Brand owners have leveraged celebrity endorsements for decades, and while they can be valuable, they can also be risky. In the event of a celebrity scandal, a brand owner may wish to terminate its relationship with the celebrity in question. One way that a brand owner may justify termination of an endorsement contract is by relying on a morals clause. Generally speaking, a morals clause is a provision in a contract which stipulates that certain actions or activities undertaken in an individual’s private life can be grounds for termination of the contract.

The Court of Appeal for Ontario (Court) recently confirmed the importance of precise and thoughtful drafting of morals clauses in Zigomanis v. 2156775 Ontario Inc. (D’Angelo Brands) as the Court refused to overturn the trial judge’s decision that a former professional hockey player’s endorsement contract was wrongfully terminated because the athlete did not breach the morals clause, among other reasons.

For an overview of the trial judge’s decision and further background to the case, please see our Blakes Bulletin: Professional Hockey Player Did Not Breach Morals Clause in Endorsement Contract, Ontario Court Rules.

BACKGROUND

In 2011, D’Angelo Brands entered into a promotional contract with professional hockey player Mike Zigomanis to help market and promote an energy drink. Mr. Zigomanis was party to a “two-way” agreement with his franchise at the time, meaning that he could be demoted to the franchise’s minor league team, which occurred shortly thereafter. In addition, nude photographs that Mr. Zigomanis had sent his then-girlfriend prior to signing the contract were published on the Internet. As such, D’Angelo Brands purported to terminate the promotional contract in 2012.

Mr. Zigomanis subsequently sued for wrongful termination of the contract in the Ontario Superior Court of Justice. There were a number of issues raised at trial. However, the only issue dealt with on appeal was whether Mr. Zigomanis had breached the morals clause, which entitled D’Angelo Brands to terminate the agreement upon Mr. Zigomanis committing “any act which shocks, insults, or offends the community, or which has the effect of ridiculing public morals and decency.”

In considering the application of the morals clause, the trial judge noted that the clause was concerned with Mr. Zigomanis’ actions. As the Internet posting was not an action of Mr. Zigomanis, the trial judge held that the morals clause was not triggered. The trial judge also found that although taking the pictures and sending them to his then-girlfriend were the actions of Mr. Zigomanis, these activities took place before the contract was executed. As the morals clause was not stated to be retrospective, the trial judge concluded that it did not apply to Mr. Zigomanis’ conduct.

Notwithstanding these findings, the trial judge held that even if D’Angelo Brands could rely on the past actions of Mr. Zigomanis, the private transmission of nude photographs within a relationship did not constitute an act “which shocks, insults, or offends the community, or which has the effect of ridiculing public morals and decency.”

Ultimately, the trial judge concluded that D’Angelo Brands had wrongly terminated the contract and awarded Mr. Zigomanis damages in the amount of the contract.

COURT OF APPEAL’S DECISION

D’Angelo Brands appealed the trial judge’s decision. Although D’Angelo Brands raised several grounds of appeal, given the overlap between issues, the Court noted that D’Angelo Brands’ appeal “could not succeed unless the trial judge made a palpable and overriding error in failing to find that sharing nude photographs within an intimate relationship would shock the conscience of the community.”

D’Angelo Brands argued that, based on the evidence put forward, the trial judge should have concluded that the conscience of the community was shocked by Mr. Zigomanis’ actions. However, the Court found that Mr. Zigomanis’ desire to suppress publication and distance himself from the nude photographs was evidence of his desire for privacy. The Court also found that the widespread public interest in the photographs said nothing about the community’s reaction to Mr. Zigomanis sharing photographs with an intimate party.

The Court concluded that the trial judge’s decision was “rooted, appropriately, in the timeless human practice of sharing intimate information within relationships, the inherent expectation of privacy when doing so, and the public policy reflected in recent legislation protecting the privacy of such communications in the internet age.” Accordingly, the Court refused to interfere with the trial judge’s findings, dismissed the appeal and ordered D’Angelo Brands to pay costs.

CONCLUSION

While a brand owner may rely on a morals clause to justify termination of an endorsement contract with a celebrity involved in a scandal, this case confirms that such clauses must be clear and specific. If the morals clause that a brand owner intends to rely on does not clearly capture the specific objectionable nature of the conduct that would give the brand owner the right to terminate or repudiate the contract, the brand owner runs the risk of wrongly terminating the contract.

An expansive clause may be preferable to one that itemizes specific infringement, such as being charged with a criminal offence. However, as highlighted by the findings in this case, such clauses may be more difficult to enforce since they require a qualitative, and arguably somewhat subjective, assessment of whether a particular activity or incident is “offensive,” “insulting” or “shocking” enough that it triggers the termination right in the particular facts of a given case.

A party may therefore wish to combine an expansive clause (e.g., conduct that “shocks, insults or offends the community”) with specific types of activities which, although may not reach the threshold of the more expansive clause, would nonetheless be behaviour that a brand owner may not want to be associated with. Setting out specific violations allows the party engaging the endorser to tailor the agreement to address any particular sensitivities of the brand owner, its products and its target market. This may be particularly relevant where, for example, the product is targeted to children or youth and the endorser’s conduct is important to the maintenance of the brand’s reputation and image.

Finally, parties should consider how past unknown conduct, which may later come to light, will be dealt with. If a brand owner wishes to afford itself termination remedies for conduct of the endorser that occurred before the signing of the contract, this must be clearly stated in the provisions of the contract and cannot be “read-in” after the fact.