Art Meets Law in New York Times art securitization piece

NEW YORK. Last month I was interviewed for a piece in The New York Times on the rise of art funds and art securitization generally. The piece is now available here. As I explained to the author, the reasons underlying the growth in art funds are several. Firstly, 2010 saw record auction prices being set for painting, sculpture, rare books and Chinese art and the article correctly references each of these. Secondly, as investments in traditional assets (stocks, bonds) continued to perform erratically, the notion of art as an alternative investment class was firmly consolidated, albeit partly by default, and art is now widely held as an acceptable and important way of diversifying investment portfolios. Thirdly, since the on-set of the financial crisis, investors have shown greater interest in tangible assets including art.

The rise of art funds is not without problems and related to the question of how the pooled art assets will be valued is the issue of conflicts of interest. In Russia for example, investors can not only pay cash for units in the two art funds established by the asset management firm Leader -- they can also contribute art instead, with the fund managers themselves determining how many units an investor gets for a particular art fun. This means that public investors, likely to be investing cash rather than expensive works of art, may be overpaying for the fractions of the art works they will own. The risk of "close friends" of the managers acquiring an inflated number of units is very real given the overlap between wealthy art collectors and financial professionals (and even more so in Russia). While disclosure is vital and would allow investors to assess the risks associated with any conflicts of interest, fund managers should be outsourcing the valuation of the assets to an objective, independent source but in such a knowledge-intensive market, the options are slim. Another issue is how freely transferable the units will be. From what I've read to date on the subject, investments through art funds are medium to long-term which makes sense given how illiquid art assets but it is unclear how liquid the units themselves will be.

Setting aside the legal and financial issues, it's very interesting to see the quote from the President of the Art Dealers Association of America stating that she "would never allow a young artist to sell artwork to a pooled fund." Resistance from certain subcultures within the art world is to be expected but that's a pretty strong statement coming from someone who is actively involved in the art market (Lucy Mitchell-Innes is the co-founder of the Chelsea-based gallery Mitchell-Innes & Nash). Stay tuned for much more on this fascinating field.

UPDATE: Upcoming auction of "looted" Benin mask CANCELLED

Members of the British Expeditionary Force posing with looted art from

the palace of the Benin King, Nigeria. Source: Myweku.com

 I previously posted about the controversial auction at Sotheby's next month of a Benin mask that was expected to set a record price for an African antiquity. The 16th century ivory mask, "one of the last great masterpieces of Benin sculpture remaining in private hands," is believed to have been looted by British troops from 19th-century West Africa. According to The Independent, "protests against the sale of the mask began at the end of last month on social networking sites and an online petition was circulated by a group calling itself the Nigeria Liberty Forum." The article went on to say that the auction has since been cancelled and a statement released by Sotheby's on December 24 says that "the Benin ivory mask and other items consigned by the descendants of Lionel Galway which Sotheby's had announced for auction in February 2011 have been withdrawn from sale at the request of the consignors." We can only speculate as to what their reasons for doing so may have been. If and when the mask does come up for auction in the future, I wonder if its provenance will have been irreparably tainted as a result of last month's protests or whether the protests will have had the opposite, unintended effect which is to make the object a fetish of the market.

LINKS

• Judith Dobrzynski reports on the newly-created ad-hoc advisory committee to the NY Board of Regents which is intended to aide the Board in coming up with a revised deaccessioning policy (see here on the expiration of the deaccessioning "emergency" regulations last October and the outcry that ensued).
• Art Market Monitor interviews Judith Pearson and Lawrence Shindell of ARIS art title insurance (see here on Argo Group's takeover of ARIS last November).
• Donn Zaretsky summarises the most significant changes to the federal gift, estate and generation-skipping taxes for 2011 and 2012. According to Forbes, the increase in the tax exemption to $5m means "that, except for the super wealthy, the tax benefits of giving through an estate plan have been wiped out."
• Gerard Malanga, former Warhol Factory assistant, is set to finally have his day in court in the longstanding dispute with the sculptor John Chamberlain over the silkscreen titled "315 Johns," estimated to be worth $5m. Malanga claims authorship and restitution alleging Chamberlain never acquired title and therefore did not have the right to sell it in 2000. Testimony given by Chamberlain's wife suggests the sculptor knew the work was not a Warhol; the Warhol Authentication Board though declared it an authentic piece in 2000, paving the way for its sale. The court, however, is not bound by the Board's declaration.

