Dual liability deemed `a paper tiger’

The existence of a dual liability clause on broadcasting company contracts is not the threat it is perceived to be and is more like another strange irony of the advertising business.'It's a paper tiger,' says John Foss, president of the Association...

The existence of a dual liability clause on broadcasting company contracts is not the threat it is perceived to be and is more like another strange irony of the advertising business.

‘It’s a paper tiger,’ says John Foss, president of the Association of Canadian Advertisers (aca.) ‘They [broadcast companies] have never dared use it.’

‘To my knowledge, it has never been tested,’ says Joe Mullie, director general of the Association des agences de publicite du Quebec (aapq.)

Meaningless

Foss and Mullie say they do not know of one broadcasting company that has collected from an advertiser after the advertiser’s agency went bankrupt and did not pay the broadcaster.

That being the case, they admitted, the clause is meaningless.

The dual liability clause has been a contentious issue between the ad industry and broadcast media companies.

The clause could mean that a broadcasting company could legally seek payment from an advertiser if the advertiser’s agency went bankrupt.

Accordingly, advertisers face the absurd and untenable risk of having to pay their media bills twice.

Dual liability in advertising is like a clothing manufacturer demanding a clause in a sales agency’s contract that makes that agency’s clients, all of its stores and boutiques, liable for payment of merchandise shipped to them in the event the sales agency reneges on payables.

Broadcasting companies continue to include the clause in microscopic type at the bottom of their contracts with agencies and the agencies continue to ignore it, or the aca has suggested, affix stickers over the clause claiming the agency is solely responsible for payment.

Foss is not sure how long the controversial clause has been in the broadcaster’s contracts, but he said the issue first surfaced when Montreal agency Cockfield Brown went bankrupt in the early 1980s.

Broadcasting companies were threatening to go after advertisers after Cockfield unplugged its typewriters and left its creditors with a mountain of debt. Nothing ever happened and not a cent was collected by broadcasters from Cockfield clients. So much for the clause.

Precisely the same scenario was played out last fall when Cockfield Brown lookalike, Leveille Vickers Benson, went bankrupt. The big Montreal agency with the ‘A’ credit rating and wealthy Toronto partners left behind large, unpaid bills.

Empty threats

Stage left, enter empty threats from the broadcasters’ association and spineless and pointless calls from ad industry executives to clamp down severely on easy credit for small agencies. Stage right, enter a meeting last winter in Toronto of the aca, advertisers and the poor, beleaguered broadcasters.

The ad industry, flexible and nice bunch they are, listened earnestly to whining and complaints from the broadcasters. They formed committees, drank a lot of bad coffee, and helped the broadcasters work on a plan to better monitor the creditworthiness of agencies.

One thing is clear about the Leveille bankruptcy – broadcasters were slow in collecting receivables from the agency.

The ad industry has refused to budge in its demand to get the clause removed. The broadcasters are adamant about keeping the clause.

‘It [the clause] has never been tested, but we would still like to see the issue resolved,’ Mullie says. The aapq is following the aca policy of ignoring the clause.

Broadcasting companies must have nervously double-checked their accounts receivable again in Montreal recently when the holding company which owned large, local grocery retailer Steinberg, disintegrated.

The wreckage of that crash included unpaid bills of $701,452 to Young et Rubicam, Steinberg’s former agency. Another was the Montreal office of Quebec City-based Olive Communication, which is owed $51,700.

Luckily for all the media suppliers, Young et Rubicam had paid all its media bills before the bankruptcy. Olive is owed its fees and production invoices it incurred on behalf of the retailer.

Curiously, the ad industry is not meeting to discuss better ways of assessing the creditworthiness of prospective clients.

‘The thing that gets me about Steinberg is that we were given assurances constantly not to worry about getting paid because we were dealing with a large holding company backed up by the provincial government,’ says Michael Gallagher, vice-president of Olive’s Montreal office.

‘It’s ironic,’ Gallagher says. ‘Metro-Richelieu [which along with Univa bought Steinberg] were able to buy Steinberg’s assets without having to assume any of their debt. And a good part of Steinberg’s assets was goodwill, and guess what helped build all the goodwill?’

Advertising. It is a business of ironies.

Michael Judson is president of Publicite Judson Woods, a Montreal ad agency.