Much has been made recently in the media of agreements reached in a domestic and social setting and their legal effect, most notably in the form of the recent Sports Direct case. Mike Ashley’s fascinating and notorious business practices aside, the case is notable for its re-affirmation of the current position on such agreements.
Contract Formation
In brief, the requisite elements for a valid contract to subsist are: 1. An Offer, 2. Acceptance, 3. Consideration (i.e. some value offered by the parties, commonly goods, services or money) and 4. An intention to create legal relations. There are of course other considerations beyond the scope here.Social and Domestic Agreements
Historically, there is a wealth of case law to confirm that agreements reached in a social or domestic setting are subject to a rebuttable presumption that the parties do not intend their agreement to be legally binding, the classic example being an agreement reached at the pub with friends (bearing odd similarities to Mike Ashley’s recent case). As above, this presumption is rebuttable, effectively meaning that it can be defeated by the production of evidence that the parties did actually intend to be legally bound by their agreement.Commercial Agreements
In contrast with the position on social and domestic agreements, there is a presumption that parties to a commercial agreement do intend to be legally bound unless the contrary can be shown.Sports Direct
The brief facts of the Sports Direct case are that Mike Ashley was drinking with various members of his professional team including Jeffrey Blue, an investment banker involved with Sports Direct, at a London pub. During the evening Mr Ashley told Mr Blue that, should Sport’s Direct shares reach £8.00 a share, he would pay Mr Blue £15m. Mr Ashley, who knew Mr Blue affectionately as “Jeffers”, confirmed in his statement that he could not remember the events of that night and that all parties had drunk heavily. In any event, it was argued that there had been no intention for this be a serious and binding agreement.Mr Blue’s legal team argued that this scenario did not fall within a social setting, despite the location and consumption of alcohol. In justifying this argument, there was some exposure of Mr Ashley’s unorthodox business practices, which have been seized upon by the media, no doubt being Mr Blue’s intention.
Despite the apparently commonplace circumstances of Mr Ashley holding business meetings in clubs, pubs and casinos as well as drinking and worse during such meetings, it was held that this agreement was made in a social setting and there was not an intention on Mr Ashley’s part for it to be binding. The agreement was therefore held not to be binding on Mr Ashley and Mr Blue was furthermore ordered to pay his own and Mr Ashley’s legal fees totalling almost £2.5m.
One of the morals of the story is of course to take legal advice in relation to any agreement you wish to have binding effect. Were Mr Blue’s agreement formalised in writing and agreed in a more sober setting, the case would no doubt have been different.
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