Bad PR: handling public relations consulting disputes

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Public relations (PR) consulting is a for-profit professional service provided to meet clients’ demand for services including information communications, relationship co-ordination and image management. Primary forms of PR consulting include strategy consulting, market research, brand planning, communications consulting, public affairs, event management, media monitoring, crisis management, professional training and promotional materials development. The disputes related to PR consulting introduced in this article refer to contractual disputes among clients, service providers and service executors during the provision of PR consulting services.

DD_BACAs the PR industry has maintained a robust annual revenue growth in developed countries in recent years, the Beijing Arbitration Commission (BAC) has dealt with an increasing number of PR consulting-related disputes with rising values. According to incomplete statistics, there has been a 30% annual increase in the number of PR consulting cases handled by the BAC since 2004, and in terms of the resolution results, the rate of case withdrawal after mediation has reached 47%.

Most PR consulting disputes handled by the BAC were related to press agency, event planning, marketing communication and corporate communications. These cases are characterised by faulty contracts, improper performance, the basis of “personal relationships” and difficulties of proof. In summarising the common focuses of dispute in these cases, and the arbitral tribunal’s reasons for its decisions, we can offer some suggestions.

Determining the nature of a PR consulting contract and the application of laws. As a PR consulting contract usually has substantial contents, in implementation the parties to the contract often have significant differences of understanding as to the nature of the contract, and ask the tribunal to apply different provisions of the Contract Law. Since a PR consulting contract is a mixed contract that reflects the nature of several different contracts – including commission contracts, service contracts, brokerage contracts, contracts for work and even elements of transportation contracts – the parties to the contract should try to avoid drafting the contract following the nature of one specific contract, but rather distinguish the terms by different functions and purposes, and then conduct contract review accordingly, in light of the natures of respective clauses. Unless necessary, the parties should try not to name the contract “brokerage contract” or “commission contract” to avoid influence on the application of laws during trial.

Whether the government approval affects the effect of legal act. Whether the founding and operation of a PR consulting firm are approved by relevant government authorities, and whether its relevant performance complies with the laws of the country are often at the centre of the dispute between the parties. As a PR consulting service has extensive scope and involves a wide range of fields, a PR firm often provides services beyond the scope of business specified in its business licence. Also, PR services such as press agency, market communications and other information communications services involve administrative approval from the government in their implementation. So it often happens that the tribunal is asked by a party during the trial to rule a contract as partially or wholly invalid on the ground that the consulting firm is not properly qualified. As to this, the BAC usually adopts a relatively lenient standard and would not readily rule a contract as invalid if the relevant qualification falls into the administrative jurisdiction and does not involve the public interest of the country concerned.

How to draft the terms of payment. In practice, there are usually two methods to pay PR consulting fees: one is payment according the amount and progress of work; and the other is payment according to work results. The first payment method is based on the objective amount of work provided by the service-providing party, which is easy to identify and therefore lowers the risk of the service-providing party. However, this method increases the difficulty of proof by the service-providing party and raises higher requirements for its evidence management and preservation. It also requires that specific clauses be set out during the drafting of the contract as to how to calculate the amount of work.

The second method has lower management costs and is directly based on the results. While adopting this method, one should avoid using subjective or ambiguous standards such as “Party B’s work results meet Party A’s requirements”, and also consider the possibility that the parties might come to dispute over whether the service-providing party contributes to those results; in anticipation of which, the service-providing party can set out in the contract the obligation of the client to raise objections in time, and the consequences of objections in such circumstances. For the collection of service fees, where the proposed results are not achieved specific clauses can also be set out if necessary.

Advantages of arbitration in the resolution of PR consulting disputes. Confidentiality is one of the major advantages of arbitration as a means of dispute resolution. In PR cases, since PR consulting projects usually involve many trade secrets, choosing arbitration can effectively avoid the leak of trade secrets, as well as media involvement. Mediation also satisfies the need for confidentiality. The parties to these cases mostly prefer not to face off against each other in court and wish to find an independent and impartial third party with experience and authority in the field to help resolve their disputes. The BAC Mediation Centre is specialised in providing clients with such services. The parties can also arrange an arbitration agreement with the prepositional procedure of mediation so that where an agreement is reached through mediation, the contents of the mediation agreement can be converted into an enforceable arbitral award; or where mediation fails, there is a direct transition to arbitral proceedings.

The author, Lin Xiaolu, is a case manager at the Beijing Arbitration Commission