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Sealed with a handshake: when is a verbal deal not a deal?

20 July 2017
The Times

The Jeff Blue v Mike Ashley case that is currently making its way through London’s High Court is raising eyebrows for a number of reasons, not least because a get-together in a pub could end up costing Mr. Ashley £15 million. So how does a boozy night out  turn into such a drawn-out, high-value dispute, and what wider legal issues does this case shine a spotlight on?

This case centres around a very important legal point that London’s commercial courts see on a regular basis: big business deals that are done on a mere handshake. A contract is a legal concept which can exist without any paperwork at all.  But in the absence of a written contract, the difficulty comes in proving that a legally-binding agreement existed and the details involved.  

Whilst the sums in this dispute pale into insignificance alongside the amounts claimed in previous high-profile cases concerning verbal contracts like Berezovsky v Abramovich in 2012 (where the legal costs alone were estimated at £100m) and a dispute involving aluminium producer Rusal (where $1 billion was at stake), the court in the Blue v Ashley case has to grapple with similar issues.

The question here is whether an oral agreement was reached, in which Ashley would pay Blue £15 million in the event that the Sports Direct share price reached a specified figure. Mr Ashley says the claim is an ‘opportunistic try-on’ and that the £1 million already paid satisfied, in full, any contractual obligation to Blue.

Importantly, agreements reached orally (as opposed to in writing) can be legally binding. The difficulty lies in distinguishing these genuine deals. As with the Russian oligarchs, this case will essentially depend – in the absence of any documentary evidence – on the oral testimony and respective credibility of the two principal protagonists. When a dispute involves individuals who habitually conduct business on an oral agreement, it may be easier to establish such a claim.

Another example of this type of case is McInnes v Gross, which was decided earlier this year. In this instance, an Australian tycoon was cleared of claims that he broke his word over an £11.5 million deal allegedly sealed with a handshake in a restaurant in London. The judge dismissed this claim, satisfied that the contract was not legally enforceable as only “headline terms” were discussed.

Proving whether a contract has actually been agreed is not a clear-cut task, and it may be that in the Blue v Ashley case, neither party will emerge with a great deal of distinction. In these kinds of cases, having credible witnesses is important, and having gone through all the evidence that can be found, the court will often end up ruling on the balance of probability.

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