Credit Management magazine December 2017

LEGAL MATTERS
CONTRACTS
AND ALE
The tale of a meeting in the Horse and Groom pub,
when a judge then had to decide whether it resulted in
a binding agreement to pay £15 million.
AUTHOR – Peter Walker
LET’S go down to the pub, have
a few beers, make a multimillion-pound
agreement,
and let the courts sort out the
mess later. But, watch out,
you boozing business people!
There are the cautionary words of film
tycoon Sam Goldwyn, ‘a verbal contract
isn’t worth the paper it is written on.’ That
is a satire on the way business could be
done, * but a High Court judge recently had
to resolve a colourful dispute arising from
some happenings in a boozer.
The judge was the Hon. Mr Justice
Leggatt in the Commercial Court, and
the case was Blue v Ashley [2017] EWHC
1928 (Comm). Some people might also
regard the Defendant as being colourful
too, because he was the founder of Sports
Direct International Plc (‘Sports Direct’).
Behind all this colourfulness were some
sober contract-law principles.
A contractual background to the case
was a Management Services Agreement,
whereby the company of Jeffrey Blue, the
Claimant in the case, provided consultancy
services to Sports Direct. He was to look
at strategic acquisitions in the UK and in
Europe, but in the event, did other work. He
was involved in the search for a corporate
broker for Sports Direct, and an Investment
Bank was interested.
In this context, on 24 January 2013 three
representatives of the Investment Bank,
the Claimant, and the Defendant all met
at the Sports Direct London Office. The
Defendant is founder of Sports Direct, and
owned most (60 percent) of the shares in
the company.
This was the formal start to an evening
as a prelude to an intended chat of half an
hour or so in a pub. They all walked around
the corner to the Horse and Groom in Great
Portland Street, and started an evening of
drinking. The Claimant said that he drank
two or three pints of lager before he went
home at around 8.30pm. About half an
hour later the others left for a pub in Soho,
and at midnight some of the them went to
another bar. One of the party thought that
he had drunk eight to ten pints of beer
throughout the evening, and according
to Leggatt J, the judge in the case, it was
‘likely’ that the Defendant ‘drank a similar
amount of alcohol’ – I don’t know how they
managed it!
Everyone had a good time, and football
played a large part of the conversation.
The Defendant owns Newcastle United
Football Club, so it seemed to have been a
laddish evening. The Defendant also spoke
enthusiastically about the Claimant. One
of the investment bank representatives
thought that his intention was to make
the Defendant the main point of contact
between Sports Direct and the Bank.
BEER AND FOOTBALL
The conversation therefore was not all
about football, because, shortly after the
party had arrived at the Horse and Groom,
there was a discussion about the share
price of Sports Direct. They talked about
the effect on the value of the Defendant’s
shares according to various levels of the
share price. The Defendant pointed out that
if that price was to double, Sports Direct
would have the same capitalisation as that
of Marks and Spencer.
The Claimant then alleged that the
Defendant asked rhetorically what he
could do to incentivise him. If the Claimant
could double the share price in the next
three years, the Defendant would pay him
£10m. There was further discussion and
a suggestion that the figure should be
£20 million. The Claimant asserted that
the Defendant responded that he would
split the difference to £15 million. The
Defendant is supposed to have added, ‘yes,
that sounds fair.’
The Defendant did not recall any
suggestion of paying money to the
Claimant. He said that there was ‘general
banter’, and that they must have had four or
five pints in the first hour. Leggatt J did not
accept all the claims – ‘flights of fancy’ – but
he accepted that the drinks were flowing
freely. It would have been difficult to make
notes of the meeting, and none were made.
In the weeks that followed, the Claimant
on a few occasions mentioned to one of
the investment bank representatives the
prospect of an incentive payment. During
this time, the share price in Sports Direct
began to rise, until in February 2014 it was
£8.01.
MONEY TALKS
It was the moment to raise the topic of
money with the Defendant, who had
several conversations with the Claimant.
The Defendant paid over £1 million,
which he said was a reward for all that
the Claimant had done, but after a while
the Claimant resigned. During his threemonth
notice period, he wrote to explain
his point of view about various events, and
about his claim for £15 million. When there
The Recognised Standard / www.cicm.com / December 2017 / PAGE 52