April/May 2017

by Dan Chisholm

Legal Bandwidth: Contract? Get it in Writing – and Signed

by Dan Chisholm

Legal Bandwidth: Contract? Get it in Writing – and Signed

Have you ever been in a bad relationship? When things go south you need to know where you stand – what’s rightfully yours and theirs – so you can move on (and move out) without cutting your record collection and the family pet in half.

Let’s be realistic. While all personal and business partnerships start out with the best intentions, many will not stand the test of time, ending in bitter disputes.
Your music is the most precious asset you will ever have. So why do I see so many artists make the same simple, yet costly mistake?

If you’re an artist who’s serious about your future, safeguard against disaster before it occurs. All career musicians need appropriate agreements in place from the beginning that clearly outline the terms of engagement with their business partners. Whether it’s band members, managers, producers, labels or any person or company you work alongside, getting this down in writing upfront protects your business and can save you a huge amount of money and drama down the track.

Whether you’ve currently got a draft contract in place or just a verbal ’handshake deal,’ you’d be surprised to learn how the court approaches enforcing your agreement in New Zealand. For those whose bases aren’t yet covered, I hope these tips help you think harder about playing smarter, so you and your music stay safe from the perils of bad relationships.

Surprising Fact 1:

Contracts don’t have to be written down to be legally binding

The music industry is creative and fast-moving. Business relationships can be made informally ’in the moment’ with artists preferring to work from gut instinct rather than insisting on more traditional business arrangements. ’Handshake deals’, verbal agreements and trust-driven work partnerships are common.

But just like that dodgy ex of yours, when the good becomes ugly, not having a formal contractual agreement doesn’t exempt you from having major legal obligations to your business partners. So if you don’t want to get fleeced in the fallout, you’d better get a good agreement in place – or see them in court.

When a handshake deal goes wrong

An interesting example of the courts’ take on this was seen in last year’s High Court decision involving Dave Baxter of Avalanche City and his former manager Matthew Coleman. The case revolved around allegations of financial misconduct by the artist against his ex-manager.

The case looked at whether a ’handshake deal’ made between the parties was legally binding. While they didn’t have a formal signed agreement outlining the terms of their professional relationship, the High Court found that their verbal agreement was legally enforceable.

That’s because following their discussions about the terms of their working relationship, Coleman undertook management duties on behalf of Baxter/Avalanche City that involved collecting income, negotiating deals and organising Baxter’s entertainment industry affairs. In return, Coleman received 20% of Baxter’s revenue.

Therefore, the High Court found that the behaviour of the two parties reflected what had been verbally agreed to.

So why bother getting agreements in writing at all? I’m glad you asked.

Surprising Fact 2:

If a verbal agreement gets contested in court it’s your word against theirs – and the court will make the final decision.

Do you really want all that drama, risk and expense? While getting terms in writing isn’t mandatory, the test for a court to decide whether to enforce a verbal agreement is an objective one – made all the more complicated when the two sides have different versions of the supposed terms.
If the terms aren’t clearly defined you’re relying on the interpretation of the court. Needless to say, it’s an extremely risky approach.

Surprising Fact 3:

A written contract doesn’t have to be signed to be legally binding.

We know a signature on a contract indicates agreement to its terms, but you might be surprised to learn that an unsigned contract can potentially still be enforced in court. The Baxter and Coleman case also looked at whether an unsigned contract was legally binding.

Prior to their dispute Coleman had realised the verbal deal wasn’t enough. Coleman presented Baxter with a written management agreement and asked him to sign it.

Clearly, this was intended to flesh out and take precedence over their verbal understanding. Baxter never got around to signing the agreement, although he gave some vague assurances that it was generally okay.

Interestingly, in their case the High Court concluded the written contract wasn’t binding. Again, this conclusion was reached by looking at the parties’ actions.

For example, Coleman sent repeated emails to Baxter asking for the agreement to be signed. This indicated Coleman knew the agreement wasn’t final. Despite Baxter stating the contract looked ’good’ in an email, he still wanted to clarify some of the terms.

The High Court found that because the written contract wasn’t finalised the original verbal agreement took precedence. They may have come to the opposite conclusion if the parties’ actions suggested the terms were agreed – for example, if both parties continually referred to having a written agreement in place or expressed an intention to be bound by it.

For the mutual benefit of both sides, music industry agreements should always be in writing and signed with the advice of a music law expert. The terms should be clear with no stone left unturned. This gives power to both parties and everyone understands their obligations. No matter how friendly the contractual parties may be at the outset, a good contract will always detail what happens if things get ugly.

When these issues are discussed ahead of time, both sides can then relax. And just like in any good marriage, if all goes according to plan, these dispute and termination clauses will never come into play. And you’ll never find yourself broke, in court and fighting over who gets to keep the record collection.

Dan Chisholm is an Associate specialising in music and entertainment law at Trollope & Co Lawyers. Formerly a professional musician himself, Dan supported The Who, Counting Crows, The Cranberries, Ziggy Marley, G Love, Arrested Development and Eddie Grant among others. Having spent a decade in Australia he returned to NZ two years ago. His clients from across Australasia include Tash Sultana, Pierce Brothers, Dallas Frasca, Gold Class, Graeme James, Aeroplane Music Services and Kane Strang.