Health emergency has not discouraged passionate buyers from participating in auctions or art fairs, even though the latter ones have taken on a new form of hybrid events. How does it effect the rights of the buyers, if at all? Does the law manage to...keep abreast with the times?
*intro by ArtLaw.club
Elisa Carollo,
Art consultant at LOCONTE & PARTNERS and art law passionate,
New York-Milan
IN THE AGE OF MILLIONS MAKING HYBRID AUCTIONS AND ART FAIRS ONLINE, WHAT ABOUT CONDITIONS OF SALES AND BUYERS PROTECTION?
Just a few days ago Christie’s hybrid evening sale brought a total of $341 millions, with more than 280.000 people watching the live-streamed event, where socially-distanced phone bidders in New York, were joined virtually from those in salerooms in London and Hong Kong, as well as online or on the phone elsewhere in the world. This result even overpassed the $325.2 million the auction house reached one year ago, with the October 2019 contemporary art evening.
From these numbers, we can deduce that the pandemic is not discouraging from buying art...or a $31 millions worth T-rex.
On the same page also Sotheby’s Hong Kong auctions in the same weeks, closing with $432 million total, with more than 2 million people tuning in to watch the auctions - probably with an international attention and participation, as never before.
These recent results followed the $825 million collected collectively by Sotheby’s, Phillips and Christie’s with this midsummer first hybrid sales, after the global persistence of the pandemic forced a rapid digital shift.
Now, they seem to have mastered the digital trade, with new practices and systems, but not always with new regulations.
In fact, what has changed dramatically is how these auctions are held, and how international buyers can actually take part. However, often we see no changes in the terms and conditions of sale, which legally regulate the relation between the buyer, the seller and the auction house.
If we look at major auctions, for instance, despite most of the buyers were already used to taking part remotely with phone and online bidding, today travel restrictions have dramatically reduced - if not totally canceled - any possibility to have the works checked in person, at least by their consultants and advisors.
Same could be said for online-only art fairs, which have necessarily become the only channel for galleries to reach international audiences, while physical fairs are regularly canceled, and collectors are not able to travel as they used to.
But what happens if once delivered (probably with a delay) the work defects from the buyer expectations? Can the buyer cancel the sale and return it as other goods?
In answering this question it’s interesting to examine the conditions of sale of the auctions happening in the last months, as well as compare them with the terms of other online-only sales of art, and then taking into consideration the Directive 2011/83/EU on Consumer Rights.
ONLINE-ONLY AUCTION AND THE 2011/83/EU EUROPEAN DIRECTIVE
Growing business in the past 3 years or so, online-only auctions take place on the auction house website or other platforms, and are usually time based: collectors are able to place their bids throughout the duration of the sale, potentially being outbid and driving up the bidding at any time, until the last moment.
What is interesting is that Europe-based collectors, when engaging with these distanced sales and auctions, have always had the chance to benefit from the 2011/83/EU EU directive which covers a broad range of contracts concluded between traders and consumers online.
Terms included in the directive were later extended by the 2013 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations, and they currently provide a “right of cancellation” for all distance and off-premises contracts within 14 days of the delivery of the goods or the conclusion of the service contract, without any explanation or cost.
If the consumers are not made aware of their rights, the withdrawal period has been extended by the 2013 Consumer Contracts Regulation to 12 months.
The 2011 directive had already extended the Consumer Protection (Distance Selling) Regulations 2000/2334, which originally provided a “cooling off period” of only 7 days.
HYBRID AUCTIONS - LIVE... STREAMED: WHAT ABOUT THE CONDITIONS?
Now, if we consider the last auctions, they are described as held in a “hybrid format”, where IRL and online participation are integrated with a live streaming of the event, but online and phone bids necessarily prevail on (socially-distanced) room bidders, as social distancing restrictions prevent collectors from congregating in a crowded auction room.
On one hand, we must say that for major evening sales it was already almost impossible to have access, as the only usual major art players were the main audience in the room, bidding for their major clients. In this sense, not so much has actually changed.
On the other hand, even when willing and “accredited”, most buyers won’t be in any case able to physically participate today, or even send some advisor to see the lots and/or bid for them.
All that considered, in the current situation of unprecedented travel and physical participation restrictions, should these auctions also be considered as “distance contracts”?
The definition describes a “distance contract” as a contract made with the exclusive use of one or more means of distance communications, up to and including the moment at which the contract is concluded.
In this case, also today multi million sales are necessarily (but not necessarily voluntarily) conducted at distance. Including all the risks on the buyers side, starting with dissatisfaction with what originally expected from the (.jpg) artwork, to extremely delayed shipping, and higher costs for a safe delivery of the piece.
Examining the conditions of sale of these “hybrid auctions”, we can see how auction houses were quite able in protecting themselves by considering in their terms these “live-streamed” sales on a par with ordinary live sales.
Christies, for instance, has its one Christie's LIVE™ online bidding terms and conditions, which differs from conditions for Christie’s online.
These conditions are formulated on the basis that the above mentioned provisions provided by the European directive are based on the fact that the consumer won’t be able, and is not given, the way to inspect the goods before closing the “distance contract”.
Therefore, the “right of cancellation” is excluded since these are “public auctions”, where lots are offered to consumers through a transparent, competitive bidding procedure run by an auctioneer, and they were given the option to attend in person (even though he may have decided not to, or just weren't able) as well as being aware, prior to register, that the successful bidder is bound to purchase the lot.
