NYSBA Art Gallery Ethics Panel


Everything You Wanted to Know About Art Gallery Ethics (But Were Afraid to Ask)

Monday, October 21, 2013 from 5:30 PM - 7:30 PM

A slew of cases involving some of the art world’s most prolific figures have raised the ever-growing specter of fiduciary obligations of gallerists and dealers. Gallerists are by definition fiduciaries on a number of levels, often without being aware of this. What most art context actors don’t know is that fiduciary duties trump contracts or oral agreements, and are imposed by courts. In fact, the core of gallery ethics cannot be understood without knowing what fiduciary obligations are.

This interactive panel discussion will present cutting edge insights into best practices for gallerists and dealers and how they can limit their professional exposure. It will also explore many other ethical issues that gallerists, dealers, and artists need to understand now more than ever.

Panelists:

, Andrea Crane Fine Art

, Stropheus Art Law

, Marianne Boesky Gallery

, Sotheby’s Institute of Art

Judith:       We’ve organized questions into three categories.

The first category is Artist Representation.

The second category is Client (Collector) - Gallery Relations.

The third category is Due diligence (provenance and authenticity).

Let’s assume you are the principal of a gallery in New York. You work predominantly in the primary market and you represent several artists in the early part of their careers. An artist whose career is on the rise, approaches you and says she is contemplating leaving her current gallery and would like to be represented by you. Describe your discussions and negotiations with her and the types of arrangements you would consider between you and the artist.

Serra:        I think the initial question that this brings up is when an artist is represented by another gallery. The correct response is that you ask the artist whether they would like to terminate the relationship with the first gallery. Then you can engage in a discussion afterwards. To do otherwise is basically poaching and bad business practice, and elicits a lot of negative feelings with your colleagues as well. That’s just a basic practice.

I think you’ll find most galleries don’t actually have written contracts with their artists, even though I think the legal community would like to encourage that to change. In general, it may be about as informal as a follow up letter agreement encompassing the things you’ve discussed. It might just be completely done orally.

For most primary market artists the commission is 50%, and as an artist gets further along in their career it might be 60/40 and can even be something as little as 10-15% depending on [the artist’s leverage].  An artist whose primary prices are well over a million dollars can make those sorts of determinations in their agreements. But the norm is 50%.

You might also discuss the percentage an artist will share for discounts. There are also the gallery’s responsibilities, which generally include transport, framing, crating and certain basics such as photography, and insurance.

If you are the primary gallery you’re likely going to be the one who is also responsible for maintaining the artist’s archive - and there’s a lot of responsibility with that. You want to keep a good record of who is buying the artwork because later on, assuming the artist’s career grows to museum shows, you want to be able to borrow pieces from collectors.

If you are the primary gallery - and if the artist also has a gallery, let’s say in London - you might be the one for the first few years who consigns the work to the other gallery, which very often entails a 60/40 to the other gallery. So that would still be 50% to the artist, 10% to you just for managing these little extra things.

Judith:       This discussion also includes duration and early termination.

Serra:        In general, I think this is one of those conversations that probably doesn’t get covered too much with the artist. It is just assumed the agreement goes on until one person decides that it doesn’t work.

I think fundamentally from the gallery point of view, we like really to think about it as a partnership. And the partnership is only going to work as long as you both want to be doing it together. I think that’s one of the arguments against locking people into all of these binding terms. That being said, I know some galleries liken it being an indentured servant if you have these locked-in terms. I don’t think the norm for a gallery is to dictate how many paintings it is expecting every month, but I think it would be helpful to have some of these other terms outlined more fully.

Region tends to be another conversation. So if you are at the New York gallery, and the artist has a Los Angeles gallery and a German gallery - you might have discussions about not selling to the other markets.

Andrea:     Actually it’s more of a question to the panel in terms of what are the artist’s obligations to the gallery. For instance, you have an artist who is working in a particular style and has created a certain number of pictures in this style and they are well known for that style and say “I’m not going to do any more of these, that’s it.”

And you go to your collector and you say this is it, there’s no more of this particular kind of painting coming out and then you find out six months later that the artist has changed their mind. Indeed, they are creating more of this particular kind of artwork. So what is the obligation - maybe this is a question for you Richard, what is the obligation of the artist in that case?

