Sale or Resale?
When is a sale a resale? The distinction and difference can be significant in the context of artists’ legal right to receive royalty payments as percentages of the price paid when their works are resold in the secondary professional art market. Put another way: artists are not legally entitled to receive royalty payments when their works are sold for the first time in the professional art market.
The distinction and difference between these two markets is of key importance not only to artists and art market professionals, but also to artists’ national representative bodies responsible for collecting resale royalties and paying them to their members. In the UK, the EU’s artists’ resale right (ARR) scheme is administered by two such bodies: DACS (Design and Artists Copyright Society), and ACS (Artists’ Collecting Society): each is a not-for-profit-share entity serving its members by liaising with art market professionals trading in the UK to collect ARR payments, and remitting payments to them. UK artists (and their estates for 70 years after death) may choose one of these entities to represent their ARR interests.
Key to the success of any ARR legal framework is whether a trade is in fact and in law a resale. In the UK to date, this issue has not been seriously disputed between ARR collecting bodies and art market professionals. But in Italy (where the EU’s ARR scheme also operates as ‘diritto di seguito’) for the past six years there has been a wrangle over the question of sale/resale, which has recently been resolved in a way that illuminates consignment of artworks for first/primary sale to art market professionals.
The EU requires all Member States to implement through their own domestic law an ARR scheme applying to resales of their artist-citizens’ work via art market professionals. Italian ARR law requires a percentage royalty to be paid for sales in Italy above 3,000 euros, when any one party to the transaction (buyer or seller, or agent for buyer or seller) is an art market professional. But that provision applies only ‘following the first’ sale: and different interpretations of that phrase fuelled the wrangle.
Italy’s ARR collecting body, SIAE (Società Italiana degli Autori ed Editori), interpreted ‘following the first’ to mean any sales by an art market professional of works that had been consigned by the artist to that professional to act as the artist’s agent to make a first/primary sale. In other words, SIAE required a resale royalty to be paid by a dealer selling for the first time a work of one of the artists it represented. When asked about this interpretation, Italy’s Culture Minister supported SIAE’s view, which was implemented forcefully by imposing financial penalties on dealers that refused to comply.
On the other hand, Italy’s national body representing art market professionals, ANGMAC (Associazione Nazionale Gallerie d’arte Moderna e Contemporanea), interpreted ‘following the first’ sale to mean the exclusion from ARR of works consigned by artists for first/primary sale, and which had not been ‘bought-in’ by the dealer from the artist as stock for reselling to collector-clients. ANGMAC asserted that it was trade custom and practice for dealers representing artists to take possession of works on a consignment basis for first/primary sale.
Reconciliation of these opposing interpretations was complicated by two factors. First, that collector-clients were invariably unaware of whether their purchase was a first sale by the dealer of a work consigned by an artist to sell as agent, or a resale of ‘stock’ that had been ‘bought-in’ from the artist by the dealer: documentation was often unclear or simply silent on the matter. Secondly, consignment by artists of their works to galleries as agents for first/primary sale often had non-existent or inadequate documentary evidence.
Eventually a solution was found to which all parties agreed. Earlier this year they published ‘guidelines’ clarifying in terms that an art market professional’s sale will continue to be presumed to be a secondary market sale to which ARR applies; but that presumption may be rebutted by the dealer providing written evidence that the sale was of work (say) consigned by the artist to the dealer for first/primary sale.
This sensible compromise in Italy raises important issues for all involved in first/primary sales of consigned works. It has long been the case that artists and galleries representing them have based their business relations on personal trust and ‘fit’ with each other; and have eschewed notions of there being a written representation agreement framing their future business dealings. This has been the case not only in the UK and EU, but also in other countries where a contemporary art eco-system is established or developing.
The absence of such documentation can and does lead to significant problems. For example, a dealer-agent may find it difficult to prove to an ARR collecting body (as in Italy) that a transaction is in fact a first/primary sale of consigned work, and not a resale of bought-in stock. An artist may find it difficult to prove to the liquidator of a dealer who has become insolvent that works in the dealer’s possession appearing to be unsold ‘stock’ (that can be sold to pay the dealer’s business debts), are in fact consigned works owned by the artist (and should not be sold as the dealer’s). Similarly, an artist is likely to find it impossible to prove that money in an insolvent dealer’s bank account in fact belongs to them, not the dealer, as payment of the purchase price of the sale of a consigned work.
Some artists consider that having no documentation means they are legally free to establish a business relationship with as many other dealers in the contemporary art world as may be interested in representing them; not so. It is not the absence of documentation with a dealer-agent that gives artists freedom to do deals with other representatives; it is long-established law in most countries that a contract requiring the delivery of personal services is not enforceable by courts ordering specific personal performance, rather by requiring financial compensation for any loss their refusal to perform may have caused.
A better way for artists and gallery-agents to anticipate the ending of their business relationship is to include in an initial written representation agreement provisions for either party giving reasonable notice to the other to divorce, and for arrangements such as independent auditing of who owes what to whom to be made accordingly. Ideally, the longer the parties have been working together, the longer should be the agreed notice period: a decades-long relationship should perhaps require notice of several years, whereas a relationship of a year or so may reasonably require notice of a few months.
The presence of such documentation can be mutually beneficial for avoiding doubts and misunderstandings, and making key business arrangements for matters such as: the nature and extent of representation (exclusive or not, worldwide or limited to countries); initial duration and notice to end; sales of works held on consignment, and/or bought-in; selling prices and payments to artist – and also arrangements for what should happen in the event of the artist’s death. Such things are easily ignored or postponed, but they can prevent or at the very least mitigate considerable difficulty and distress.
© Henry Lydiate 2019