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The Law of Agency in the Art World
Article developed in consultation with Richard Edwards QC, barrister and lecturer at The Institute of Art & Law.
Is the art market out of practice with the law, or the law out of practice with the art world?
If the owner of a high value artwork wishes to make a sale, a number of factors must be reflected upon.
These include, how to value the artwork? A consideration must be made to ensure that the owner does not sell themself short. The owner may choose to approach a recognised art appraisal agency such as Gurr Johns. Also, who to sell the artwork to? Auction houses act as wholesalers, where the seller 'consigner' receives a wholesale price.
Auction houses have capital, demonstrating an appetite for risk and self-confidence.
Dealers act as agents on a commission for the seller, with lower risk, and lower capital commitments, with a fiduciary duty to the seller.
The challenges and pitfalls of an agency relationship for art clients may occur when one person entrusts the conduct of a relationship to another principal and agent.
Whilst the relationship is contractual; often the owner will not identify all of the fiduciary duties entrusted to a representative, these include:
- A single-minded loyalty.
- A fiduciary duty of care - a legal and ethical responsibility to take care of another party's assets.
- A fiduciary duty to act in good faith to serve the best interests of the other party.
As an agent enters into a contract, questions of ostensible authority may arise, there may be many intermediaries between the owner, dealer, and various independent sales representatives who act as brokers when facilitating a sale. The owner may have specific instructions on who to sell to, and who not to sell to, for instance, if they are asset rich and liquidity poor they may not wish for the sale to become available within the public domain. This is one of the reasons a seller may favour negotiating a private sale through a dealer, rather than through an auction house. The contract should include the agreed commission and the exact percentage of the sale agreed.
If a fiduciary has acted in breach of duties, provided that he is not guilty of surreptitious dealing the court may grant the plaintiff a beneficiary allowance, this is used by courts sparingly.
An interesting case study example includes the case of Accidia Foundation v Simon C Dickinson Limited. A drawing of Leonardo da Vinci's Madonna and Child with St Anne and a Lamb was entrusted to be sold by Luxembourg Arts Limited, who contracted Simon C Dickinson Ltd as a subagent to introduce the artwork to their associates. Simon C Dickinson made an agreement to sell the artwork to a private client, Nasser Kazeminy, a person unknown to Accidia Foundation, for $7million, having drawn an agreement to Luxembourg Art Limited to sell the artwork for $6million.
Underlining the case, the question was presented, whether an art dealer who is acting between 2 anonymous parties could keep the $1million surplus to the agreed net return price anticipated. The case concerns the practice of selling works of art on a net-return-price agreed by the seller, where in certain circumstances the actual purchase price is only known to the buyer, the dealer and any intermediaries. The dispute raises a query regarding the notions of fair dealing and fiduciary duty. The surplus to net return price commission retained by Dickinson Limited was revealed to Accidia Foundation 8 months following the sale, after questions surrounding the attribution of the artwork were raised by major auction houses when the owner wished to resell the artwork. The drawing has since been verified as a later sketch by Leonardo da Vinci by expert art consultant Martin Clayton, LVO, FSA, Head of Prints and Drawings for Royal Collection Trust at Windsor Castle and Leonardo da Vinci expert.
The plaintiff of the case is Accidia Limited. Mrs Sackler, who sits on Accidia Foundation's board of trustees contracted Ms Daniella Luxembourg, a renowned international art dealer, who trades through a Jersey company called Luxembourg Art Limited, and an English company called Daniella Luxembourg Ltd to independently represent the sale of the Leonardo Da Vinci original.
Simon C. Dickinson Limited, is an English company acting as an agent and dealer in fine art from the premises 58, Jermyn St. The company is headed by Simon Dickinson, who is an expert in fine art and Old Masters. Simon C Dickinson was independently contracted by Luxembourg Art Limited to represent the sale.
In the background of the case, 3 agreements were entered into:
The first was between Accidia and Luxembourg Art Limited which gave LAL authority to represent the sale. Ms Luxembourg requested for Dickinson to assist her in finding a buyer for the Drawing amongst its clients, which it duly did.
The second was an agreement between Dickinson and the Buyer, who Dickinson preferred to remain undisclosed.
The third agreement was a consignment between LAL and Dickinson purportedly confirming mutual understanding of the terms of the purchase.
The LAL agreement identified the sale to be $5.5m + an up to 10% commission for the agent. LAL received a commission payment of 10%, equal to $500, 000 of the sale. On 10th August 2007, LAL made a payment to Mrs Sackler for $500, 000, and to Accidia Foundation for $5million. The agreement between LAL and Dickenson identified the sale of the artwork for $6million, offered to LAL by Dickinson following entered into the sale of the artwork to sell the drawing to the buyer, which was ratified for $7million.
It is common ground that the proper construction and effect of these 3 agreements was an important factor in determining the case.
The conclusion of the case was that Dickinson should account for the $1million profit it made as Accidia Foundation's agent and fiduciary on the sale of the drawing, subject to the just allowance determined for its services in the sum of $200, 000 plus $2500. This conclusion indicates that even a subagent has fiduciary duties to the seller.
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