Lopsided music contracts are a discordant note

What if the music you love was built on exploitation resembling slave labour? 

The poignant tale of Solomon Linda, author of the iconic song Mbube, is a reminder of the music industry’s exploitative underbelly. 

The song was sold to Gallo Records for a paltry 10 shillings in the 1950s — less than R1 today. It was adapted for The Lion Sleeps Tonight in the 1994 Disney movie The Lion King, generating millions in royalties for the company — none of which reached Linda, who died in 1962. 

This is but one example highlighting the systemic injustices engendered by the Copyright Act 98 of 1978, which has enabled record labels to profit at artists’ expense for decades. 

Despite legislative efforts, including the recent Copyright Amendment Bill and Performers’ Protection Amendment Bill, the fundamental power imbalance between record labels and artists remains, underscoring the need for reinterpreting music contracts.

The legal framework: ownership and exploitation

South African law grants the copyright owner a monopoly over the work, including musical compositions and sound recordings. While the Act presumes the author is the copyright owner, an exception applies when a work is created under commission, in which case the commissioner owns the copyright.

Furthermore, another section enables authors and other parties to enter into agreements, often resulting in contracts between record labels and artists divesting the artist of copyright ownership and financial benefits. 

Although section 20 safeguards the author’s moral rights, including the right to claim authorship and the right to integrity, these rights offer limited financial rewards. 

The Act ultimately favours copyright owners, predominantly record labels, over authors, allowing the former to reap substantial financial rewards while leaving artists under-compensated.

Section 6 grants copyright owners exclusive economic rights, including the right to reproduce, publicly perform, broadcast and communicate the work through wire and wireless mediums, while section 5 of the Performer’s Protection Act 11 of 1967 gives performers the exclusive right to broadcast or communicate their performances. 

However, copyright ownership and performers’ rights are distinct. Artists may hold performers’ rights without owning the copyright and can transfer these rights. 

In such cases, the performer receives royalties from the copyright holder as per the contract. 

Moreover, section 2 of the Performers’ Protection Act ensures it does not override the Copyright Act, making its financial benefits comparatively limited.

It is apparent that contracts play a significant role in the music industry. They have been used as a bypass that disproportionately favours record labels, allowing them to circumvent the statutory scheme and exploit artists. 

Significantly, neither the Copyright Act nor the Performers’ Protection Act prescribes a specific royalty amount threshold, leaving it to record labels and artists to “agree” on the terms. 

These contracts are usually standard-form, that is, contracts that are drafted in advance and are presented to the artist on a “take-it-or-be-poor-forever” basis. 

In the constitutional court case of Barkhuizen vs Napier, Justice Albie Sachs, in his dissenting judgment, expressed reservations about standard-form contracts, noting they often impose one party’s will rather than being based on mutual consent.

We have concerns about these contracts of adhesion and regard them as servitude contracts. 

To safeguard artists’ economic rights and protect them against contractual exploitation, a transformative approach to contract law and interpretation is necessary as it upholds the Constitution’s fundamental rights and values.

A path to justice

Transformative constitutionalism is the commitment to achieving substantive social justice and economic transformation through constitutional adjudication and interpretation. 

This long-term project of constitutional enactment, interpretation and enforcement as characterised by Karl Klare in his seminal essay Legal Culture and Transformative Constitutionalism aims to transform a country’s institutions and power dynamics in a democratic, participatory and egalitarian direction.

The Constitution’s supremacy clause (section 2) renders any law or conduct inconsistent with its provisions invalid. 

The Constitution’s transformative mission permeates both public and private spheres, prescribing consequences for private and public actions infringing constitutional rights and values.

The constitutional court reaffirmed this in Pharmaceutical Manufacturers Association of South Africa: In re Ex Parte President of the Republic of South Africa, stating that there is only one system of law in our constitutional democracy, shaped by the Constitution, which is the supreme law. 

All law, including the common law, derives force from and is subject to the Constitution. 