"The case reveals the casual approach to the legal concept of agency"

Buyers and sellers of art in the private market (and to a lesser extent at auction) often overlook the fundamental question of "who acts for who," otherwise known as the legal concept of agency.

The distinction is crucial because an agent is a "fiduciary" of its principal and as such the highest standards at law are imposed on him. An agent owes his principal strict "fiduciary duties" including the duty of loyalty which entails not only acting in good faith in the best interests of the principal but also the duty to avoid conflicts of interest (the art world being a breeding ground for conflicts). Similarly, only an agent acting on behalf of its principal has the authority to sell an artwork and the legal title to pass ownership to the buyer (although where authority is lacking, a principal can ratify the conduct retroactively).

An article in The Art Newspaper does well in bringing attention to this subject because clearly one's legal rights and protections w/r/t a transaction for the sale or purchase of art are integrally bound-up with the principles of agency. The private market is characterized by the lack of disclosure and the prevalence of undocumented transactions where parties are often unaware of who owes them what duties. At auction this is less of a problem as there is far greater transparency and the terms and conditions of sale published by the major auction houses unequivocally state that the auction house is an agent for the consignor (i.e. seller) of the art (see Sotheby's "Terms of Use"). Furthermore, the law itself imposes fiduciary duties on auction houses whereas it generally does not on dealers which means the parties themselves must create agency relationships, preferably in writing. The article points out some of the art world conventions that do genuinely represent an obstacle to achieving increased transparency and documenting transactions but my mantra remains unchanged: disclosure and contract are indispensable to protect your legal rights when buying and selling art (though to be clear, a contract, oral or written, is not required to form an agency relationship).

FYI: "Jeff Koons owns all likenesses of balloon dogs"

Jeff Koons' lawyers have sent the Park Life gallery in San Francisco a cease-and-desist letter in connection with its sale of balloon dog bookends manufactured by Toronto-based imm Living. The artist claims the bookends violate his intellectual property rights due to their resemblance of his iconic giant-sized sculptures "Balloon Dog." Of course as ARTINFO points out, the bookends also resemble "a conventional balloon dog of the kind commonly found at circuses and children's birthday parties."

Surely it cannot be the case that artists who appropriate everyday objects to create artworks (a trend initiated by Marcel Duchamp's "readymades") have the exclusive right over "all likenesses" of those objects. In the unlikely case that this incident does end up in court, I don't think the precedent referred to by ARTINFO is in fact relevant as the facts here can be distinguished from those in that case. In Blanch v. Koons, the artist had appropriated part of a copyrighted image to make what the court determined was a "fair use" of such image. In this case however, the artist is not making use of a copyrighted image -- he is simply using the likeness of an everyday object, a balloon dog, as the inspiration for his sculptures. I don't know enough about intellectual property law to state what Koons' strongest legal claim is ("fair use" certainly is not) but I expect it would involve some kind of comparison between the bookend dog and the "Balloon Dog" in terms of materials, shine, proportions etc. In other words, the court will ask just how similar the bookends are to the sculptures. I wonder whether the context in which the bookends are found (the art shop of a gallery) makes a difference (Park Life's suggestion that the letter should have been sent to the manufacturer instead of the gallery could be interpreted as implying that the context in which the balloons are found are not relevant to the issue of whether or not the artist's rights are being violated).

"Neither condemned nor vindicated"

In a previous post last October, this blog reported on how a court in Rome had ruled that the statute of limitations had run on the two criminal charges brought against the former Getty Museum curator Marion True. While the proceedings were a vitally important wake-up call to those operating in the antiquities market, I personally found it exceedingly unfair that True should have been the one to pay the price for the widespread illicit practices so many were engaging in (also, from a legal perspective, the charges were inherently flawed as noted in the post linked above).

Now The Art Newspaper has published Marion True's own account of her trial or lack thereof. True opens up about why she chose not to waive the statute of limitations and wonders why the Italian government decided to mount such an aggressive attack on an institution and a curator with a purported long history of tightening antiquities acquisition policices. Admittedly, the whole affair was hugely politicised and the Italian authorities should probably have simply asked for the return of the disputed objects as Marion True argues. But if they'd done that then the problem of looting and trafficking in illicit antiquities would not have received the international media attention it desperately needed.

See also Paolo Giorgio Ferri, former prosecutor involved in True's case, on the "scourge of looting."