Booze and Business – Does a deal made in a pub amount to a verbal contract?
11 August 2017 by Neemah Ahamed
Mike Ashley has always prided himself on doing business in unconventional ways. This recently landed him in the middle of lawsuit. Blue, a former Merrill Lynch banker and strategic development director at Sports Direct sued Ashley on the grounds that he reneged on a £15 Million deal that was sealed on a boozy evening out in a London pub. Blue claimed that Ashley promised to pay him the sum if he doubled the sport-goods chain share prices within three years. The stock soared but Blue was given £1 million pounds which Ashley claims was a discretionary bonus and not a down payment for the £15 million pounds.
Blue supported his claim that the deal was struck with evidence that Ashley often carried out business transactions in informal settings and mixed business and alcohol. Therefore the formation of contract in such circumstances was not unusual. The High Court was provided with evidence of this and told that on one occasion Ashely settled a six figure bill with a firm after losing a guessing game.
Ashely dismissed the conversation as merely ‘banter’ and has denied that a verbal agreement was reached. The High Court was asked to consider whether this was a night out in a pub or an important business meeting which resulted in the formation of a verbal contract.
Under English Law except for certain types of contracts, verbal contracts are legally binding and enforceable provided:
- There is an offer by a party to enter into a contract on certain terms;
- This offer is accepted;
- There is consideration i.e. something must be exchanged for what is being offered; and
- There is an intention to create legal relations.
Ashley denied that a verbal agreement was made. He also said that he had not intended to create legal relations. Blue claimed that he asked Ashley in December 2013 for confirmation and said that Ashley replied “I’ve got it, I’ve got it. We’re cool, we’re cool” and on this basis believed that a verbal agreement had been reached.
The High Court ruled in Ashley’s favour and said that no one would have thought what was said in a pub was “serious”. This ruling emphasis the importance of written contracts to formalise agreements.
In light of this, to avoid disputes such as these occurring it is important to set out terms of what has been agreed in writing. If a dispute then reaches the courts, the actions and statements of both parties will be examined to establish what was agreed. It is therefore important to keep all relevant correspondence, a record of conversations and invoices.
As in this case, the parties’ actions after a verbal contract is formed will also be considered by the court. If there is insufficient proof, its decision will rest on the balance of probabilities, and the case may turn on the parties’ credibility and character.
A poorly drafted contract can also lead to misunderstandings between the parties. If you would like a contract to be reviewed or would like the terms of agreement to be formalized into a contract then, please contact [email protected].
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