From fame to flambé - how scandals burn contractual deals

In the latest installment of the dispute between Nagi Maehashi of RecipeTin Eats and Brooke Bellamy of Brooki Bakehouse over the rights to two recipes (first explored in our first article from Michael Cossetto), Brooke has been dropped as a future ambassador for the Academy for Enterprising Girls.

ABC News has reported that Brooke’s contract with the Academy for Enterprising Girls requires her to conduct a small number of promotional activities, half of Brooke’s payment from the ambassadorship has already been paid and the role had not yet begun. In a statement from the Academy for Enterprising Girls to ABC News, the Academy said they had not yet made a legal assessment on the current allegations and have informed Brooke that they will not be proceeding with the ambassadorship.

So how did the Academy drop Brooke as an ambassador when the deal had already been made?

Rescinding or terminating a contract before performance begins

Contracts can sometimes be rescinded or terminated before obligations for performance have started, even after part consideration (e.g. payment) has been made. Grounds for rescission or termination include:

1. Mutual agreement – If both parties agree to rescind the contract, they can terminate it without further obligations. This may involve returning any consideration already exchanged or negotiating a settlement.

2. Misrepresentation or fraud – If one party entered the contract based on false information or fraudulent conduct, they may have grounds to rescind the agreement. Courts may allow rescission to restore the affected party to their original position.

3. Breach of contract – If one party indicates they will not fulfill their obligations or breaches a fundamental term before performance begins, the other party may terminate the contract.

4. Frustration of contract – If unforeseen circumstances make performance impossible (eg. legal changes or natural disasters), the contract may be discharged under the doctrine of frustration.

5. Unconscionable conduct or duress – If a party was pressured into the contract unfairly or the terms are excessively one-sided, courts may allow rescission.

Based on the Academy’s timing of dropping Brooke as an ambassador amidst a social media storm, it is likely that Brooke breached a term of the ambassador contract, like a moral clause or a social media conduct clause and the Academy relied on that breach to end their relationship with Brooke.

What are moral clauses?

A moral clause is a provision in a contract that sets behavioural standards for one of the parties involved. These clauses are often used to protect the reputation of a brand or organisation by ensuring that the individual bound by the contract does not engage in conduct that could bring disrepute or scandal. They have become an essential component of contracts involving public figures, particularly in industries where reputation and public perception are paramount. Moral clauses are commonly found in contracts for actors, athletes, executives, and brand ambassadors, as well as in employment agreements. If the individual violates the clause - whether through criminal activity, offensive behaviour, or actions that contradict the values of the other party - the contract may be terminated.

Enforceability of moral clauses

The enforceability of moral clauses in Australia is subject to several legal considerations:

1. Contract law principles - Under Australian contract law, a clause must be clear, reasonable and not contrary to public policy to be enforceable. Courts generally uphold moral clauses if they are specific and do not impose overly broad or vague restrictions on a party’s behavior.

2. Good faith and fairness - Australian courts increasingly recognise the principle of good faith in contractual dealings. A moral clause that is excessively punitive or applied unfairly may be challenged on the grounds of unconscionability or lack of good faith. 

3. Public policy considerations - Courts may refuse to enforce moral clauses that violate public policy. For example, a clause that penalises a public figure for expressing personal political views outside of work may be deemed unenforceable if it infringes on fundamental rights such as freedom of speech.

4. Employment law implications - In employment contracts, moral clauses must comply with workplace laws, including unfair dismissal protections. Employers must ensure that terminating an employee based on a moral clause does not contravene employment regulations or anti-discrimination laws.

Commercial considerations for moral clauses

From a commercial perspective, moral clauses serve as risk management tools, protecting businesses from reputational damage. However, their effectiveness depends on careful drafting and balanced application.

Firstly, poorly drafted moral clauses can lead to disputes and litigation. If a clause is too vague or subjective, the affected party may challenge its validity, leading to costly legal battles.

While businesses favour moral clauses, public figures often resist overly restrictive terms. Negotiations typically involve balancing the interests of both parties to ensure fairness and prevent undue hardship.

Further consideration should be given to industry nuances because certain industries approach moral clauses differently. For example, in media and entertainment, these clauses are common due to the high visibility of public figures. However, in corporate settings they are used less frequently but can still be used to enforce ethical standards and corporate governance principles.

Drafting solutions to moral clauses

Given the challenges associated with moral clauses, drafting solutions are available to provide greater flexibility and fairness:

1. Behavioural standards clauses - Instead of broadly defined moral clauses, contracts can include specific behavioural standards that outline acceptable and unacceptable conduct. These clauses provide clarity and reduce ambiguity.

2. Reputational risk management clauses - Some contracts incorporate reputational risk management clauses that focus on measurable impact rather than subjective morality. These clauses assess whether an individual’s actions have demonstrably harmed the contracting party’s commercial interests.

3. Remediation and corrective action provisions - Rather than immediate termination, contracts can include provisions for remediation, such as public apologies, corrective actions, or temporary suspension. This approach allows for a more balanced response to controversies, although it is rare to see in ambassador agreements where brand reputation is everything.

4. Social media conduct clauses - Given the influence of social media, contracts increasingly include specific provisions governing online behavior. These clauses define acceptable online engagement and provide guidelines for handling public controversies. In employment agreements, employees are often bound to comply with the employer’s social media use policies.

5. Ethics and compliance agreements - Some organisations opt for broader ethics and compliance agreements that outline expected conduct and provide mechanisms for addressing ethical concerns without resorting to punitive measures.

Of course, which (if any) of these drafting solutions is adopted will depend on the bargaining power of the parties involved and the importance of the relationship to the parties.

Conclusion

Moral clauses play a crucial role in Australian contracts involving public figures, balancing commercial interests with legal enforceability. While they provide organisations with a mechanism to protect their reputation, their enforceability depends on clarity, fairness, and compliance with legal principles. As corporate governance and public expectations evolve, drafting solutions offer a more nuanced approach, ensuring contractual agreements remain fair, effective and adaptable to changing societal norms.

If you would like to discuss a current or future contract in the context of moral clauses, please contact us.

Author: Alison Cui

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.