Transformative adjudication, as noted by former Deputy Chief Justice Dikgang Moseneke in the fourth Bram Fisher Memorial Lecture, requires courts to seek substantive justice informed by constitutional values because the injunction of the Constitution is transformation. 

Courts must approach contractual disputes as opportunities to advance the constitution’s transformative objectives, integrating common law principles with justice, equality and human dignity.

A contract is generally a lawful agreement concluded between two or more parties, creating legal obligations. 

To understand how contracts can be transformatively interpreted, it is essential to examine the role of freedom of contract, pacta sunt servanda (contracts freely and consciously concluded must be honoured)), fairness, good faith, reasonableness and disproportionality in our constitutional contract law. 

Freedom of contract allows the parties to choose whether to enter into an agreement, decide with whom to contract and define the terms, provided they are lawful and enforceable. 

In Afrox HealthCare Bpk vs Strydom, the supreme court of appeal recognised freedom of contract as both a cornerstone of contract law and a constitutional value promoting legal certainty and personal autonomy. 

We argue that music contracts often violate this value as artists sign under overwhelming pressure, and without sufficient information, as record labels frequently fail to disclose material terms.

Furthermore, music contracts often lack good faith during the negotiation phase. 

In Everfresh Market Virginia (Pty) Ltd vs Shoprite Checkers (Pty) Ltd the constitutional court declined to impose an obligation to negotiate in good faith as the argument was raised too late in the litigation. 

Moseneke suggested that, with proper pleading, it might be possible to develop the common law to impose an obligation to negotiate in good faith. This implies that the common law can be developed to mandate good faith in music contract negotiations, aligning with constitutional values. 

Courts approach the task of refusing to enforce contracts on the basis of public policy with “perceptive restraint”. The constitutional court in Beadica vs Trustees for the time being of the Oregon Trust elucidated the application of the perceptive restraint principle: “Courts should not be so recalcitrant in their application of public policy considerations that they fail to give proper weight to the overarching mandate of the Constitution. 

“The degree of restraint to be exercised must be balanced against the backdrop of our constitutional rights and values. The perceptive restraint principle should not be blithely invoked as a protective shield for contracts that undermine the very goals that our Constitution is designed to achieve.”

Therefore, courts are under a constitutional obligation to intervene where music contracts infringe upon constitutional rights and values.

Balancing the scales in music contracts

The principle of pacta sunt servanda remains a part of South African contract law but it is no longer absolute. The constitutional court in Barkhuizen vs Napier and in Beadica emphasised this principle is subject to constitutional control. 

While pacta sunt servanda gives effect to the constitutional values of freedom and dignity, it is not the only consideration in judicial contract control.

Public policy is informed by a range of constitutional values and there is no basis for prioritising pacta sunt servanda over other constitutional rights and values. In fact, the constitutional court has intimated a contractual term can be contrary to public policy even if it does not directly implicate a constitutional right.  

Music contracts impact constitutional values, such as human dignity, and directly implicate the following fundamental rights: right not to be subjected to servitude; not to be arbitrarily deprived of property (royalties) and to fair labour practices.

Pacta sunt servanda assumes equal bargaining power between contracting parties, assuming a genuine meeting of the minds and voluntary good-faith negotiations. However, this classical assumption neglects the pervasive inequalities that distort many contractual engagements, as noted by Moseneke in his lecture titled Transformative Constitutionalism: Its Implications for the Law of Contract. 

Music contracts exemplify this imbalance, with record labels wielding overwhelming bargaining power both during the pre-contractual stage and throughout the duration of the agreement over vulnerable aspiring artists. Eager to launch their careers, artists sign contracts that exploit them, believing it’s their only escape from poverty.

The power imbalance is exacerbated by the reality that most aspiring artists lack the financial means to obtain proper legal counsel, leaving them unable to scrutinise the agreement and identify challenges. 

Standard-form contracts, drafted with the label’s lopsided interests in mind, perpetuate this unfair dynamic. Sometimes, artists lack the opportunity to read or retain the contract, signing under economic duress.

