Sportsman's bet or 14 pints deep: Don’t get caught out by the laws around verbal contracts

 
Christian Smith
Sports Direct Founder Faces Commons Select Committee Over Working Conditions
Business leaders need to learn the legal lessons from the Mike Ashley case (Source: Getty)

We've all done it. A few beers, we loosen up and before we know it, we’ve said something that we later regret. But not many of us subsequently find ourselves the subject of a £15m lawsuit in the High Court.

Last week, it was alleged that Sports Direct founder Mike Ashley breached a verbal contract with former business associate Jeff Blue, formed during a boozy pub session. Blue claims that Ashley promised to pay him £15m if he doubled the sports retailer’s share price within three years.

Ashley dismissed the claim as “banter”, proffered under the influence of alcohol, and not a sincere attempt to enter into a legal agreement.

So what are the legalities surrounding verbal contracts? Are they enforceable under English law and can someone really be too drunk to enter into an agreement?

The short answer is that verbal contracts are generally legally binding and enforceable save for certain types of contracts, as long as the fundamental elements of a contract are present, namely: offer, acceptance, consideration, and intention to create legal relations. This is regardless of whether it is confirmed in writing.

Read more: Sports Direct tycoon Mike Ashley dismisses £15m promise as "drink banter"

Under the influence

There is then the issue of “capacity” of the party entering the contract. A party who was so drunk as to deprive them of reason may render the contract void.

If the level of drunkenness was not so acute contracts may still be voidable if the defendant can show that the condition was known to the other party at the time and that some unfair advantage has been taken.

Difficulties arise with verbal contracts when one party denies entering into an agreement in the first place or challenges its terms. The point of contention in Ashley’s case is that he denies that an agreement was made and had not intended to create legal relations.

He says the discussions followed the consumption of a “considerable amount of alcohol”. He also argues the claim against him is “extremely vague” and not supported by written evidence.

However, Blue argues that the Sports Direct owner was able to conduct other business during the evening, such as making decisions on player transfers on behalf of Newcastle United.

He also argues that the culture at Sports Direct involved long drinking sessions and raucous behaviour at senior management meetings and that Ashley was therefore accustomed to doing business while drunk.

Absence of proof

The decision in this case will rest on the evidence. Blue will have to prove that Ashley agreed to pay him the £15m if he was able to raise the share price by reference to evidence at the time, and any subsequent evidence which refers to the terms of the claimed contract.

For his part, Blue has said that he approached Ashley in December 2013 for confirmation and has claimed that Ashley replied “I’ve got it, I’ve got it. We’re cool, we’re cool”. He has also contended that a £1m payment he received was a down payment on fulfilment, which Ashley denies.

In the absence of proof, the decision will rest on the balance of probabilities, and both sides attempting to disprove the claims of the other.

So what can business leaders learn from this case? Asides from the pros and cons of conducting boardroom meetings at the pub, Ashley’s case underlines the old adage that it is better to get something in writing. Especially, if £15m is at stake.