The case of Blue v Ashley [2017] EWHC 1928 (Comm) is a significant judgment in English contract law that highlights the importance of intention to create legal relations and the necessary elements of a binding contract. The case arose from an informal conversation in a pub where Mike Ashley, the founder and majority shareholder of Sports Direct, allegedly promised Jeffrey Blue, an investment banker, a financial incentive of £15 million if he could raise the company’s share price to £8 per share.
Blue later sought to enforce the agreement, claiming it was a binding contract, whereas Ashley argued it was mere banter. The High Court ultimately ruled in Ashley’s favour, underscoring the necessity of formality, clarity, and intention in contract formation.
Facts of Blue v Ashley
Jeffrey Blue was an investment banker who had previously worked with Sports Direct and had a professional relationship with Mike Ashley, though they were not personally close. In 2012, Blue was employed by Sports Direct’s subsidiaries and was tasked with finding a new corporate broker for the company. To facilitate this, he arranged an informal meeting in a pub with Ashley and representatives from Espirito Santo Investment Bank.
During the meeting, after several drinks, the conversation turned to Sports Direct’s share price and potential incentives for Blue. Ashley allegedly 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?”
Following further discussion, Ashley purportedly increased the incentive to £15 million, stating:
“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 the terms sounded fair. When the company’s share price eventually exceeded £8, Blue attempted to enforce the incentive agreement. Ashley denied that a binding agreement existed, asserting that the conversation was merely a joke and not a serious contractual offer.
Legal Issues
The primary issues before the High Court in Blue v Ashley were:
- Was Ashley’s statement an offer capable of acceptance?
- Did Ashley have the intention to create legal relations?
- Would the alleged contract fail for lack of certainty?
Blue v Ashley Judgement
The High Court, presided over by Leggatt J, ruled in favour of Ashley, finding that no binding contract had been formed. The court in Blue v Ashley considered several factors in reaching its decision:
Informality of the Setting
The meeting took place in a pub and later continued in a Soho bar, which indicated a social rather than professional setting. The informal atmosphere suggested the conversation was lighthearted rather than serious business discussions.
Tone and Context of the Conversation
The court observed that the conversation had a “jocular” and “mischievous” tone. Ashley was intoxicated at the time, having consumed several drinks, which cast doubt on his intent to make a serious legal commitment.
Presence of Third Parties
The discussion occurred in front of individuals who were not directly involved in Sports Direct’s business affairs, which further indicated a lack of confidentiality or seriousness.
Lack of Commercial Rationality
The court found that offering £15 million to Blue, whom Ashley did not know well, made no commercial sense. Ashley had not offered similar incentives to other employees, and the amount appeared arbitrary.
Uncertainty of Terms
There was no clear framework for how Blue was expected to achieve the share price target. The agreement lacked essential details such as the timeframe within which the goal had to be achieved.
Ashley’s Later Conduct
When asked about the agreement at a later date, Ashley’s vague responses indicated that he did not recall the pub conversation as a serious commitment.
Given these factors, the court concluded that a reasonable bystander would not have perceived Ashley’s statements as an intention to form a legally binding contract. The court also noted that even if an agreement had been intended, it would fail due to vagueness and lack of certainty.
Conclusion
The Blue v Ashley case serves as a cautionary tale for individuals and businesses engaging in informal agreements. The decision reinforces the necessity of clarity, intention, and certainty in contract formation. It also highlights the courts’ approach in distinguishing between casual remarks and legally binding promises. Ultimately, the ruling emphasises that social settings, exaggerated statements, and lack of clear contractual elements will likely prevent enforceability under English contract law.