Wishful thinking - when is an agreement a binding contract?
26 July 2017
During a conversation, in the Horse and Groom, Mr Ashley said he'd pay Mr Blue £15 million if Mr Blue could get the price of Sports Direct shares to £8. Mr Blue agreed and those present laughed. Thirteen months later the Sports Direct share price had risen from £4 to £8. In Blue v Ashley the court had to decide whether the agreement led to a binding contract.
Quoting from Andrew Burrows' excellent "A Restatement of the English Law of Contract" the court set out the basic elements of a contract: "(i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable".
Mr Blue said that the most accurate legal characterisation of the offer he claimed was made by Mr Ashley was a unilateral offer à la Carlill v Carbolic Smoke Ball. Mr Blue had to show that Mr Ashley was expressing a willingness to be bound as opposed to mere "puff". Social context, vague language and/or the statement being made in jest would all suggest it was not intended to be binding.
Vagueness may be a ground for concluding that no agreement has been reached or that if reached it is not intended to be legally binding. However, certainty is an independent requirement of a contract so if the intention to be legally bound is demonstrated the courts will strive to find certainty unless it is practically impossible.
Any argument about a lack of consideration was described as hopeless in the light of the Court of Appeal's decision in Williams v Roffey.
Ultimately the court found for Mr Ashley for the following reasons:
- A setting described as "five guys and a barman in a pub" was an improbable one for contract of this type to be made.
- Though the purpose of the meeting was not entirely social, any business purpose did not involve Mr Blue and his remuneration.
- The nature and tone of the conversation was banter.
- It made no commercial sense to make the offer claimed.
- Mr Blue had very limited power if any to influence the share price.
- There was a complete lack of detail as to what Mr Blue would have to do and how his work would be measured.
- None of the others present understood that a contractual offer was being made.
- Mr Blue did not understand Mr Ashley to intend to make a contract at the time of the conversation.
In Mr Justice Leggatt's words "… no reasonable person present in the Horse & Groom … would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract, and no one who was actually present in the Horse & Groom that evening – including Mr Blue – did in fact think so at the time. They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds."