When is a verbal agreement binding? And when is it certainly not?
The High Court case involving Mike Ashley, owner of retail chain Sports Direct, and Geoffrey Blue, an investment banker, made for some entertaining media coverage last month with lots of sordid details of their “drink fuelled meetings”, kebab dinners and subsequent vomiting in fireplaces. Not the norm for most business meetings!
Mr Blue claimed that Mr Ashley had promised to pay him £15 million if the Sports Direct share price hit £8. That target was duly achieved and Mr Blue sued for his £15 million. Mr Ashley said that he could not remember details of what had been said on a night of heavy drinking, but the judge decided on the evidence that he had indeed said what Mr Blue claimed.
Unsurprisingly however, the Judge concluded that no reasonable person present would have thought that this was a serious agreement. They all thought that it was a joke. According to the Judge, the fact that Mr Bloom later convinced himself the offer was serious shows “only that the human capacity for wishful thinking knows few bounds”.
It is not often that the issue of ‘intention to create legal relations’ comes up in court. This case is a worthwhile reminder of a fundamental building block of contract law – unless both parties intend that an agreement should be legally binding then there is no contract.
Mr Ashley said afterwards that the company’s increased share value had been due to the hard work of its entire staff, not the efforts of Mr Blue, but even if this had been the case, he would still have lost the case.
A verbal agreement can certainly be binding, but Mr Blue could have saved himself a great deal of trouble if only he had asked Mr Ashley to confirm the understanding in writing when, of course, both of them were stone cold sober.
Stephen Allen, Partner