Stuart William Evans & Ors v JNP Group Consulting Engineers Limited

A pre-incorporation agreement between individuals does not bind a company that did not yet exist. Under section 51(1) of the Companies Act 2006, the company cannot ratify it, although it may later enter a fresh contract. Estoppel by convention requires an expressly shared assumption, an expression crossing the line into responsibility, reliance, subsequent mutual dealing, and detriment or unconscionability. Signed retirement letters may compromise all claims arising on retirement, including known warranty claims, without express full-and-final wording. Contractual warranties are construed objectively and liability is assessed at completion, not by later accounts prepared with hindsight.

The claim arose from the restructuring and merger of two civil engineering businesses into the Defendant company. The Claimants sought unpaid remuneration, payment for shares and balances allegedly due under their directors’ loan accounts. The Defendant relied on agreements made on retirement and counterclaimed for breaches of warranties concerning transferred debts and work in progress. The court considered whether a pre-incorporation remuneration arrangement bound the Company through a fresh contract, ratification or estoppel; whether the retirement and share documents compromised the claims; whether deductions from the loan accounts were agreed; and, alternatively, the construction and value of the warranty claims.

The claim and counterclaim were dismissed.

1. The parties agreed before incorporation that remuneration would be calculated by the DSA model, rather than guaranteeing a fixed total of £390,000. Any dividend element was implicitly conditional on sufficient distributable reserves. The arrangement did not bind the Company because it did not exist when the agreement was made and section 51(1) of the Companies Act 2006 applied. The claim based on ratification failed under Kelner v Baxter (1866) L.R. 2 C.P. 174. Although a fresh post-incorporation contract was legally possible under Howard v Patent Ivory Manufacturing Company (1888) 38 Ch.D 156, none was proved. No estoppel by convention arose because the Company had not expressed or adopted the alleged common assumption. The principles summarised in Tinkler v HMRC [2021] UKSC 39 were not satisfied.

2. The Claimants agreed to deductions from their directors’ loan accounts for unrecovered aged debt by acquiescing at the relevant meeting, failing to challenge accurate minutes and accepting subsequent deductions. Mr Evans’ unpleaded life-insurance claim could not be raised at trial. His share claim also failed: he was a bad leaver under the Shareholders Agreement and knowingly signed documents transferring the shares for no consideration.

3. The Retirement Letters were contracts which, construed objectively and commercially, settled all sums due on retirement in respect of employment, loan accounts and shareholdings. This conclusion did not require express full-and-final wording. Mr Evans’ annotations did not displace the compromise. They required DLA deductions to be finalised within a reasonable time; three months was reasonable and his later challenge was too late. The same letters also compromised the Company’s known warranty claims.

4. The court applied the objective and contextual approach summarised in Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1. Alternatively, warranty 4 concerned debts net of provisions for bad and doubtful debts, debts requiring adjudication or legal proceedings were not recoverable in the ordinary course, and breach fell to be assessed by reference to accounts existing at completion. If the counterclaim had not been compromised, the award would have been £65,737.60.