In the case of Blue v Ashley  EWHC 1928 the court held that, in this case, an informal conversation which took place in a pub was not intended to be legally binding.
Proceedings arose following a meeting in a pub between Mr Mike Ashley (the majority shareholder of Sports Direct plc), Mr Jeffrey Blue (an investment banker), and three representatives from a firm who wished to become Sport Direct’s corporate broker. Both Mr Ashley and Mr Blue consumed alcohol during the meeting.
Following the discussion Mr Blue believed that Mr Ashley had promised to pay him £15 million if the Sport Direct’s share price doubled to £8 per share.
The agreement was not put into writing however Mr Ashley paid £1 million into Mr Blue’s bank account approximately three months after the company’s share price had risen to £8 per share. Mr Blue believed that Mr Ashley was therefore committing to the agreement allegedly reached in the pub.
Mr Ashley refused to pay the remaining £14 million as he argued that the £1million paid to the investment banker was merely a bonus for recent work. He did not agree that a legally binding contract had been entered into at the pub.
Mr Blue issued proceedings in order to establish whether the informal discussion was legally binding.
The High Court held that there had not been an intention to create a legal relationship between Mr Ashley and the investment banker as “an evening of drinking in a pub with three investment bankers is an unlikely setting in which to negotiate a contractual bonus arrangement with a consultant who was meeting them on behalf of the company”. The purpose of the meeting had clearly been for Mr Ashley to meet with the representatives of a potential corporate broker for Sports Direct.
Furthermore, there had been no agreement as to how Mr Blue was to earn the £15million and it was clear that this was not a serious offer according to witnesses.
It is important to show that there has been an intention to create legal relations when parties enter into an agreement.
The agreement made in this case was clearly insufficient in establishing a legal relationship due to the informality and vagueness of the agreement.
If you intend to create an enforceable agreement you should ensure that the terms are expressly agreed and put in writing.
It is important to note, however, that contracts can be agreed informally and verbally including in a social setting. The key test would be whether a witness would believe that there was an intention for the agreement reached to be legally binding.
If you require legal advice relating to a verbal contract, Farleys Solicitors can help. Call us on 0845 287 0939 or submit your enquiry online.