I think you've missed a little math at the end of that fight.
The gunners will get 16-18 attacks (depending on how the Knights are placed).
They will hit back on 4's (or 5's if they fail their fear check) and wound on 5's.
Also, a 1 always fails; so knights (and even jugger-riders) can always fail an armour save.
So the handgunners will still cause 2-3 wounds on average, and a knight might fail his save; the gunners have lost the fight but still have an extra rank so remain stubborn and both units are likely locked in combat.