A couple of years ago I bought a work by a young artist from Sadie Coles's gallery, whose invoice contained this gem: "Resale Agreement: for a period of five years from the date of this invoice we ask you to agree, as a courtesy to our artists, not to put this work into auction, and not to sell the work to anyone without first offering Sadie Coles HQ the right to first refusal on the same terms and conditions as any bona fide offer you present to us. Your payment acts as acknowledgement of an agreement to these terms. Thank you."
Who could take issue with a request so politely expressed? And from one of the most respected gallerists around, evidently working in her artists' best interests, trying to prevent financial speculation and flipping of works.
As the use of such contractual "non-resale" clauses has increased alongside the rise of the auction market for ultra-contemporary, or "wet", painting, the debate as to whether or not they are actually enforceable has divided art lawyers. Underlying that debate is another question: are galleries essentially a retail concern like any other vendor of luxury goods, or is it an area of commerce and culture so esoteric that it needs its own set of rules?
Several heavyweight lawyers have contributed to a hardening conventional wisdom that these clauses – in legal terms – are probably not worth the paper they are written on.
In the second edition of Art Law and the Business of Art, published in December, Martin Wilson, the chief general counsel at Phillips, sets out his view that "there are so many reasons why such clauses are problematic that it seems there is a significant risk that the UK courts will not enforce such clauses – particularly if the person agreeing to them is a consumer."
Wilson argues that, for consumers – that is, individual buyers acting outside of their profession – these clauses are so "out of the ordinary" and detrimental to the consumer that they are likely to fail the "fairness" test in English consumer law. As for trade buyers, Wilson's view is that courts are likely to find that the clauses do not protect legitimate business interests and therefore amount to an unfair restraint of trade. Wilson also raises another legal question: even if these clauses are enforceable, what financial "damage" can the gallerist or artist really say they have suffered if they are breached, given that the effect is often to establish a higher market prices for their wares?
On his blog, Adam Jomeen, the founding partner of Art Law Studio, puts forward a robust opposing view and concludes that the arguments against enforceability have been "overstated" and that "until a court decision tells us otherwise, resale restrictions seem perfectly capable of being enforceable under English law when drafted correctly". Jomeen also suggests that Wilson's "damages" hurdle can be cleared if the parties agree in advance how those damages should be calculated.
Is art special?
There is force on both sides of this debate. It may well be that judges would baulk at the suggestion that there is anything special about works of art that justifies restricting the freedom of buyers to deal with their property in this highly unusual way. I would agree that many of the non-resale clauses currently circulating, buried in the small print of terms and conditions attached to an invoice and presented to a buyer when the deal had already been done, do seem to be unfair and unenforceable, however well-intentioned the gallerist might be.
But when terms are actively negotiated by art professionals on both sides, it is tolerably clear that they are the sort of terms that commercial parties are likely to be able to rely on and have specifically enforced. There is a spectrum of enforceability and galleries can take measures to make their particular terms – and the way they are agreed – "fairer" and therefore more likely to be upheld in court.
However, while there is doubt about whether these clauses are generally enforceable as a matter of law, there is little doubt in my mind that, as a matter of principle, works of art are a bit special (something we recognise in other ways including moral rights and the Artist's Resale Right) and that: (1) resale restrictions are something sophisticated parties ought to be free to agree on provided it is clear in advance what is being agreed; (2) galleries do have a legitimate interest in protecting their artists from potentially damaging and destabilising market speculation; and (3), where demand outstrips supply, galleries should be free to choose potential buyers who will agree to resale restrictions in order to gain privileged access to the work.
In reality, few gallerists would ever start litigation against their customers to enforce their resale terms. The softer enforcement mechanism of a gallery's blacklist and losing access forever in the small and gossipy art world will be enough to deter most collectors from breaching the terms.
Increasingly I find myself discussing other mechanisms for achieving the aims of gallerist and artist clients. These range from securing options to repurchase works, commission on secondary sales, or even just a right of consultation ahead of any resale, to, at the more exotic end, the artist's retention of equity in the work. Where there is a will, artists and their gallerists will tend to find a way.
- Jon Sharples is an IP and art lawyer at Howard Kennedy LLP.