This exploitative dynamic contravenes public policy, infringing artists’ human dignity and right to freedom from servitude. It accentuates the need for transformative contract law that prioritises fairness, equality and human dignity.

The constitutional court in Beadica, in Botha vs Rich NO, and the supreme court of appeal in Brisley vs Drotsky and South African Forestry Co Ltd vs York Timbers Ltd established that fairness, good faith and reasonableness are values underpinning our contract law, rather than independent grounds for invalidating a contract. 

It is against this backdrop that our argument must be understood. Our argument is that music contracts contrary to public policy as informed by constitutional rights and values can — and indeed must — be invalidated by our courts. 

The majority decision in the constitutional court in Barkhuizen vs Napier provides the framework for the transformative interpretation of music contracts. 

It was held that “the proper approach to the constitutional challenges to contractual terms is to determine whether the term challenged is contrary to public policy as evidenced by the constitutional values, in particular, those found in the Bill of Rights”.

This approach accommodates pacta sunt servanda, while empowering courts to refuse enforcement of terms that conflict with constitutional values, notwithstanding party consent. 

The court explained that public policy is embedded in our Constitution and constitutional values. Consequently, the Bill of Rights indirectly applies to contracts, rendering terms that are inimical to constitutional values unenforceable as being contrary to public policy.

Transforming contracts for equity and fairness

In contract negotiations, parties inherently seek the most favourable terms for themselves. However, a challenge arises when they harbour divergent understandings of the contractual terms, believing their interpretation to be true and commonly shared — a phenomenon known as false consensus bias in psychology. 

This psychological bias often remains undetected until disputes emerge, as evidenced by the plethora of cases where artists claim exploitation and deviation from agreed-upon terms by record labels.

The 2011 Copyright Review Commission Report reveals a troubling dynamic in music contracts, characterised by false consensus bias. It exposes how contracts often contravene public policy, systematically failing to safeguard artists’ interests while prioritising those of recording companies.

The report shows that music contracts perpetuate a power imbalance, egregiously favouring record labels. 

Dispute-resolution mechanisms are woefully inadequate, denying artists independent mediation and arbitration avenues. 

This violates section 34 of the Constitution guaranteeing the right of access to an independent and impartial tribunal or forum. 

The consistent outcome of remuneration disputes, which overwhelmingly favour labels, starkly illustrates this violation. Furthermore, payment schedules enable recording entities to retain and accrue interest on funds before distributing them to artists, who are excluded from sharing in this interest.

Contracts allocate a disproportionately low percentage of live performance revenues to artists, while failing to delineate the specific role or contributions of record labels to these performances, thereby lacking a clear justification for the labels’ significantly larger share. 

These contracts often include automatic renewal clauses but deny artists the opportunity to renegotiate terms upon expiration, while granting recording entities unilateral power to terminate or suspend agreements.

The power and knowledge asymmetry between artists and recording entities results in contracts born not from equal bargaining power but from the exploitation of artists’ vulnerabilities, disguised as consensual agreements. 

As held in Afrox HealthCare, such contracts may contravene constitutional values, as unequal bargaining power at the time of conclusion of the contract is a factor that plays a role in public policy considerations.

The high court’s decision in Jordan vs Farber reinforces the argument that unequal bargaining power can invalidate a contract. In Jordan, the high court held that an attorney’s significant power over a vulnerable client rendered their contract void as against public policy. 

The client, emotionally and economically vulnerable, relied solely on the attorney’s advice and was unable to refuse or scrutinise the terms. 

Similarly, music contracts often embody this defect, with record labels wielding immense bargaining power over vulnerable artists.

Ultimately, the harmony of our favourite songs is rooted in the discord of exploitation. Transformative constitutionalism offers a critical framework for examining music contracts, prioritising constitutional substantive justice and safeguarding vulnerable artists. 

This approach challenges traditional notions of freedom of contract and pacta sunt servanda, ensuring agreements align with constitutional values and contribute to societal transformation while promoting equitable contracting practices. 

Courts can dismantle exploitative practices by applying the Constitution horizontally and by adopting a transformative approach to adjudication.