In various realms of professional photography deposits, bonds, down payments in advance and similar pricing mechanisms are adopted to solemnise a contract between photographer and client, and to protect the photographer’s allocations of time and resources to a project in advance of the schedule.
As a matter of practical importance the legality and enforceability of such arrangements, where the client cancels and the photographer wishes to retain the initial payment, is therefore a matter of some practical significance.
The issue then arises; following cancellation of a contract, can a photographer legally retain any initial payments received, to compensate them for the cancellation?
The Law of Penalties in New Zealand
Incorporating a non-refundable booking fee into an agreement between photographer and client is, in theory, good business practice, as the penalty for breach/ cancellation is stipulated at the outset. However, the Court will not enforce a penalty if the amount required upon breach exceeds what is deemed ‘a genuine pre estimate of loss’.
In general a non-refundable fee (deposit) is likely to be enforceable if it is assessed having specific regard to the nature of the engagement and the extent of the resources allocated by the photographer, prior to cancellation.
Deposits OK if Reasonable
Despite a general prohibition on penalties, deposits have generally been regarded as a valid method of requiring the client to make a non-refundable commitment to the engagement.
The general rule is that upon default or cancellation of a contract, a deposit (if reasonable) will generally be retainable, as a form of penalty, without having to establish any loss as a result of the breach.
The right to retain the deposit need not be express in the contract. However, the payment must be in the nature of a deposit in order for it to be retained upon default. Whether the payment is in the nature of a deposit will be assessed according to the true nature of the payment, to secure performance of a contract.
The quantum of the deposit payable must however, be in line with the requirement of the law of penalties in that it must amount to ‘a genuine pre estimate of loss’. If it is excessive and/or unreasonable, it may be construed as being part payment of the final fee. In such a case, the right to retain the money as a deposit will be forfeited, and any right to a deposit will not be substituted.
Implications for Photography Agreements
Incorporating a non-refundable initial fee into an agreement is a good means of ensuring there is some form of compensation when a contract is not performed, as well as securing the client’s commitment to the contract. Nonetheless, this sum must be reasonable for it to constitute a deposit (within the legal meaning of that term).
The right to forfeit the deposit (as a form of penalty) if the client cancels is exercisable even if (after cancellation by a client) the appointment time is used for another sitting (and the photographer thereby suffers no actual loss).
For example, in relation to the sale and purchase of property, a reasonable deposit is one which is 10% of the purchase price. However, this figure is based on what is reasonable within the particular industry, and the nature and norms of professional photography will have a bearing on this 10% threshold.
Therefore, the law does enable some form of financial relief in the event of client breach/ cancellation, provided that the relief levied amounts to “a genuine pre estimate of loss”, and the terms of the contract are appropriately written to support such a construction and avoid the legal stigma of a “penalty”.
James Carnie & Gabrielle Lourens
Clendons
Clendons is an Auckland based law firm, specialising in copyright and intellectual property issues. The firm is a sponsor and representative of various New Zealand visual arts organisations including AIPA, NZIPP and DINZ.