Richard:   This is a thing traditionally - as has been succinctly described here - the artist gallery-relation is one perceived as being flowing like the gallery chooses in a very complex dance and there is a mythical space in which the gallery takes on a kind of paternalistic role, the artist gives themself over to this role in the hopes of being freed of a lot of suffering and uncertainty.

The difficulty is that from a legal standpoint, the gallery is an agent, which means that the artist technically speaking - and I’m not saying ethically, morally, or otherwise - the artist can simply say, “I want other agency.” There is no real legal basis for the relationship as it organically has evolved over time.  Now why is that a problem?  Because if that legal regime starts to surface like Atlantis rising out of the sea - then lot of artists confronting situations or difficulties with their galleries are going to say, “well, wait a second, according to the law you are an agent and I have the absolute, unlimited and unfettered right to chose different representation.” So that’s actually just a build-up what I’m about to say, It has traditionally been very useful for galleries to move in a mythical space of undefined relationships.

My message moving forward is that we may be in a historical period of time where it may be a very significant thing to sit down and say, “what are the artists’ obligations?” and to create a minimal or threshold of transparency and professionalism, so that you do have to give up certain mythical real estate. I’m arguing that gallerists may stand to lose a significant amount if they don’t embrace that, until there is recognition of that level of exposure.

Judith:       But specifically to Andrea’s question, you know the promise made by an artist not to create any of such-and-such a style, and turning around and doing that, I mean how would you explain that to your collector, to your buyer that had previously bought something assuming that it was rare?

Richard:   The complexity of the relationships we are talking about is a difficult question to answer. People are motivated by a variety of indicators in their lives. Do they have an emotional tie, and do they have a material tie, do they have a character that has evolved in a certain way? What I am saying is centrifugal forces are increasing such that we need to be cognizant of the fact that we are not talking about 1990 or 1980. We are talking about 2013 we are talking about a rapidly changing, almost unrecognizable market.

Let me just throw another thing to think about - if it has been the mythical space that the gallerist is the one who is producing the structuring, we can’t anticipate artists going out and seeking counsel and trying to legally structure the relationship in a sophisticated way with the gallerist.

So there is a noblesse oblige question for the gallerists, even if they are not interested in saving their own skin. The  initiative has to come from the gallerists in order to produce the kinds of obligations because your question is this – “How do I get a good commitment from individuals that involves both legal and ethical dimensions to work?”

And in the past there are all kinds of informal discipline and methods that are exercised. Ostracism is the most popular one in the art world [laughter], to control anti-social or asocial elements. It’s a big world now, and I don’t know that ostracism is that efficient any more in lot of cases.

So, what I’m saying is that if you actually want a trusting relationship, you may actually have to give up some mythical real estate. You don’t have to give it all up, right?  But you may have to give up some of it. Otherwise you may not have leverage of the kind necessary to maintain that mythical space. If mythical spaces produce enchantment and magical relationships - and I’m not making fun of that - I think there is an enormous amount of emotional energy required for these life paths.

Serra:        Just one other thing is that part of the same conversation and is one of the big problems for a gallery – to find out one of your artist is selling directly from the studio. And that’s a real violation to what your relationship is and supposed to be, but as Richard is saying, I mean, I don’t think ultimately there’s too much a gallery can do other than say I won’t…

Richard:   Unless you have something on paper and the artist understands, that’s actually a really significant part of the relationship.

Judith:       Well it’s possible to construct the agreement so that it’s the exclusive power to sell. It’s similar to a real estate brokerage contract, so if the artist does sell from his or her studio in violation of that agreement, then that artist would owe the commission to the dealer even though the dealer had nothing to do with that particular sale.

However, in your experience I don’t know either of you has ever constructed a contract where you are the exclusive seller of an artist or whether it’s an exclusive agency where you might have a regional exclusivity or a exclusivity in terms of medium – for example, you sell the artist’s works on paper and someone else will sell paintings or sculptures.

Andrea:     Well what I found in terms of representing artists, or certainly in my case, estates of artists, is with the increasingly global nature of the business, fewer and fewer artists and estates want to enter into that exclusive arrangement, because if they meet a collector from Rio for instance and they strike up a relationship with them, they may wish to just transact themselves. I’m finding more and more, that people just don’t want exclusivity; they just don’t want to lock them selves into a relationship. Again, whether it's an artist or whether it’s an artist’s estate.

