UK Construction and Law
Retirement letters drafted by the company settled every claim in both directions, and a 65,737 pound warranty counterclaim went with them
By Staff Writer | 25 August 2026
Three civil engineers who sold their practice into a merged company sued for sums they said were owed when they retired. The company counterclaimed on warranties about the aged debt it had taken over. The court held that the retirement letters the company itself had drafted compromised everything, and dismissed the claim and the counterclaim together.
Two civil engineering partnerships merged at the end of 2016. One operated from Brighouse and Sheffield, the other from Chesham and Leamington, and they had worked in collaboration for some time before a review of both businesses led them to combine into a single company. The members transferred the assets of the two partnerships to the new company in exchange for shares under business sale agreements dated 31 December 2016, their capital accounts became directors' loan accounts, and they entered a shareholders agreement.
It did not go well. The company traded from the beginning of 2017 and performed below expectation. Those running it attributed that to the offices that had come from the northern partnership. No dividends were declared on the shares held by the northern members. The relationship broke down, the first of them retired in May 2018 and the other two followed later that year, each receiving a payment on retirement in respect of the balance said to be owing on his loan account, with adjustments.
Two claims, one document
The three former members sued for the sums they said should have been paid on retirement, including unpaid remuneration under an agreement they said was reached in February 2016, entitlement share payments and loan account balances. The company defended and counterclaimed for breach of the warranties the northern members had given in their business sale agreement about the value of the aged debt transferred across. The agreed list of issues ran to more than 35 items and the judge cut it down before he could use it.
None of it was reached, because the company's primary defence succeeded. The retirement letters, which the company had drafted and sent to each retiring member, were held to be in full and final settlement of all claims between the parties, and the judge held that the same reasoning applied in both directions.
Why the letters were read that way
The features the judge relied on are the ones to look for in any exit document. The company drafted and sent each letter. By the date of each letter it already knew of the non-payment of the very debts it now sued on, and said nothing about them. Each letter dealt with the retirement, the repayment of the loan account balance and the member ceasing to be a shareholder, and so addressed all the sums that were or might be due. Each provided for deductions from the loan account to reflect aged debts brought across that had not been recovered, which is the same subject matter as the counterclaim. Each stated expressly where nothing would be paid and why, and fixed the time for every payment. And none of the sums payable was expressed to be subject to any claim the company might have.
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
His Honour Judge Charman, sitting as a Judge of the High Court in Birmingham
The party that drafts the settlement is the party that bears the consequence of what it left out.
What it would have been worth
The judge went on to say what he would have awarded had the counterclaim survived, which is useful because it prices the point. On the aged debt schedule he preferred the defendant's expert on most items and would have awarded 68,758.60 pounds, less 475 pounds where an offer had been made and remained available at completion, and less 2,546 pounds on another debtor, giving 65,737.60 pounds. That sum was lost because of the wording of three letters written eight years ago.
The transaction completed more than nine and a half years before judgment, and the trial ran across ten hearing days between April and June this year. Anyone drafting an exit letter for a departing partner or shareholder should assume it will be construed as a complete settlement of everything both ways, and should carve out expressly any claim they intend to keep alive. Both the claim and the counterclaim were dismissed.