Could you jokingly agree to a million pound deal whilst enjoying a pint with your friends, only to find that a binding contract was formed? The outcome of the recent case involving billionaire Mike Ashley, the owner of Newcastle United and founder of Sports Direct, suggests not.
The case hinged on an evening of heavy drinking in 2013 in which Jeffrey Blue, a former investment banker enjoyed plenty of drinks with Mr Ashley and others. Mr Blue claimed that the billionaire agreed to pay him £15m if he helped Sports Direct's shares to double in value.
Witness evidence suggested there was a verbal agreement to that effect. Sports Direct shares did double in value, yet the Court decided that no contract existed.
To explain why, let's go back to every law student's first lesson. Every contract needs:
- Intention to create legal relations
We also learn that contracts can be deemed void if the terms are uncertain and/or vague.
This case turned on the key question of whether the parties had intended to create legal relations.
Evidence suggested that the conversation between Mr Ashley was no more than "banter" or "pub chat". The court stated that "drinks were flowing, people were laughing," and looked at the nature of the setting, the purpose of the occasion, and the tone of the discussion and decided that the conversation was not a serious, commercial one. Instead, it "was banter in which Mr Ashley was displaying his wealth and the scale of his ambitions". The Court decided there was therefore a lack of intention to create legal relations on Mr Ashley's part.
The Court also stated that the offer was also far too vague to be a genuine contractual offer. No timescales were agreed and no contracts were subsequently drafted.
It would seem then, that for the most part, it is difficult to make a binding oral legal contract when you are "joshing" – as the Court so deftly puts it - with your mates at the pub.
However, we would all do well to remember the Judges' comment: "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."
Rare. Not impossible.
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