Judith:       Maybe we can move to the next question, which is whether you as a dealer purchase works of art from the artist you represent.  What kinds of legal and ethical considerations are at play?

Suppose you buy works of art from an artist - and this happens quite frequently - in the early part of that artist’s career when the works are not very expensive and then later on, due to your work as a gallery, the artist’s works become very valuable and at some point you may decide to sell. What would you do? Do you owe any obligation to the artist?

Serra:        If you look at the gallery relationship coming out of historical patronage, I think it’s a very normal part of the process. It’s an artist you represent, so you do invest your own funds, and I think it's a very normal expectation - it benefits the gallery as well as the artist.

And, again, you would let the artist know that you are the owner of the work - it’s that sort of maintaining the archive and keeping that information available - and this is where we go back to Richard in terms of fiduciary duties. If you are purchasing an artist’s work that you have a fiduciary relationship with. I think I think that’s the main obligation

Richard:   Going back to what we’ve been discussing, the thing is we have a big confrontation between the informal and formal. An agent is somebody who has to account for every profit. That means, if your agent gets a dime for every apple that person sells, if that person keeps an apple and sells that apple for fifty cents then I say the forty cents are actually due to the beneficiary, the entrustor - that’s the law. So again, these are gray zones. That’s the legal side of that,

The other side of that is the question of self-interest.  If you are holding onto a work because you believe that work is exceptional and there is probably no other reason to hold on to the work, you are already in sense depriving a good faith buyer, or a third party, from transacting with your beneficiary as an agent. That’s a first order conflict of interest.

So what is the problem with the conflict of interest if you are a statutory fiduciary actor?  That means that a court can come in at any time and find a self-interested breach, which means whatever benefit that accrued - let’s say you legitimately as a gallerist have factored that into your proper dealings with the artist so that the legitimate profit that you want to achieve from representing the artist is achieved through that type of transaction. If the court later finds that it’s a self-interested transaction, you may be deprived of your legitimate gains.

The problem with fiduciary obligations is that they are court determined. But a great measure of security would be created, if at that specific transaction, the artists recognized that this was part of your agreement set forth in a document signed by the artist - two paragraphs saying yes, whatever the value that accrues to this particular work I consider part of the equitable compensation on the part of the gallerist. That won’t necessarily save you entirely, but it will be a huge barrier to uncomfortable surprises in the future.

Serra:        I think in most situations, I don’t know that most galleries or people go back and give the artist a percentage when you’re later selling the work if you bought a work in 2003 for forty thousand it’s now worth two million and you sell it, I can’t think in most situations where somebody goes back to the artist and gives the percentage. It sounds like…

[interjection]:  Well in California, you have to – it’s [or at least, was] the law.

Andrea:     Yes, in California you do, but I mean it sounds like the resale laws.

Judith:       But that’s a different percentage according to the resale royalty, this is not the commission. And actually there’s a case that is presently on appeal in which a federal district court of California [Estate of Robert Graham et al. v. Sotheby’s, Inc., Sam Francis Foundation et al. v. Christie’s, Inc., 2012 U.S. Dist. LEXIS 77262 (D.C. CA., May 17, 2012)} found that the California resale royalty right law is unconstitutional because it violates the Commerce Clause of the United States. But that remains to be seen, that’s a very good comment.

Richard:   Well, Judith is right to make this distinction - one is the statutory resale right provision- there’s nothing to do with the fiduciary obligations, this is why I am saying I am using the “F” word as many time as possible today so that it gets rooted firmly in your minds: the fiduciary obligations are not to be confused with anything to do with contract at all. Or statutory rules.

Female voice:    Why did this come up in the first place? Because lots of things were being sold at profit and the fiduciary responsibility wasn’t being taken care of, if you will.

Serra:        I think though in that situation as well with the resale rights and what happens in Europe as well, is you’re also not just looking at your primary dealer making a profit, it’s any of the concurrent secondary market trading of the work.

Female voice:    If you buy something and you hold on to it as an entity, then it’s no difference than if you are an individual.

Richard:   I will beg to differ only because if a good faith third party buyer buys it he doesn’t have any fiduciary duties. Therefore a questionable resale from a good faith buyer cannot be mapped onto a fiduciary breach - and I really caution trying to keep these concepts clear in your minds because otherwise you’ll be disabled from understanding the risk and exposure.

