The recent decisions of Gough v South Sky Investments Pty Ltd [2012] QCA 161 (South Sky) and Madison Construction Pty Ltd v Empire Building Group (Act) Pty Ltd (2012) 201 FCR 226 (Madison Construction) demonstrate some of the legal repercussions of building name changes on development sales.

The Queensland Court of Appeal in South Sky concluded that the name of a building was not an essential term of a contract. This is opposed to the Federal Court decision in Madison Construction where the Court found that the name of a building in a proposed development could potentially form the basis of a misleading conduct claim about the association of the seller with a particular development corporation. While the decisions given by the Courts differ in outcome, the facts found in both cases give insight into when a right to terminate a contract will arise where there is a building name change.

In South Sky, the buyer purchased units in a new luxury residential development called Oracle. Prior to settlement, the letting rights for the building were sold to Peppers Retreats, Resorts and Hotels who changed the building name to “Peppers Broadbeach” and began operating a short-term letting business for the premises.

The buyer alleged that the seller had repudiated the contract because they were no longer able to deliver at settlement an apartment in a residential tower known as the Oracle. This argument failed at trial. On appeal, the main issue for the Court was whether the name of the development formed an essential term of the contract, meaning that a change of name would constitute a breach of an essential term and constitute a repudiation of the contract.

The Court of Appeal referred to Koompahtoo v Sanpine, in which the High Court said that a breach of a term may, even if the term is not itself essential to the contract, amounts to a repudiation if it demonstrates an unwillingness or inability to perform the contract substantially in accordance with its requirements. In South Sky, the requirement that the tower be known as “The Oracle” was found not to be an essential term of the contract and the sellers failure to abide by that term did not demonstrate an inability to substantially perform the contract, as seller was still able to deliver to the buyer on settlement an apartment in a residential tower. Although the character of the apartment may have been different to what the buyer expected, it was not fundamentally different to what was promised under the contract and, as such, there was no repudiation.

The view of the Court was that the branding of the development with the name Oracle was not significant unless the contract clearly provided for the continuation of the brand until and beyond settlement.

This South Sky decision can be contrasted with the case of Madison Construction.

In Madison Construction the dispute arose between Empire Building Group (Empire) and Madison Construction. Empire were branding a development with the name “Madison Gardens.” Madison Constructions sought interlocutory relief preventing Empire branding their project “Madison Gardens” on the basis Empire was passing off Madison’s goodwill, or the use of the name was misleading, because it suggest an association with Madison that was false.

Madison led evidence highlighting its brand name in the community and the fact that they were still closely associated with their most recent development, named Madison Square.

Empire’s central argument was that it would suffer huge financial losses if it was forced to rebrand the development and that under the Civil Law (Sale of Residential Property) Act (ACT), the name of the development formed part of the description of the property to the buyer.

The trial judge dismissed both these arguments as there was no documentation that formed part of the contract that mentioned Madison Gardens. The Trial judge distinguished the case from South Sky, citing that the legislation relied on between Queensland and ACT were different and that the nature of the proceedings were also dissimilar.

The case concluded that the name of the development did not form a term of the contract, however Empire had engaged in misleading or deceptive conduct by using the name of the development to draw an association with another developer. The trial judge did comment on what the outcome for buyers of units against Empire would have been, stating however that the most appropriate course of action was misleading or deceptive conduct for representing an association with Madison that did not exist.

Lessons to be learnt

The two cases highlight that mere reference to a building name in marketing materials does not carry with it the inference that the name forms part of the subject matter of the contract.

For the building name to be an essential term of a contract, the wording of the contract must use precise language that signifies a promise by the seller that the name will be retained up to and after settlement. Where the name is of commercial significance because of the reputation of the developer, a claim for misleading conduct may arise where a property is sold but the name is not retained at settlement.