Legal Journal

Penalty Clauses in Cinema – Television Agreements

Nowadays it has become a habit to include an extravagant penalty clause while executing cinema and/or music agreements. On top of it, most of the agreements which we have encountered so far include special penalty clauses. It should be emphasized that instead of spreading penalty clauses in each provision; regulating a penalty under one specific provision would be of use for the agreement technique. In that case, “penalty clause which is regulated in order to prevent a dispute will not become a dispute itself” and, it will provide an actual protection for anyone who expects such penalty clause to provide protection in the case of breach of a right.

It is possible to envisage a penalty which can be claimed only at the termination of an agreement or together with fulfillment of contractual obligations. If the penalty clause is not drafted with a clear wording, this may cause unnecessary discussions and even invalidity of the provision. In cases where penalty clauses are defined in various different provisions in an agreement; the same problem may occur for each clause in a way even more complicated for each one.

Penalty - Damage

The relation between penalty and damage is indirect. Penalty accrues upon “breach of the provision it is stipulated”; thus, it is not necessary that damage accrues. Furthermore, the person claiming the damage has to prove the casual link. The most important principle connecting penalty and damage is that; damage exceeding the penalty may be further claimed. In other words, any damage amount less than the penalty amount cannot be claimed additionally. Although this is a fundamental principle; almost all agreements include provisions inconsistent with this rule. Provisions referring that “damages can be claimed in addition to the penalty amount” are often included in agreements; even though such provisions are against the law. In fact, it is not possible to claim such damages, save for damages exceeding the penalty amount.

Natural Person- Merchant

There is a difference in the application and interpretation of penalty clauses between natural persons and merchants under Turkish Law. In principle, penalty clause cannot be regulated in a way that is “creating economic distress to” a natural person. On the other hand, there is no such limitation in cases where the other party is a merchant. A merchant will be liable for the amount of penalty that he/she has agreed on. However, in practice, the Turkish Supreme Court interferes to the provisions and requires reduction where the penalty is so extravagant that it may cause destruction of the merchant. Whereas, a judge can always interfere with the agreement.

Cinema and Television Agreements

We may categorize cinema and television agreements into two basic groups such as; agreements which are signed with creators/authors like scenarists, directors, music composers, lyricists and the ones that are signed with music and film producers. Since, the copyright owners/authors indicated herein are “natural persons”; they will be subject to limitation of penalty amount as we have defined above. Nevertheless, there is a crucial issue here with regards to copyright law which should be emphasized; creators/authors have the right to terminate their Author Undertakings which include the works to be created in the future.

A scenarist, director, music composer or lyricists may unilaterally terminate the agreement in which he/she has undertaken to create a work in the future; by serving a one year prior notice in accordance with Article 50 of the Law on the Intellectual and Artistic Works. Therefore, any penalty clause prohibiting author from this right is considered as null and void. Rather than a privilege provided to the author, this right aims to protect the author for the cases where he/she cannot be able to create the work.

Phonogram producers have executed agreements with extensive penalties with composers for many years inUnkapanı music market. However, these kinds of penalties are all invalid, considering the Article 50 mentioned above.

Film producers are in a different position than natural persons towards film distributors and television channels. First of all, they cannot benefit the above mentioned right provided to authors. In other words, if the film producer /company cannot complete and deliver the film to the television channel on the agreed date, the film producer shall be liable to pay the penalty amount it has agreed on. However, we have to emphasize that, such film producer would still have the right to object and require a certain reduction under general rules of law as mentioned above.

Av. Haluk İnanıcı