Judith:      I think what [Serra] is observing is that this is where the first buyer (the gallery) is also selling it.

Richard:    The real caveat here is that this really requires deep, deep focus. The problem again with fiduciary duties, is that when there is a breach, everything that fiduciary has done - not just the things related to the breach - are subject to review.

This is something that really needs to be fundamentally understood, so if you done 99 ethically perfect transactions and one transaction involves an egregious breach of fiduciary obligations, all of those 99 transactions could be subject to something even called the worst word beyond the “F” word, is that it was a equitable tracing, which means that good faith buyers in the chain that acquired works, their works may be pulled away from them, because the person who disposed of the work didn’t have the right to do it.

So what I’m saying is, once the “F” word is there, one is on a different territory entirely.

Judith:       (To the audience) Are there any questions about the artist representation?

Male voice: If you buy a work from your own beneficiary, is there any third party process to protect the beneficiary in terms of the price being set?

Richard:    We just have to see what can be done once you get onto the fiduciary terrain, it’s very open to litigation and court interpretation, but what you can do is produce transparency about benefits that are transferred.

Judith:       In the contract.

Richard:    Yes, the contract won’t eliminate a potential for a fiduciary review, but if an artist says, “I willingly give up the added value that will accrue over time to this work because the gallerist is doing xyz, and that is for me an equitable deal. That is from a fiduciary standpoint miles away from an interested fiduciary simply acquiring the work, nothing on paper, no open discussion about the accrual of any benefit in the future - these things are miles of miles apart in the fiduciary analysis.

Did I answer your question?

Male voice:        I was more focused on… I actually came out of estate work where anyone who is a fiduciary always has the court protection.

Andrea:     The gallery world is pretty informal.

Female voice:    I want to ask about situations where a gallery repurchases work from a third party buyer, either during the representation or immediately thereafter and turns around and sells it after representation terminates. I want to know what you think about what the gallery’s obligations are to the artist that turns around and then resells that work at a higher rate whether that gallery owes the artist that 50% of the appreciated value on the resale treated - is it ethically a re-consignment under those circumstances?

Serra:        We treat it just as a normal secondary market transaction.  Most galleries, if you represent an artist, part of what you do is also manage their secondary market as well, so ultimately an artist benefits – and this gets back into the resale question - but ultimately as the overall market for an artist increases through the secondary market, that will ultimately push up the primary market.

Female voice:    My question was necessarily directed at a gallery’s activities in supporting the secondary market or repurchasing that work at auction or in some other ways - I’m talking at a slightly lower echelon on where there the artists have a little bit less power and protection.

Serra:        I can’t think of a specific situation where at that point you would give the artist another [commission] if you are purchasing the work [on the secondary market]?

Richard:    Now we’re into this really murky territory where we have to collectively discuss our experiences. Going back to what I was saying about proscriptive and prescriptive. [If a fiduciary has merely the duty from refraining from things like self-dealing, then the standard of care is largely proscriptive. If on the other hand, a fiduciary must be pro-active in producing outcomes for a beneficiary, then the duties are more prescriptive in nature.]

If you have a very strong representation relationship with an artist, it could be understood that everything you are doing is for the benefit of the artist’s good, then that transaction might be subject to scrutiny. Otherwise if you are buying on an open market, acquiring a good and reselling it - barring the existence of a statute to the contrary - there is not a clear cut obligation there, there is no proscriptive obligation, nothing on the list it says you can’t do that.

But for example there are certainly going to be cases in the real world, where there is a particular artwork whose disposition in some way might have a fundamental market effect on an artist’s career standing or pricing, and if some how a gallerist were to dispose of work for a personal gain, and that causes an impact on the artist’s career, certainly that goes back to the fiduciary corner.

Andrea:     There are certain scenarios where a collector who might have purchased a particular work would come back to a gallery, ask the gallery to repurchase it - if one were to repurchase every single piece of artwork, they would have to have very deep pockets, and then what might happen is that someone would sell something at auction That does create a bit of a problem between the gallery and the artist, and certainly for the collector. So what are the obligations there?  If the gallery says ok I’m not going to buy this back because I would be broke - and then it shows up at auction. That relationship becomes somewhat tenuous, as you probably know.

Judith:       And one more and we’ll go to the next topic.

