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Did you hear the one about the five men that walked into a bar?

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On an afternoon in January 2013, five men walked into a bar in London; a business owner with his consultant and three corporate brokers looking to secure some business.

The drinks flowed and the banter was good. Discussions moved on to increasing the price of business owner’s shares and who should be incentivised and rewarded if the share priced doubled. Several pints later, and whilst laughing, the business owner, in front of those present, says to his consultant something along the lines of “If you can get the stock to £8 per share, why would I care how much I pay you, I’ll have so much money it won’t matter“. The consultant shakes his hand and said something like, “I’ll hold you to that“. The drinks continue to flow, the banter and laughs continue and a reward of £15m for doubling the share value is agreed. They continue drinking and eventually go their separate ways.

The consultant believes he has an agreement for £15m if the share price doubles. He says (in due course) that having been promised £15m he, in effect, worked harder than expected. In February 2014 the share price has doubled and bingo, the consultant believes he will be £15m richer.

However, the consultant doesn’t receive his £15m – so he sues the business owner for breach of the verbal contract.

The claim went to the High Court where the Judge agreed with the consultant that the business owner had said he would reward the consultant with £15m if he doubled the share price and that the share price had doubled.

Had the consultant won? No. The Judge did not order the business owner to pay a penny to the consultant.

The Judge considered whether the requirements for a binding agreement existed – was there an agreement, was it intended to be legally binding; had consideration provided and was there enough certainty for the agreement to be enforceable.

The Judge decided that the requirements had not been satisfied, particularly the intention for the agreement to be legally binding. He gave 8 reasons for his decision:

  1. The setting in which the agreement was formed, “an evening of drinking in a pub with three investment bankers is an unlikely setting in which to negotiate a contractual bonus arrangement with a consultant who was meeting them on behalf of the company“. Although an agreement could be made in an informal setting and the business owner had a history of conducting business in informal settings where alcohol was consumed, there was no evidence that he negotiated or concluded contracts at these types of meetings.
  2. The purpose of the meeting was to introduce the corporate brokers, not to discuss the consultant’s remuneration.
  3. The conversation was jocular in nature and tone and the discussions about remuneration were mere “banter”.
  4. It would make no commercial sense for the business owner to make the alleged offer and was not in keeping with his character.
  5. It was fanciful to suggest that the consultant could influence the share price to double.
  6. The offer was too vague for it to be taken as seriously, for example there was no reference to the work the consultant was to carry out to earn the payment and how that work would be measured.
  7. Besides the consultant, none of those present believed the business owner was being serious.
  8. The evidence also showed that the consultant did not initially construe the offer as a serious, e.g. it was not followed up in writing at the time or shortly after, and the consultant only took it seriously once the share price started to increase.

This case serves as a reminder that verbal contracts still need to satisfy the key elements of a written contract, including that the parties intend to create a legally binding and enforceable agreement. When considering a disputed verbal contract, the Court can take into account where the agreement was said to have been made and what was taking place at the time. This isn’t to say that agreements can’t be concluded in bars or restaurants, but that factors other than the words that are said will be taken into account. If in any doubt about the terms or enforceability of a verbal agreement, it is best to follow it up in writing. As in this case, if it sounds too good to be true, it probably is!

Blue v Ashley [2017] EWHC 1928 (Comm), 26 July 2017, Leggatt J (Bailii)

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