Before embarking on what is an unusual litigation let’s have a little reminder.
The key elements which have to exist for a contract to be binding are that:
the terms of the agreement are certain enough and sufficiently complete for it to be enforceable.
Basically everyone who has studied contract law will be familiar with these concepts. However these legal issues we explored in the colourful litigation (please excuse the pun) of Jeffrey Blue v Michael Ashley.
Jeffery Blue was an investment banker and provided services on a consultancy basis to Mike Ashley who is popularly recognised as the founder and majority shareholder of Sports Direct as well as being the owner of Newcastle United Football Club.
In January 2013 both gentlemen retreated to a local hostelry called the ‘Horse and the Groom’ whose proprietor must have been placed to see them as the pints were being dispatched, according to the evidence, ‘like machine guns’. During the course of the evening Jeffery Blue claimed that Mr Ashley promised to pay him a mere £15 million if he would achieve a share price for Sports Direct in excess of £8.00 per share within three years. Mr Blue took his role seriously and following upon what he considered was a binding agreement employed his no doubt considerable skills in various initiatives which, he said, resulted in the share price closing above £8.00 in February 2014. Indeed, according to Mr Blue, as evidence of the binding nature of the obligations, Mr Ashley paid him £1 million for his efforts in May 2014 which, he said, was an interim payment towards the £15 million.
Mike Ashley’s position was somewhat different. He said that he couldn’t even remember having had the discussion. Apparently a lot was said at similar ‘business meetings’ at the pub – a great deal of which he said was not taken seriously. Any apparent discussion which he did have with Mr Blue was, according to Ashley, just banter. As such it did not create a legally binding obligation. An alternative argument which was advanced was that even if there had been a binding contractual relationship Mr Blue would be obliged to demonstrate that it was he who had caused the share price to increase beyond the £8.00 mark which he had been unable to do.
Jeffrey Blue’s entitlement to payment was entirely dependent upon whether the parties had entered into a legally binding contract. The key elements for a legally binding agreement to exist have already been detailed in the introduction. Of particular relevance to the court was that there was an alleged agreement for a significant consideration which had neither been committed to writing nor could be corroborated with contemporaneous notes of any kind. Even although Mr Blue may have been able to provide evidence that Mr Ashley did business in the past in a similar fashion this was insufficient evidence that a binding contract existed in the case at point. No evidence had been advanced which proved that Mr Ashley had intended the ‘deal’ to be legally binding and no reasonable person would have concluded otherwise.
Despite its unusual facts the case is a timely reminder of what is required to create a binding contract. Many people in business may forget what constitutes the essential elements to create the intended legal relationship. This is, perhaps, one important reason why business agreements should be committed to writing.
Perhaps the conclusion is best summarised by Lord Legett in his 41 page judgment when he said “In the course of a jocular conversation with three investment bankers in a pub on the evening of 24 January 2013, Mr Ashley said that he would pay Mr Blue £15 million if Mr Blue could get the price of Sports Direct shares (then trading at around £4 per share) to £8. Mr Blue expressed his agreement to that proposal and everyone laughed. Thirteen months later the Sports Direct share price did reach £8. But no reasonable person present in the Horse and Groom on 24 January 2013 would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract, an no one who was actually present in the Horse & Groom that evening – including Mr Blue – did in fact think so at the time. They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds”!
Legal changes can have a dramatic impact on you and your business. To ensure you are kept up to date with the latest developments and have the knowledge to make timely, effective decisions, please sign up for our free updates.