mrs Hart says that this debtor had stated that earlier invoices had exceeded the purchase order and could not be paid without further information. The invoice in issue which was only issued on 30 November 2016. Mrs Hart states in her report that she had not seen any mention of this invoice in the correspondence from the debtor or in any other correspondence. In my judgment, Mr Donaldson’s conclusion in respect of this debt is correct and therefore, I would not award any sum in respect of it.(c) Greene King Brewing & Retailing – the invoices relating to this debtor were all written off post completion. The newest of the invoices was almost a year old at the date of completion and one was about 19 months old. Mr Donaldson says that although the invoices were old there was no communication as at completion disputing them specifically and that JNP North continued to invoice the debtor for new work. He also observes that the debtor was a very large client of JNP North and it had invoiced the client for £698,128.53 of work since 1 August 2014 and £670,379.67 had been paid. Mr Donaldson says that in the absence of a specific dispute, the Claimants could reasonably conclude that the invoices in issue would be paid. Mrs Hart says that the invoices were, as I have observed, very old. Further, there was correspondence from the debtor raising charging issues on projects to which these invoices related and that there was no evidence that JNP North was chasing these invoices. She also notes that in relation to two of the invoices the debtor wrote in November 2016 that unless justification for the proposed fees was made in the following working week the account will be closed. Mrs Hart also observes that she saw no correspondence relating to these invoices after 2 December 2016 and that they were in due course all written off. She notes that the debtor did offer £475 in respect of one of them on 23 November 2016, although that offer was not accepted, the sum was not paid, and the invoice was written off in full on 31 December 2018. In my judgment, the matters referred to by Mrs Hart mean that the Claimants knew or should have known that these debts were not recoverable as at completion. However, although the offer of £475 was not accepted, the position as at completion was that such sum was offered and available to JNP North. The Claimants were entitled to consider that sum as recoverable at completion. I would therefore award damages in respect of the Greene King invoices in the amount calculated by Mrs Hart, save for a deduction of £475.[157]It follows that I would award the figures calculated by Mrs Hart in respect of the debts included in the schedule to the Defence and Counterclaim, being £68,758.60, minus deductions in respect of £475 relating to Greene King and £2,546 in respect of Derbyshire Community Health. Therefore, the sum which I would have awarded by way of damages in respect of the counterclaim had I found that it had not been compromised by the Claimants’ respective retirement letters would have been £65,737.60. Conclusion[158]For the reasons I have given, both the claim and the counterclaim are dismissed.