Yoo Design Services v Iliv Realty PTE Ltd  EWHC 1077 (Comm)
Yoo Design Services are a firm of designers specialising in high end, luxury developments. Iliv Realty is a property development company which engaged Yoo to design 28 luxury apartments in Singapore with an estimated sale value of 158 million Singapore dollars.
The parties entered into a Design Services Agreement (DSA) which provided that Yoo would receive a total fee of US$1.6 million. Of that, $480,000 would paid up front, 50% would be paid when contracts of sale had been exchanged on 14 of the apartments and the balance was to be paid on completion of the sales of 14 of the apartments.
Unfortunately, there was a sudden drop in the property market in Singapore and after a couple of failed attempts, Iliv decided to rent the apartments instead. The DSA did not expressly require Iliv to sell the apartments and did not specify what would happen if the apartments did not sell or contain any longstop date by which Yoo would receive payment.
Yoo sued Iliv for the payment of its fees. It relied upon various arguments, including an argument that the DSA contained an implied term that Iliv should market and sell the apartments as soon as possible.
In order for a term to be implied into a contract, several conditions have to be satisfied. The term sought to be implied must: (1) be reasonable and equitable; (2) be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) be so obvious that “it goes without saying”; (4) be capable of clear expression; (5) not contradict any express terms of the contract.
In making this argument, Yoo relied on another High Court decision – Sparks v Biden. That case concerned an overage agreement, whereby Sparks had sold some land to Biden upon which Biden was to construct eight houses. Sparks was to receive an additional payment upon sale of all eight houses to reflect the uplift in the value of the land. Biden duly carried out the development but decided to rent rather than sell the last house to try and avoid making the additional payment. The Court held that there was an implied term in the overage agreement that Biden must market and sell all houses as soon as reasonably practicable. The Court found that this was necessary to give the overage agreement business efficacy and commercial coherence and that it was so obvious that it went without saying.
The Court reached a different conclusion in this case. It found that:
1. the DSA was the product of detailed negotiations between lawyers and contained detailed provisions for payment;
2. those provisions could easily have included a longstop date for payment, but no such provision was included;
3. business efficacy did not require the term to be implied because:
3.1 the DSA worked perfectly well without the term; and
3.2 the Court accepted Iliv’s argument that such a term would run contrary to business efficacy. It would not make business sense to require Iliv to hastily sell a development worth hundreds of millions of dollars to pay a fee of just over one million dollars. This was particularly the case where Yoo did not share in the risk that the development was sold for less than the anticipated value – Yoo was entitled to the same amount no matter what the apartments sold for.
4. therefore, the term was not so obvious that it went without saying. Instead, it would have caused serious debate between the parties if it had been raised in negotiations.
Yoo is now a position where it has to wait for, and might never recover, over a million dollars in fees.
The case highlights the need for parties to think through every possible scenario with their lawyers and to ensure that conditional contracts such as this provide a mechanism for payment even if things do not work out as planned. It should serve as a stark warning to those who would enter into these sorts of agreements on the basis that everything will be OK or that the law will protect the reasonable expectations of honest men. Unfortunately, things do not always work out as planned.