Drinking and wishful thinking

January 30, 2018

The High Court has dismissed a claim that during a conversation in a London pub, a binding agreement was reached for Michael Ashley to pay £15 million to the “wishful thing” consultant Jeffrey Blue in return for increasing Sports Direct’s share price.

Business impact

A contract can be made anywhere in any circumstances – that being said, the environment in which an agreement is made may determine whether it amounts to a legally binding contract.  This case serves as a useful reminder of the fundamental principles of contract law, prompting anyone who seeks to rely on an informal understanding to reassess their contractual standing.

Background

Mr Blue started working for Sports Direct as a consultant in November 2012, tasked with finding the company a new corporate broker.  He approached a former colleague, Peter Tracey, for the role. Mr Tracey suggested that there should be an informal meeting between Mike Ashley, Mr Blue and senior members of Tracey’s organisation.

In January 2013, Mr Blue, Mike Ashley and Mr Tracey and two of his colleagues met at the Horse & Groom pub in Great Portland Street. During the drinking session, there was a conversation regarding what level Sports Direct’s share price might reach if the company continued performing well. The discussion turned to the topic of providing Mr Blue with a share price based incentive.  Shares in Sports Direct were trading at approximately £4 per share at that point in time.  Mr Blue asserted that Mike Ashley said words to the following effect:

“What should I do to incentivise Jeff? If he can get the stock to £8 per share why should I give a fuck how much I have to pay him, as I will have made so much money it doesn’t matter. So let’s say if Jeff can get the stock to £8 per share in the next three years, I’ll pay him £10 million. Jeff: what do you think?”

Mr Blue, after apparently undertaking some quick mental calculations, proposed that he should be paid £10 million if the share price reached £7.20 per share.  After further discussion amongst the group, it was determined that £20 million for the stock reaching £8 per share would be more appropriate, with Ashley commenting something along the lines of:

Now that’s more like it, but I’ll tell you what let’s split the difference and call it £15 million if the stock gets to £8 per share in the next three years“. Mr Blue agreed, saying words to the effect of “Yes, that sounds fair“.

The evidence indicated that the atmosphere was extremely jovial, with Mike Ashley having probably consumed four or five pints by this stage in the conversation. No written record was made of the discussion.

In February 2014, the share price rose above £8. Mr Blue claimed that he then asked Mike Ashley whether he had seen that the share price had hit £8 and Ashley replied that he had.

Mr Blue recorded this in a note book, claiming that this was a record of Mike Ashley’s acknowledgement that the share price had reached £8 per share and that this therefore implied that he had become entitled to the £15 million.

In December 2014, he resigned due to frustration over the lack of clarity of his position with Sports Direct.

Proceedings

Jeffrey Blue’s position

In September 2015, Mr Blue issued proceedings in the High Court after failed attempts to contact Mike Ashley over the matter.  Mr Blue claimed that in the pub conversation, Mike Ashley made an oral agreement with him that he would be paid £15 million if, by deploying his experience, skills and contacts, he managed to get the Sports Direct share price up to £8 per share within three years.

Mike Ashley’s position

Mike Ashley made the case that if he had said anything to that effect, it was not capable of forming a legally binding contract; it was only banter which was not supposed to be taken seriously and there was not the certainty of terms required to create a contract. It was also argued that, even if there had been a legally binding contract in place, in order to be eligible for the payment, Mr Blue would have to show that his actions resulted in the rise in share price, and this he would not be able to do.

Requirements of a contract

The judge identified the basic requirements of a contract as:

  1. agreement;
  2. intention to make a legally binding contract;
  3. consideration; and
  4. certainty and completeness of terms.

On the evidence, the judge was quite sure that what transpired at the pub did not give rise to a binding contract.

Consideration was not particularly at issue in the trial, but both an intention to be legally bound and certainty of terms proved difficult to establish.

The setting, purpose and tone of the occasion indicated that it was unlikely for there to be an intention to create legal relations.  Convivial drinks in a pub, organised with the aim of meeting a potential service provider, would be an improbable environment to negotiate a contractual bonus arrangement.  Additionally, it was considered that there was no reasonable commercial reason why Mike Ashley would make such a share price based payment, only on the condition that Mr Blue undertook some unspecified work.  It was clear that, as was supported by Mr Tracey and his colleagues in their role as witnesses, Mike Ashley was not being serious, with the discussion of such large sums merely being a bit of banter and joshing.  The judge further thought that, in light of Mr Blue’s business experience and the fact that he thought it unnecessary to make a written record of such an agreement, at the time of the conversation, Mr Blue himself did not believe there to be an intention to be legally bound.

The terms of the supposed offer were unclear.  There were none of the considerations one would expect to see in a serious discussion regarding a £15 million payment.  Such an offer would require specification of the work to be undertaken and a measure of how the effect of such work was to be assessed. The essential lacking term was a specified period within which the share price had to reach its target of £8.  Mr Blue was the only person to recall that a period of three years had been specified and he had not mentioned this timescale in subsequent communications with Mike Ashley – the judge thought it likely that this was a later reconstruction on Mr Blue’s part.  The judge maintained that this was a term that the court could not imply as there was no yardstick against which to measure a reasonable time period; in its absence, no contract could have been formed.

Comment

Although this case does not introduce any new law, it is a useful example of how the courts approach fundamental contractual principles.  In particular, regarding intention to make a legally binding contract, it demonstrates the impact that setting and context can have; as Leggatt J concluded: “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”.

Calum Bryant, Trainee Solicitor, Simkins LLP