Court rules that pub 'banter' did not amount to legally binding deal

On 26 July 2017 judgment was handed down in the high profile case between Jeffrey Blue, an investment banker who worked as a consultant for Sports Direct, and Mike Ashley, the founder and majority shareholder of Sports Direct and owner of Newcastle United.

Whilst the case provided an entertaining glimpse into the events of a night out in Fitzrovia where the pints kept coming “like machine guns”, legally, the case is a reminder that the Courts will rarely uphold oral agreements entered into in unorthodox circumstances that would otherwise be properly described as drunken “banter” in a pub.

What was the dispute about?

Mr Blue, whose role was to provide consultancy and advisory services on strategic development opportunities, claimed that, during a night out on 24 January 2013 in the Horse & Groom pub, Mr Ashley promised him £15 million if he could help get Sports Direct’s share price above £8 per share within three years.

Mr Blue argued that this oral agreement was legally binding, that he duly deployed his skills and contacts and undertook various initiatives in reliance on the agreement and that, pursuant to it, Mr Ashley became obliged to pay him £15 million when the share price closed above £8 on 25 February 2014. He says that Mr Ashley acknowledged this obligation by paying him a sum of £1 million on 27 May 2014 as an interim payment, but that Mr Ashley had since gone back on the deal.

On the other hand, Mr Ashley’s case was that, even if he did have those discussions (which he did not remember), it was just banter which was not meant seriously and was not capable of giving rise to a legally binding contract; nor was there the necessary certainty of terms to create a contract. He also argued in the alternative that, even if there was a binding contract on the terms alleged, to qualify for the payment Mr Blue would have to show that his actions caused the share price to rise above £8 per share, which he could not do.

What did the court decide?

Whether Mr Blue was due a payment came down to whether the parties had entered into a legally binding contract. As a reminder, the legal requirements for a binding contract are that (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable.

With the case concerning the basic tenets of contract formation, contract law purists and law school students alike would recognise the judge’s references to seminal contract law cases such as Carlill v Carbolic Smoke Ball Co [1892] 1 QB 256. In this case, the dispute was made peculiar by being centred on an agreement, for a significant amount of money, 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.  Mr Blue also sought to paint a colourful picture of Mr Ashley’s ‘unconventional’ approach to conducting business, as support for his assertion that Mr Ashley would have intended their deal to be legally binding, even though entered into in unusual circumstances.

In its judgment, the court concluded that the events after the conversation in the Horse & Groom, including the payment of £1 million in May 2014, did not support the suggestion that Mr Ashley believed that he had promised to pay Mr Blue a bonus if the share price reached £8. Nor did the evidence show that Mr Blue believed that he had a right to such a payment, and no reasonable person present on 24 January 2013 would have had such an understanding.

It was clear that an intention to make a contract could not be shown. An evening of heavy drinking, banter and tossing around big numbers in a display of Mr Ashley’s wealth and the scale of his ambitions did not constitute the setting for the formation of legal relations. No reasonable person present in the pub that night would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract. In fact, everyone thought it was a joke and Mr Blue had since convinced himself that the offer was a serious one.

Why does this matter for businesses?

The case is noteworthy not just because of the colourful characters and unusual circumstances. From a legal standpoint it is interesting to see an analysis of the requirements for an intention to create legal relations in a business context. So often this prerequisite for a binding contract is a “given” in a business setting and, apart from in cases involving questions of whether heads of terms are binding, it is unusual for this point to be subject to scrutiny by the courts. The case brings us back down to earth by reminding us of the time-honoured importance of recording agreements in writing and getting the agreement signed. Even in cases involving large listed companies and public figures, this is the guiding principle.

Overall therefore, the case is a neat refresher of the principles of contract law formation, as well as a reminder, as the judge put it, that “the human capacity for wishful thinking knows few bounds“.