Back to Basics: The importance of contracts
Contracts are everywhere; apart from cropping up in every aspect of our day-to-day lives, contracts govern many aspects of the creative sector, and are highly relevant to ensuring the smooth progress of a project.
A contract is a legally binding agreement between two or more parties to carry out certain specific obligations or to perform certain acts. The performance of those obligations is enforceable as a matter of law, which is to say that if a valid contract is in place, the courts will allow one party to enforce the other party’s performance and, if the other party fails to perform, the law will award certain remedies.
For a contract to be legally binding under English law, three essential elements must be present:
1. an offer by one party;
2. an acceptance of that offer by the other; and
3. What is know as “consideration”, meaning something of value that each party gives or promises to the other in exchange (most commonly, services provided in return for payment).
There must also be an intention on both sides to create a legally binding relationship.
Without all of these elements, what appears to be an agreement may not be enforceable at all.
In the entertainment industry, whenever someone is making a deal, or has made a deal, ensuring that there is a proper, identifiable contract in place is critically important. Whilst the contract does not, as a matter of law, need to be in writing (subject to the next point), life will be a great deal easier if it is.
That said, there are certain contracts that must be in writing (or at least evidenced in writing) to be valid or enforceable at all. Of particular significance in the entertainment industry are assignments of copyright; that is, a transfer of ownership of intellectual property rights. These must be in writing and signed by the assignor, as a matter of statute (under the Copyright, Designs and Patents Act 1988). This is one of the most important points in entertainment law. A verbal agreement by a writer or composer to “hand over” their rights is not, without more, a valid copyright assignment.
Similarly, any assignment of rights in a work not yet created (known as an assignment of future copyright) must also be in writing. Guarantees must be evidenced in writing. These are not mere technicalities; ignoring them can result in a party believing they own rights that they do not, in fact, legally hold.
Being able to refer to and rely on an identifiable contract is important not only for holding non-paying (or otherwise non-performing) parties to account, but also in the context of, for example, chain of title when parties come to sell projects. If someone has taken your product and has not paid you for it, or you consider that someone agreed to provide services to your production, but you cannot point to an identifiable, enforceable contract setting out the agreement, the challenge will be far greater.
Whilst oral contracts can be enforceable in appropriate circumstances, provided the terms are sufficiently certain, it is always preferable to have an agreement in written form.
In a written form of contract, as a general rule of thumb, the more specific the information, the better.
At a minimum, the document recording the agreement should contain:
the names of the parties to the contract;
the date on which the contract was made (not a strict legal requirement, but important as a practical matter);
the terms and conditions that each party must observe, including (a) the service, or product, that is the subject of the contract (so for example, writing the screenplay, or providing visual effects services to a production); (b) what is being exchanged for that service or product — i.e., the consideration, most usually the payment terms; and (c) the duration of the agreement and any relevant deadlines;
an acknowledgment that the parties agree to the terms in the contract, and ideally a signature of each party; and
the governing law and jurisdiction of the contract.
With regard to the last of those, It is worth pausing on these two concepts, because they are distinct. Governing law is the body of law that will be used to interpret and enforce the contract. Jurisdiction refers to the courts or other body that will have authority to hear any dispute. These are not the same thing — a contract can be governed by English law but provide for disputes to be heard in the courts of New York (or, perhaps, arbitration), or vice versa, and this distinction has real practical consequences. Depending on who the contracting parties are and where they are based, the governing law may be the law of England and Wales or, commonly in the entertainment sector, the law of the State of California or the State of New York. The differences are significant, so both governing law and jurisdiction are crucially important and should be clearly specified.
It is also worth understanding that a contract is not made up only of the terms that the parties expressly agree. English law may imply additional terms into a contract, either by statute or by the courts. Under English law, for example, a term will typically be implied into service contracts that the service will be performed with reasonable care and skill (in consumer contexts, similar protections arise under the Consumer Rights Act 2015).
The courts can also imply terms where necessary to give the contract business efficacy — to make it work as the parties must have intended — or where a term is so obvious that it goes without saying. In the entertainment industry, questions of implied terms frequently arise in distribution agreements, for example around whether a distributor is under an obligation to actively exploit the rights it has acquired. This can matter enormously where a distributor holds rights without generating revenues.
Not all contractual terms carry the same legal weight, and it is important to appreciate the distinction. Some terms are “conditions”, which are central obligations whose breach entitles the innocent party to treat the contract as at an end and claim damages. Others are “warranties”, the breach of which will sound only in damages, without giving a right to terminate. There is also an intermediate category of “innominate” terms, where the consequences of a breach depend on how serious that breach turns out to be. Whether a particular term is a condition or a warranty can have very significant practical consequences: whether a broadcaster can walk away from a deal because a delivery deadline was missed, for example, will depend on how that deadline is characterised in the contract.
Content producers in particular should be aware of terms which purport to assign intellectual property rights in work created under the agreement to the other party. Similarly, any restrictions on a party’s ability to sell or licence rights in the work, and any limitations or exclusions of the other party’s express obligations — for example, a distributor seeking to limit its obligation to account for revenues, or to use reasonable endeavours to exploit the rights — should be noted carefully. Such limitations may in certain circumstances be subject to a test of reasonableness under the Unfair Contract Terms Act 1977.
Finally…
So, Creators - contracts are key — and the detail matters enormously.
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