​Pub “banter” and legally binding contracts

20 October 2017

Author: Rachel Craig
Practice Area: Corporate - M&A

R_craig

A cautionary tale from a recent case

The recent decision in Blue v Ashley [2017] EWHC 1928 provides valuable advice about the legal effect (or otherwise) of conversations which are had in “extremely jovial” atmospheres.

The importance of concluding agreements in writing and ensuring that these are signed cannot be underestimated. Whilst there is no legal requirement for a contract to be in writing, the absence of a written record “may – depending on the circumstances – tend to suggest that no contract was in fact completed.”[1]

A refresher of contract law:

In reaching its decision in Blue v Ashley, the court referred to what is required for a legally binding contract, being that: (i) the parties have reached an agreement (ii) which is intended to be legally binding (iii) which is supported by consideration and (iv) which is sufficiently certain and complete to be enforceable. The court also gave consideration to the reliability, or otherwise, of evidence based on memory and noted that “it is rare in modern commercial litigation to encounter a claim, particularly a claim for millions of pounds, based on an agreement which is not only said to have been made purely by word of mouth but of which there is no contemporaneous documentary record of any kind.”[2]

Background and Decision:

In January 2013 Jeffrey Blue, a consultant with a background in investment banking, met with Mike Ashley (founder and majority shareholder of Sports Direct International Plc (“Sports Direct”)) and three individuals from Espirito Santo Investment Bank (“ESIB”) in a pub in London. The purpose of the informal gathering was to make introductions between the individuals from ESIB and Mike Ashley, with a view to discussing whether ESIB might be interested in acting as Sports Direct’s corporate broker.

The informal gathering “turned into an evening of drinking”[3] and the court heard in evidence that “the pints [kept] coming like machine guns”.[4] During the course of the evening, there was discussion of Sports Direct’s share price and what level it might reach if Sports Direct continued to perform well. At the time, Sports Direct’s shares were trading at around £4 per share. Mr Blue alleged that in the course of this discussion, Mr Ashley agreed to pay Mr Blue £15 million if Mr Blue could get Sports Direct’s share price to £8 per share in a three year period. Mr Ashley’s view was that if such a conversation took place that evening, it was “in the context of general banter…and it would have been obvious that he was joking.”[5] Mr Blue did not make any written record of the conversation in the pub.

In December 2013, Sports Direct’s share price hit an all-time high of £7.71 per share following which Mr Blue first raised with Mr Ashley the subject of what he considered to be the agreement that they had made. Mr Blue understood Mr Ashley to be acknowledging the existence of their agreement and confirming that he would honour it, but Mr Blue made no written record of this conversation. In February 2014, Sports Direct’s share price rose above £8. Mr Blue made a written note of the time when this occurred, asked Mr Ashley if he had seen that the share price had hit £8 and Mr Ashley replied that he had. Mr Blue alleged that this amounted to a record of Mr Ashley’s acknowledgement of the share price reaching £8 per share and therefore, by implication, Mr Blue had become entitled to the £15 million payment.

In May 2014, Mr Ashley transferred £1 million to Mr Blue’s bank account, which Mr Blue understood to be a sign of Mr Ashley’s commitment to their agreement.

Mr Blue claimed that the conversation in the pub in January 2013 – that if Mr Blue used his experience, skills and contacts to get the Sports Direct share price above £8 per share within 3 years, Mr Ashley would pay him £15 million – amounted to a legally binding agreement.

The court described the dialogue in the pub in January 2013 as “jocular conversation”[6] and found that “no reasonable person…would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract.”[7] The court was sure that the discussions in the pub would not “reasonably have been understood as a serious offer capable of creating a legally binding contract.”[8] Although the court found no credible reason for Mr Ashley making the £1 million payment to Mr Blue, the court did not view this as an acknowledgement by Mr Ashley of the agreement reached in the pub to pay Mr Blue £15 million, of which the £1 million payment was the first instalment. In finding against Mr Blue, the court observed that the fact that Mr Blue had convinced himself, since January 2013, that the offer was a serious one, showed “only that the human capacity for wishful thinking knows few bounds.”[9]

How CMcD can assist:

If you would like advice in respect of contract terms which you are currently negotiating, or are concerned about the enforceability of agreements already in place, please contact Rachel Craig at [email protected] or on (028) 9034 8847.

[1] [2017] EWHC 1928 paragraph 49

[2] [2017] EWHC 1928 paragraph 65

[3] [2017] EWHC 1928 paragraph 10

[4] [2017] EWHC 1928 paragraph 15

[5] [2017] EWHC 1928 paragraph 15

[6] [2017] EWHC 1928 paragraph 142

[7] [2017] EWHC 1928 paragraph 142

[8] [2017] EWHC 1928 paragraph 80

[9] [2017] EWHC 1928 paragraph 142

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