Male voice:  It seems underlying this whole discussion is this informal relationship that the galleries have with the artists, and I wonder - speaking from the legal perspective - if being so informal is really a sustainable model. If you look at the Knoedler Gallery situation, the forgeries, and galleries by and large not having in-house counsel, maintaining this comfort level of being informal, whether this is something that is really sustainable going forward?

Serra:         Richard would say no. [laughter]

Richard:      I would say [Richard add this]

Judith:       Well traditionally, the relationships between galleries and artists have been quite informal and it appears to be crass if you sign a contract. It looks like a deal, but that’s really what it is. And it’s good for the artist and dealers to recognize that this is actually a business, and I’m really a proponent of putting these contracts in writing. I think that everybody benefits. Not necessarily a long, written document with a lot of legal terms. It can be just a simple email or a letter memorializing the understanding that you’ve reached.

I think that can lend a lot of clarity to the relationship and get the parties to really identify what the terms are and what their understanding is, before something goes wrong because this is the point where they really want the deal to work. Later on, if there is some misunderstanding, they are upset with each other and it will be more difficult for them to agree to anything.

Richard:    Let me describe why what Judith said is exactly on point.

Ninety-nine percent of contractual breaches are not litigated, which means they never makes it to court, but what happens if people are in a breach of contract situation and they’re pissed off - they won’t want to work together again, or they will be in a long, drawn out, emotional conflict.

The fascinating thing is that there is a common misperception that legal documents are somehow going to be pulled out, and you are going to be whacked over the head with them. In the vast majority of cases, nothing like that ever happens. So this deep-rooted fear of having some type of piece of paper with some type of guidelines about the relationship - even if it was just structure: these type of fiduciary duties, for example - when you say, “Listen I’m your dealer but I’m not representing you. This is not part of my business model or the opposite.” So you get some kind of basic agreement about what people are expecting from each other. That would actually reduce the aggravation and a lot of the loss of productivity and the animosity created in this informal business, because these informal relations only work as long as everything is going fine.

The problem is if you had some kind of anchoring document that you could go back to, if there’s a conflict you could go back to your common ground. You can go back to your overlap, and then use that as a bridge to try and negotiate your conflicts.

If you have nothing, then there are just spiraling irrationalities, and that in the art world is the problem that we deal with.

All I’m saying is spiraling irrationalities plus the fiduciary exposure we’re talking about – that’s a very explosive mixture.

Judith:       Moving to the next topic – collector relations with the gallery, a segue from our previous discussion.

Let’s say one of your clients acquires a primary market work, and by primary market, I mean the artist’s or estate of the artist’s first sale of a work (the resale would be the secondary market). One of your clients acquires the primary market work from the gallery with the understanding that he will not resell for five years and then if he does the resell, he’ll go back through the gallery and not at auction. You discover that a work you sold to a client is up for an auction, and featured prominently in the auction catalogue. The artist is upset at the gallery and the collector. How do you handle this?

Serra:        As a preliminary matter, sometimes you will see on invoices, there will be a statement where that will be written at the end of it where you sign. From what I understand, it’s not actually an enforceable clause, even though people include it with some frequency.

Andrea:     Well I think something that we have discussed as a panel before is sometimes the word of the law, or what is appropriate goes against what you believed to be appropriate business practice. So I have been in situations where I sold a collector a piece, which ends up in an auction catalogue.

Yes, you get into somewhat interesting situations where you really are making your best decision about the people with whom you are working and you want very much to place something in the good collection and then all of a sudden it does appear in an auction catalogue and the artist is probably not that pleased - so again how you resolve it? I think it’s really dependent upon your relationship with the buyer and your relationship with the artist and I think every case is very different. I mean you can ostracize and not work with that person again, but that’s not necessarily realistic all the time.

Judith:       Yes, of course. But the art world is quite small and it’s possible that word may get around.

Serra:        And we’ve had situations where we’ve been able to get a client and get something pulled from auction, or we might work out a private sale with the auction house before hand; or, we’ll jump in and protect it, if that becomes necessary.

Andrea:     I would like to pose another scenario that actually has been eating away at me for some months. Let’s say you have inherited a 1936 Picasso from your grandmother, it is the only asset you have. You go to the auction houses, you negotiate a price. You are very excited, it’s going to be in the upcoming Impressionist and Modern sales in November.

