Legal
In Dispute: When Battles Over Art Go Public
The problems caused by the financial difficulties or misconduct of art dealers can be far reaching. Experts in the legal world examine cases that have made headlines, and what can be learned from them.
This article considers cases of when disputes about ownership
or the management of works of art make the headlines, and what
those stories tell us about the trends shaping the fine art
world. The article comes from Pierre Valentin, partner (pictured)
and Mona Yapova (associate), from Boies Schiller
Flexner, a law firm that operates in the US, Italy and the
UK. The editors are pleased to share these views; the usual
editorial disclaimers apply. Please add your views and email
tom.burroughes@wealthbriefing.com
Relationships at all echelons of the art market begin and end because of the value placed on trust and reputation. Many galleries have earned the trust of their clients over years of maintaining the highest professional standards. Yet, the most damaging mistakes are made the fastest and even the most sophisticated collectors can become casualties in the downfall of a seemingly indestructible market institution.
Disputes often begin with the fair expectation that a gallery with a long, stellar reputation and a large market share can be trusted to execute commercially successful transactions and apply the highest standards of diligence and transparency. Then, somewhere along the line, comes a period of sustained financial difficulty, rumours of opaque dealing, or simply silence.
Notorious cases like the rise and fall of the dealer Inigo Philbrick need little introduction, but the nuance of other legal disputes and the challenges faced by collectors deserve attention. The past years have shown that market players are increasingly willing to challenge even (or perhaps, especially) the most revered dealers in the industry. Last November, London-based dealer John Eskenazi, an established expert in Asian art known for building the collections of major museums, and his dealership, were taken to court by Sheikh Hamad Bin Abdullah Al Thani and Qatar Investment & Projects Development Holding over the sale of seven artefacts, the authenticity of which was disputed.
The court found that the objects were not authentic and that their unqualified description constituted negligence (but not fraud). In a contemporaneous ruling centring on issues of attribution, the Wemyss Heirlooms Trust claimed that the London-based dealer Simon Dickinson had negligently undervalued a painting by Jean Siméon Chardin after the buyer from Dickinson resold it for a significantly higher price. Dickinson was cleared of the accusation, albeit only after a public and lengthy legal battle.
Although many galleries survive legal and PR challenges, both historic institutions and promising younger galleries have unexpectedly collapsed, causing significant collateral damage to collectors and artists alike. Fifteen years ago, Larry Salander (of Salander-O’Reilly Galleries) bet his reputation on a vision to sharply shift the focus of the art market from the booming contemporary art trade back to old masters. As Salander invested passionately and publicly in his vision, allegations by creditors and consignors (including collectors, artists and estates) piled up that the gallerist had withheld money owed to them, sold work the gallery did not own, misrepresented provenance, and amassed over $100 million in debts.
These allegations soon translated into a string of lawsuits in which over 550 artworks were subject to claims. During the same period, a series of lawsuits against the Knoedler gallery alleging the sale of fake works by Abstract Expressionism masters from Rothko to Motherwell coincided with the sudden closure of the gallery after 165 years in business. In 2020, the London-based gallery Blain Southern, which represented well-established artists such as Bill Viola and the estate of Lynn Chadwick, abruptly shut down and went into administration.
[Gallery] closures cause a ripple effect within a complex network of employees, fine-art-services companies, publishers, art handlers, and, of course, collectors and artists.
For collectors, the pitfalls of a gallery’s downfall are
significant. When a gallery enters administration or is declared
insolvent, collectors can find themselves having paid for works
but not having collected them yet. They may have works on loan to
the gallery. They may have consigned works to the gallery which
the gallery has either sold but not yet paid the collector for,
or which remain in the gallery’s possession. A long period of
uncertainty ensues, during which collectors risk being forced to
stand in line with other creditors without the ability to deal
with their asset for a prolonged period, and face the risk of
losing it to a secured creditor.
Collectors are not, however, helpless in the face of these risks.
If you notice a change in behaviour on the part of the gallery,
rumours circulate that creditors are not being paid or other
evidence emerges that the gallery is in financial trouble, acting
decisively and speedily by collecting artworks you own from the
gallery and pressing for immediate payment can save you from
being caught in the maelstrom of a financial collapse. Being able
to identify the location of artworks consigned to the gallery at
any given time can help with recovery.
Tracking systems can be used, combined with contractual obligations on the gallery to keep the art stored in a specified location and to notify you or a representative every time the art is moved, with details of the new location. If you consign works to the gallery for sale, you may wish to require the gallery to hold your share of any sale proceeds in a segregated bank account until payment is made to you, to avoid your share of the proceeds being comingled with the gallery’s own funds.
Assembling evidence of ownership of artworks in the gallery’s possession and sums owed by the gallery is paramount if you must make a claim once the gallery has collapsed. Contractual documents and correspondence should be preserved as evidence of ownership. In countries where it is possible, you should register your interest in the work in a public register. Registration is unfortunately not yet available to collectors consigning to galleries and auction houses in Europe. In the US, ownership of a consigned work can be registered through filing a UCC-1 Financing Statement, prior to delivery of the consigned work to the gallery, with the Secretary of State’s office in the relevant state. This document provides notice to creditors and potential purchasers that the consignor holds an interest in the work.
If a dispute proves unavoidable, the best dispute resolution mechanism must be selected. Art market stakeholders shy away from public litigation because litigation involving art tends to attract unwanted media attention. In the UK and the US, the cost of litigation is particularly high. Further, in the UK, the losing party is typically liable to pay a portion of the winner’s legal costs, resulting in very significant legal bills that can be disproportionate when compared with the value of the artwork in dispute. A range of alternative dispute resolution mechanisms is available that offers privacy and lower costs.
Our experience is that art market disputes are mostly settled by traditional negotiations. Alternatively, if the involvement of a third party is necessary, the dispute can be mediated or arbitrated. Mediation is a voluntary, non-binding mechanism through which a neutral third party guides the parties through negotiations to a mutually acceptable commercial solution. Arbitration, on the other hand, involves the appointment of a third-party (either a single arbitrator or a panel) to hear the dispute and adjudicate it under a formalised adversarial process more akin to a traditional litigation.
The advantages of arbitration include efficiency (the duration is typically no more than a few months) and the opportunity to select an arbitrator who is well-versed in the customs of the art market and/or has the requisite knowledge to understand the attributes of a particular work. Specialist institutions such as the Court of Arbitration for Art in the Hague and the Chamber of Arbitration of Venice (art section) are ideally placed to provide the infrastructure and framework for the resolution of art disputes through mediation or arbitration.