The £15,000,000 Hangover – be careful what you say, it may become binding
18/07/2017 | ACUMEN BUSINESS LAW
When billionaire Mike Ashley was getting the round in at The Horse and Groom in January 2013 he probably did not expect his bar tab to come to £15,000,000.00. However, the boozy session has led to Ashley becoming entangled in costly legal proceedings with a former executive, Jeff Blue, of his company Sports Direct.
Jeff Blue argues that during a drunken ‘lock in’ the founder of Sports Direct agreed that he would pay a £15,000,000.00 bonus to Blue were he to double the company’s then share price, from £4.00 to £8.00. Ashley has argued that due to how intoxicated he was and the circumstances surrounding the discussion, it was purely “banter” and that he did not intend to be legally bound by his word. Indeed, stories of Ashley vomiting into a pub fireplace and having regular binge drinking sessions have been commonplace in most newspapers for the past week.
What is clear under English contract law, and its common law foundations, is that a verbal agreement, except where excluded (such as transfers of land), can be legally binding; as long as the core elements of an agreement exist, namely offer, acceptance, consideration and capacity. In this case most of those elements are present however questions remain in respect of Ashley’s capacity. A party to a contract must have the capacity to agree to the arrangement, and it could be argued, as Ashley’s legal team has done, that the required level of capacity does not exist where one party is heavily intoxicated.
The counter argument made by Blue is that it was the norm for Ashley to carry out his business in less than traditional locations, such as casinos, restaurants and pubs. Blue and his representatives have painted the picture with tales of other business activities that Ashley has carried out under these circumstances; featuring one story where Ashley and an analyst engaged in a drinking competition that resulted in Ashley vomiting into a fireplace (to the applause and laughter of his senior management team). Another anecdote told by Blue is one where Ashley, in the process of a long drinking session, agreed for the transfer of a player to his football club, Newcastle United.
It will be interesting to see how the High Court decides on the facts of this case, in particular the capacity issue, but in any event it is a strong reminder that oral discussions can lead to a binding verbal agreement and should provide comfort to those who have acted in reliance of a verbal statement. In such circumstances it should be remembered that there may be contractual force to the verbal statements made and that this may afford one party options to enforce a valid agreement against the other regardless of the lack of a written contract. It should, of course, be noted that a written agreement is the best form of protection and evidence available and would have prevented these legal proceedings from unfolding in the first place.