At the preview, hanging beautifully, lit beautifully - Mr. Smith comes in from Park Avenue and he says “I like this 1936 Picasso.” A specialist says to Mr. Smith, “I’m glad you do like this.  I have something in private sale for you, also a 1936 Picasso. Come to the back room and let me show it to you.” That specialist gets a commission from his private sale but not from the auction. What is his fiduciary responsibility in that case?

Richard:    Well this is an easy question because the auction house is also in an agency relationship, and therefore they are obligated to have only the best interests of the seller at heart, and if they are conflicted, and that conflict is made visible, they owe you any damage that you suffered, and the loss you suffered, by virtue of the duties that are owed to you by the agent. And it could be probably be vicarious responsibility, because that person is not acting on his or her own, they are acting under the umbrella of the auction house. The auction house is without question a 100% liable on any loss of income to you derived from that type of self-dealing. No question.

Andrea:     But do the specialists understand this?

Richard:    The problem is this. We’ve had events here, and we’ve had auction people here as well, and we go through this same fiduciary analysis and chins drop. The question that you are posing, again, flies in the face of custom, as we understand it. There are a lot of murky practices and these murky practices have been cleaned up somewhat in the course of time.

The auction houses have gone through enough litigations in regards to some of these fiduciary duties that they are aware of it, but the short answer to your question is, no. There are a lot of things that are almost impossible to detect and there are lot of things that, in addition to being impossible to detect, are political. So as we all know - some sellers, some buyers are going to be treated one way, and others another way within the business model of both galleries and auction houses - and all of this is subject to fiduciary review.

Now I’ll try and come to a useful closure on that. All of that won’t matter for ten thousand dollars, or even fifty thousand dollars. But once we start moving up into the territory where the lost value is such that - and the actors are sophisticated enough - it can definitely, definitely be an increasing issue.

And the last bit of an answer to that is the auction houses will tend to historically wait for the bomb to explode before they build the bomb shelter.

Judith:       So many auction regulations have taken place because of a lawsuit; in the past 25 years I would say almost every new regulation in the auction house practice has been the result of a lawsuit.

Richard:    I mean just to add that you as the seller - again it’s one of these mythical relationships, you don’t want to be ostracized, blacklisted, or put on the third tier. The legal situation is that the auction house is your agent. You would have a right to go and look at the books; you would have a significant review if you pursued it by law. You would have to litigate or whatever, but there’s a very interesting disparity between the informal relationships as they are practiced and the legal regime underlying them, trying to give balance to these inequitable power relationships.

Judith:       Turning to the next question in the client category, you have a weekend house in the Hamptons and you socialize with some of your collector clients, and one of your clients wants you to advise her in developing her art collection. She purchases art from your art gallery as well as from others. What obligations do you have to this client and are there conflicts of interest between your client’s natural desire to acquire art at the best price and your obligation to obtain the best price for the artists that you represent?

Serra:        I think this is actually a pretty common occurrence within everything we all do. In general on the primary market, I think most galleries will more or less stick to a 10-15% discount.

In other cases, you could work out a retainer situation and so it doesn’t matter what you are negotiating. You already have your retainer. I find this to be one of the cleaner ways to do things if you are not being from the advisor side but from the gallery. I know a lot of times when we have an advisor come back to us after the fact and ask for both the discount and the commission.

Sometimes someone just thinks their friend is taking them around. In general for primary we try to say it’s either the discount or your commission.  We cant usually accommodate both.

Andrea:     I think it’s less straightforward in the secondary market and that many of the prices are owner-driven in many ways. That is, a particular collector might say “well I would sell it if I got X price for it.” So you are representing them to a certain extent and saying ok I’ll represent you to sell it but then with the buyer I think you have to be very clear that this is a full price and here are the market comparable, and I certainly don’t know how low he really would go, but you need to know that this is an aggressive price because you are looking for a Max Ernst for a certain period and he is got it. And the rules are pretty different for secondary and primary.

Serra:        There are sometimes more people involved in the equation than just the gallery, collector, and artist. I have a situation I’m dealing with. A gallery sells a work of art to the collector, an art advisor is involved, and the gallery represents the artist. A few months later, in my role as collections manager for the buyer, I look at this sculpture and say, “hmm, I see condition issues.”  So now we want to resolve these issues, and of course we go back to the gallery, and we go back to the living artist to see how we can resolve it. But the client’s unhappy, because they don’t want to have to pay to resolve these condition problems.

