No commercial contract, however carefully drafted, can make flawless provision for a future that is always unknowable. In a case on point, the Court of Appeal pondered the legal consequences after a luxury flats development was hit by a dramatic and unforeseen collapse in property prices.
The development constituted a 16-storey building in an exclusive residential enclave in Singapore, providing 28 top-end apartments. A highly regarded interior design company was engaged to work on the project for a fee of $1.6 million, plus incentives and potential commission on sales.
A quick sale of the flats was envisaged before the 2008 financial crash intervened. Due to the resulting decline in the Singaporean property market, the developer had since been unable to sell the flats for anything like the prices that were originally hoped for. None of them had been sold to date.
In accordance with its agreement with the developer, the company had received one third of its fee, $480,000. The balance, however, only became payable on the sale of apartments. In those circumstances, it launched proceedings arguing, amongst other things, that the developer was under an implied contractual obligation to market and sell the flats within a reasonable time.
In dismissing the company’s claim, however, a judge ruled that the developer was under no such obligation. The agreement included no express timeframe for sale of the flats. It was unlikely that the developer would have taken on an obligation to sell flats against its wishes, in a depressed climate, so as to enable the company to earn the balance of a fee which, in the grand scheme of things, was relatively small.
Rejecting the company’s appeal against that outcome, the Court noted that the agreement was commercially coherent as it stood. The implied term contended for was neither obvious nor necessary to give the agreement business efficacy. The company had chosen to entrust the sale of the flats to the developer.
Given its entitlement to share in the hoped-for upside of the development, whilst retaining its right to its fee come what may, it was unsurprising that the company had agreed to take the risk of having to wait for payment. The developer had invested vast sums in the project and it was commercially counterintuitive for it to have anything other than absolute control over the timing of sales.