When do you have a Contract? Is Pub Banter enough for a Contract

At what point does a conversation become legally binding, and can general banter lead to a legally enforceable contract? Within this week's Blog, we shall explore the key elements of contract creation and look at an interesting case where the Court was asked to decide upon "pub banter" and if the parties had to stick to what was agreed after several pints.

The first important issue to note is that a legally binding contract does not need to be written or signed and can be completed verbally, such as the agreement at a car wash for someone to wash your car in exchange for a few pounds. We all have several conversations each day. However, very few of these conversations become contracts. Generally speaking, for an agreement to be legally binding, the parties must intend to create a clear contract. There must be three elements present: offer, acceptance and consideration. To use the example of the car scenario once more, the offer would be to wash the car in exchange for £5; this could be written on advertising boards around the car wash. The acceptance would come from the conduct of driving to the bay to have the car washed and not stopping the individuals washing the vehicle. The consideration is an exciting concept where both parties need to get something; however, it does not need to be of equal value; in this case, one party getting the car cleaned and the other party having the promise of payment meets the consideration requirement. Hence a contract to wash a car is concluded.

Now, let's consider the case of Blue V Ashley 2017, where pub banter led the Court to consider if a legally binding contract was entered into in a London Pub in January 2013. Mr Ashley engaged Mr Blue as a consultant. One evening met with three representatives from a corporate broker firm who aimed to secure Mr Ashley as a client. The night seemed a light-hearted affair, with the pints coming "like machine guns" and breaking up around midnight when Mr Ashley had consumed around 8 pints of beer.

A discussion took place around the share price of Sports Direct Mr Ashley's company, which was around £4 at the time. This moved onto what bonus would Mr Blue be entitled to should the share price reach £8, which would have, at the time, given sports direct a comparable market capitalisation to Marks and Spencer. With various parties egging each other on, a figure of £10 Million was mentioned to be paid to Mr Blue should the share price reach £8 per share. This was increased when one witness returned from the toilet and suggested that it would be fairer to give Mr Blue 20 Million, where Mr Ashley responded with like: "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." After that, Mr Blue responded by saying, "Yes, that sounds fair.".

In the coming years, the share price did reach £8 per share, and Mr Blue sought payment from Mr Ashley, eventually receiving £1 Million; when the remaining £14 Million was missing, Mr Blue sought enforcement through the courts. The Court reviewed the facts and tested if a contract exists, finding during the discussion that the parties did not intend to create legal relations and the agreement was not clear for the reasons listed below:

1. There is no evidence that Mr Ashley has any history of negotiating contracts under the influence of alcohol. However, evidence does exist that he does have an informal style of management meetings where alcohol is consumed.

2. The meeting was to introduce Mr Ashley to new corporate brokers, not to discuss a consultant's bonus.

3. The evidence heard by the Court was that the conversation was light-hearted and banter; no reasonable observer would have thought a serious contract negotiation was taking place.

4. It was not within the power of Mr Blue to affect the share price to the extent that it would double.

5. There was no consideration within the offer for what Mr Blue would do to earn his bonus or how this effort and skill could be measured.

6. Mr Blue did not make a written account of what was agreed; the Court found this to be incredible that someone with the business experience of Mr Blue would not have done this.

The law concerns when a legally binding contract is straightforward and can have any meaning if the agreement does not obligate the other party to do something unlawful. Whilst the contract does not need to be in writing, it is clear from this case that it can be helpful to have a written record of what was agreed, even if this does not form part of the contract. Velocity Dispute Management can assist you with establishing if a contract exists and what the implications are, reviewing a proposed contract before its agreement, or drafting a contract from scratch. If you wish to discuss how Velocity Dispute Management can support you or discuss this Blog's content, please get in touch with admin@velocitydisputemanagemet.co.uk or book a strategic review meeting where one of our consultants will review your situation and create an action plan to utilise your rights in law to resolve the problem.

The content of this Blog is intended for information only and is not an alternative to legal advice. Velocity Dispute Management accepts no responsibility for the actions of another party as a result of this Blog or the content of any third-party source to which this Blog refers.