So I guess I’m asking about this in terms of fiduciary responsibility. Who’s responsible in this case, if there’s an art advisor  involved? Is it the advisor’s job to have checked condition issues? I wasn’t involved in the transaction at all, I came along later.

Serra:        Excellent question thank you, I’m glad you got to ask it!

Judith:       The layers of responsibilities of an art advisor. Do you want to start?

Richard:    OK I’ll do my two cents and then…

Very briefly. The consigner, or the person selling the artwork, and the person representing that person, be it an auction house or gallery, they have a fiduciary relationship to that seller. The art advisor also has an agency relationship, but we have to go back to the sliding scale between prospective and prescriptive. How dependent is the buyer on the art advisor? Is it a sophisticated buyer, or is it a non-sophisticated buyer? And, something that art advisors are very well advised to consider their agreements so that they really circumscribe what it is, what duties they are taking on.

So in the case of damage to the work, let’s say the person buying the work is unsophisticated, then the art advisor could have significant fiduciary exposure because the art advisor is holding out to be an expert, the buyer client is reasonably relying on that opinion and as a result of the negligence of that person there’s damage to the buyer.

Most advisors are going to try and structure the relationship such that they don’t have too high a burden of diligence, because it’s going to destroy the business model, and you can’t be responsible for everything. The

Andrea:     Have they asked for condition report? The art advisor?

Serra:        I don’t believe so. I saw nothing in the record that I have seen.

Andrea:     It is just my opinion that if this person was, had retained or was involved with an art advisor that one of the most basic things that you do is to ask for condition report. And whether again it’s a contemporary piece or it was something painted in 1740, one of the most basic things to do is to check condition. It is paramount. It’s just what you do. I think that does show a little bit of negligence.

Serra:        With a living artist, do we consider repair or do we remake, which can be done as well. There are costs involved.  Whose responsibility should that be?

Richard:    Let’s just go back to the schematics. The person who would litigate is the person who suffers the damage, here the buyer. It is the buyer who suffers the damage. So did the buyer act independently or did they depend on somebody’s judgment?

In this case, typically, we have to argue that if the art work came to the person through the art advisor. “But for” the activity of the art advisor, “but for” the negligence of the art advisor, the person wouldn’t have acquired the work, on the face of it, without expressing any legal opinion here, the art advisor is going to talk to the insurance company, if they have insurance, because this is a clear case of what you would call “professional” malpractice. It doesn’t mean that anybody consciously made an error, or maybe they just didn’t exercise appropriate diligence and involvement. Remember these are exponential scales.

Do you need to go to the ends the earth with an electron microscope and encyclopedic knowledge of all chemical composition of paints? There is a limit to what an individual can do. I’m not commenting on particular facts in the case.

The artist is not relevant. If the work is open for inspection and nobody requested it. Now, there is a legal regime that says that if the defect was invisible, entirely invisible, or requires significant effort to discover, that may say that the seller was not forthright, or the seller was aware of or should have been, of such defect. We are getting into some specific commercial terms for the sales of goods.

So that may play a role but, let’s say the seller says nothing to the art advisor, who has no indications as to the defect in the work, to the extent that their knowledge extends, and they understood the work to be intact and complete as it was, and they made no statements beyond that.

Judith:       Absolutely, it depends also on whether the seller has asked the buyer to examine it and the buyer either refused or didn’t take advantage of that opportunity. It would also depend on how visible the damage is.  If there is a slit down the canvas . . .

Andrea:     Then it’s a Fontana! [laughter]

Serra:        What if the artist knew because she has one that these things will fall apart, which does the artist have responsibilities?

Richard:    Artist has no obligation. The artist is not party to the sale.

Judith:       Moving to the final topic is the one that everybody has been waiting for. . .

What are your due diligence obligations to purchasers when selling works consigned to you by a collector with respect to authenticity and provenance? What questions should you ask an intermediary who would like to provide you with artworks new it to the market, for example, but the intermediary refuses to disclose the origin of the work, and explains that the seller insists on remaining anonymous.

