Blue v Ashley

High Court

Citations: [2017] EWHC 1928 (Comm).

Facts

Blue was an investment banker. Ashley was the founder and majority shareholder of Sports Direct. The pair had prior business relationships, but did not know each other well. In 2012 Blue was employed by Sports Direct’s subsidiaries. One of his first tasks was to find a new corporate broker for the company. To facilitate this, he arranged an informal meeting between himself, Ashley and representatives from Espirito Santo Investment Bank.

The men met at a pub for drinks. The group hit it off, and the atmosphere was jovial. What was originally conceived of as a short chat turned into a longer evening of heavy drinking, which eventually moved to a Soho bar.

Early in the evening, after Ashley had consumed four pints, the men were discussing Sports Direct’s share price. At some point, the topic of incentivising Blue based on the company’s share price came up. Ashley stated:

‘What should I do to incentivise Jeff? If he can get the stock to £8 per share why should I give a fuck how much I have to pay him, as I will have made so much money it doesn’t matter. So let’s say if Jeff can get the stock to £8 per share…I’ll pay him £10 million. Jeff: what do you think?’

Blue responded that this would require him to up the company’s share price from £4 a share to £7.20. Tracey stated that this would be immaterial compared to the increase in value of Ashley’s own shares in the company. One of the other Espirito representatives jokingly added that a fairer incentive would be £20 million. Ashley allegedly responded to this by saying

‘I’ll tell you what let’s split the difference and call it £15 million if the stock gets to £8 per share…’

Blue responded that this sounded fair. When Sports Direct’s share price began to rise, Blue asked Ashley if the agreement was ‘still on’. Ashley responded ‘I’ve got it, I’ve got it. We’re cool, we’re cool.’

The company’s share price later exceeded £8. Blue attempted to enforce the incentive agreement. Ashley denied there was any binding agreement. He argued that the conversation was ‘general banter’ and not seriously intended.

Issue(s)

1. Was Ashley’s statement an offer?
2. Did Ashley intend to be legally bound by the statement?

Decision

The Court held in favour of Ashley. The following factors indicated that Ashley did not make an offer which he intended to be legally bound by:

• The informality of the setting;
• The ‘jocular’ and ‘mischievous’ tone of the conversation;
• Ashley being drunk;
• The presence of strangers;
• The ‘incentive’ made no commercial sense for Ashley. He did not know Blue well, had not offered similar incentives to anyone else in the past and the number chosen was essentially random;
• The meeting was not arranged to discuss Blue’s work or his role at the company;
• It was not clear how a single person could double a company’s share price. The ‘offer’ was vague as to what exactly Blue needed to do. Indeed, the share price doubling probably did not have much to do with Blue’s efforts;
• Ashley’s later responses when asked about the agreement were vague and indicated that he did not even remember the pub conversation.

Given these factors, a reasonable bystander would not concluded that there was a binding contract. Even if there had been a seriously intended agreement, it would be void for uncertainty. This was because the parties had not agreed on the time-frame which Blue had to double the share price.

This Case is Authority For…

This case contains a summary of the basic principles of contract law, including an outline of the requirements of contract formation: offer, acceptance, intention to create legal relations, consideration and certainty of terms. The case focuses primarily on the first and third requirements.

Leggatt J defined an offer as ‘an expression, by words or conduct, of a willingness to be bound by specified terms as soon as there is acceptance by the person to whom the offer is made.’ This is assessed objectively, from the perspective of a reasonable bystander in light of ‘all relevant matters of background fact known to both parties’. The parties’ subjective interpretations are irrelevant.

Something might seem to be an offer if taken literally. However, if it is said in circumstances which indicate that the speaker does not genuinely intend to be bound if the statement is accepted, it is not an offer. Some cases have called statements like these ‘mere puffs’.

Factors relevant to deciding whether something is an offer or a mere puff include:

• The formality and setting of the occasion in which the ‘offer’ was made;
• The speaker’s tone (e.g. whether he was being jokey);
• Whether the offer makes any commercial sense for the speaker;
• Whether the statement is vague or seems exaggerated.

These factors are also relevant to determining whether the third requirement of contract formation is met: intention to be legally bound.

Other

One of Ashley’s subsidiary arguments was that Blue had not provided any consideration. This was because he was already obliged to work for the company, and past obligations cannot be relied on as consideration. Leggatt J suggested that the past consideration rule has been rendered ‘obsolete’ by cases such as Williams v Roffey Bros [1999] 1 QB 1. In any case, Leggatt J stated that the rule did not apply here. This was because the past obligation was owed to the company and not to Ashley directly.