Serra:        You call an insurance company and see if you are covered. (Audience laughs)

Andrea:     The first thing you really have to do is go through checklists, is it in any catalogues, is it in the catalogue raisonné? Has it been any shows, are there any label on the back, in any literature, is it signed, what’s the condition? There are very simple things you can do. If you have been in this business for a while, I know the questions to ask under certain circumstances. If something comes up, and you are a little bit unsure about it, I might be tempted not to touch it. If there’s a gap, for instance, in provenance, you do everything you possibly can to figure out where it’s been. With restituted works, and with German pictures and Austrian pictures, where there might be a gap in provenance from 1938 and 1945, you do everything you can and to make sure this that there isn’t a claim. This in relation to things that just appear out of nowhere.

Judith:       What are those types of things you would do?

Andrea:     Well you contact the Art Loss Registry, you make sure that there is an Art Loss Registry certificate. If you can’t do the due diligence, and if you can’t prove that it’s been in these hands, and when, I think you just have to figure out a way to not transact. That’s my opinion.

Serra:        It’s not unusual to request anonymity, that’s normal. You have to do your research, and part of that is exhibition history, literature, and provenance. It’s not good enough if they just want to be anonymous.

Judith:       How much due diligence do you do if the consignor is new to you?

Serra:        I had situations where you see things that look really off. I had a situation where somebody came in and said they bought a David Hockney at some random gallery that I had never heard. I looked at the picture and it did not look like Hockney to me. But I didn’t want to say “oh, I don’t think you have a Hockney.” At that point, I just said, unfortunately we are not interested. That ends up being the statement we use, if it is something that we do not think is authentic, to protect against liability. I never comment or disparage the work itself. I don’t just don’t take it on consignment.

Andrea:     I think that there are other red flags as well. Someone who comes to a gallery with a major picture, and you ask them whether they spoke to the auction houses as well. And they respond, no, they want to be really discrete. Well that’s a red flag. It could be a divorce situation. I’ve certainly been in situations where someone is trying to sell something and it’s co-owned. So you rely on your own experience and own brain to assess out a situation. Divorce is certainly a red flag, and you just want to make sure there are no liens or encumbrances on a piece.

Judith:       Why would some desire to deal privately, as opposed to through auction?  There could be a debt, or they may not want people to know that they are deaccessioning from their collection.

Andrea:     Absolutely, discretion. There are good, there are very good things about selling privately, as opposed to the auction houses. Again, discretion. It can happen much faster than the auctions because there is a cycle with the auctions. And also personal relationships. I have a number of people with whom I have worked for twenty years, and they will say, Andrea, I want you to handle this for me, because I know you, and I know how you are going to do business. So there is a number of reasons why you go private, and there are also a number of off reasons why you would, and there are a lot of people who will turn a blind eye to those.

Judith:       What advice can you give to a mature artist who is not yet represented?

Serra:        One of the things that happens quite frequently is the rejuvenating of a career. It has to be a situation where there is a desire on both sides, that it is a good fit.

There have been some amazing examples of artists who have almost fallen into obscurity, or their market are much below what it should be. It’s always really wonderful if it happens while the artist is still alive, as opposed to the estate being rediscovered. I[JP1]  don’t know that it is that different from other situations. In general, when we take on representation, one of the places where it usually comes from is our own interest, but also when another artist we work with or respect recommends an artist. Maybe one of our collectors recommends an artist, or a curator that you respect. Those are the sorts of references that you take most seriously. Unfortunately, the worst one is the person who walks in and drops off their portfolio.

In terms of a mature artist, let’s say a curator who always had an interest in an artist who had a major career and now doesn’t. Sometimes they look at what you are doing in the program and they think that you should really take a look at this person.

Judith:       Unfortunately the opposite occurs, where an artist you represented for a long time is in decline. How would you handle that type of situation?

Serra:        In a couple different ways. Sometimes, it just becomes an obvious situation in your relationship. You are not making sales for them, and/or they are not making it on to the calendar. We work off a three-year calendar. So you should expect to get your solo show in the main space every three years. If you are not, that is a sign that things are not going great.

We have negotiated things for an artist that doesn’t make sense for our program any more by speaking with another gallery, and making a nice easy transition. That is the most amicable and nice way to work. But the straight dropping of an artist, it does happen, but one of the bigger questions there becomes the responsibilities to your collectors. If you placed a lot of the artist’s works and now you don’t want to work with that artist any more also sends a signal out. You’ve advised a lot of people to invest on an artist. So lot of times it’s a very tricky, delicate situation. It looks like you have lost the faith as well.

Judith:       Thank you all for your participation. We can continue our discussion at the reception.  

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