Not by chance, to further protect themselves from possible claims, in the recent Christie’s Evening sale we find also a special “COVID-19 Important Notice”, stating for instance :
- “Shipping quotes and expected delivery dates may be subject to change and there may be delays to the fulfillment of your shipment”
- “Additionally, Christie's has not been able to inspect certain lots in our sales due to current COVID-19-related restrictions. In those circumstances, additional terms and conditions for those lots will be available in the Special Notice section of the applicable lot page”
Now, as Pierre Valentin acknowledged in an article published just at the time of the EU directive, if its aim was to protect the consumers buying on eBay type platforms, what about all the auction models that neither follow the eBay model nor the traditional live auction model?[1]
As he observed, the fundamental issue is probably incompatible with the auction of art and collectibles, as the Consumer Rights Directive was clearly targeting consumer goods, and was not conceived to deal with the specificity of these unique, high value objects, and its highly different market.
ONLINE TRADING DURING ONLINE-ONLY ART FAIRS: PROTECTIONS AND DEALERS REQUIREMENTS
Let’s make the situation even more complex.
Starting with Frieze New York in May, all art fairs were forced to move online, offering digitally the art works through successful (or less successful), but always much-discussed, users interfaces and related add-on features.
This service was first, and still is largely provided for free to exhibitors, in order to compensate for the now canceled physical events. However, some major powerhouses such as Art Basel are now trying to capitalise on these formats, conceiving new “curated editions” as Art Basel OVR which asks exhibitors to pay if they want to take part.
The main question is now: should these sales on online-only art fairs be also classed as distance selling? And so, should the cancelation right also apply for EU buyers?
They’re in fact “distance-forced” sales held on internationally branded fairs websites, where the buyer is theoretically given the possibility to see the work in person at the gallery, but likely won’t be able to, like many of the Buy now options on Artsy, of one of the most important platforms to buy and sell contemporary art
Namely in Artsy’ conditions of sale, we expressly find an article specifically dedicated to EU RIGHT OF CANCELLATION, which states: “Pursuant to the European Union (“EU”) Directive on Consumer Rights (2011/83/EC), a buyer in the EU (an “EU Buyer”) who purchases a lot in a timed/online-only auction or via Buy now or Make offer has a right to cancel such sale contract within fourteen (14) days after they or a person they authorize (other than the carrier) take physical possession of such lot, for any reason and without incurring liability for doing so. An EU Buyer that exercises this cancellation right must return the lot, and the seller will refund the EU Buyer for payments already made for the purchase and applicable shipping of the lot. To exercise this cancellation right, the EU Buyer must inform the seller through a clear statement (i.e., a letter sent by post or e-mail) or may use this model cancellation form. This cancellation right is not applicable to EU Buyers who participate in live/public auctions using the Services”.
Artsy conditions are governed by and construed in accordance with the laws of the State of New York and, to the extent applicable, the laws of the United States, excluding any conflict of laws principle. However they allow EU buyers this right, with the only exception (for now) of live/public auctions.
So these terms should also apply to “Buy Now” options during art fair dedicated mini sites inside Artsy, as recently they did by partnering with 1-54 African art Fair.
Another similar gallery aggregator platform is now offered by Sotheby’s Gallery Networks, which provides an online buy-now marketplace for contemporary art from their gallery partners.
In this case, the relation with buyers apparently is also regulated by Sotheby’s Buy-Now Marketplace Conditions of Business for Buyers which also include at art.19 the Cancellation Right for all EU Buyers, allowing a full reimbursement of all payments received, including the costs of delivery.
If we consider online sales during art fair as subject of the the Consumer Protection (Distance Selling) Regulations in Europe, this would also require dealers selling online to provide certain information to (European) consumers ‘in good time prior to the conclusion of the contract’, and some of that information must be provided to the consumer in writing, in a form that cannot be edited and that the consumer can keep for future reference. Such information includes: the dealer’s contact details, the price of the property including all taxes, the costs of delivery if the consumer is contractually liable to pay such costs, and information on the exercise of the right to cancel the contract.
If the dealer does not provide the relevant information on the right to cancel within the specified period, the consequences are severe, including the extension of the cancelation period up to 12 months, according to the most recent 2013 Consumer Contracts Regulations.
At the moment in none of the art fairs online websites we have found specific conditions of “online” sales, despite we can say that they now work somehow as online gallery aggregators as Artsy.
For all these reasons it’s highly recommendable that dealers themselves provide all information regarding terms and conditions of sale along with the invoice they send to the buyer, once he confirms his interest in buying the work.
CROSS BORDERS SALES IN THE AGE OF FORCED DISTANT CONTRACTS
All these issues become clearly relevant and much more intricate in a globally interconnected art world, now forcedly moving online with international auctions and art fairs happening one after the other, through different channels and media where potential clients can learn about the work, inquire and bid or buy, from anywhere.
Let’s suppose that we are dealers during this Frieze online London: our gallery is based in the UK, the sale is now happening on-line on a server hosted in… United States (apparently) and on a website operated by a UK or US registered company (depending if we consider Frieze, Frieze Publishing Inc.. etc). The property being sold, however, is physically in some storage in Switzerland, and the new prospect buyer is eventually in France... which law applies? As French buyer, is he entitled to exercise a right of cancelation for the 2011/83/UE European directive (assuming he is a consumer)?
It’s anyway a “distance contract”- isn’t it?
The right to cancel provided by current European laws is definitely something dangerous and tricky, on the dealer's-side, to the point that it is not hard to imagine how a gallery may eventually prefer an out-of-Europe buyer over European buyers, just to avoid these possible problems, if they’re legally educated (which unfortunately is not so frequent), or just after having already been through these kinds of claims over the past months.
Last point worth to note, is that all these additional rights in Europe are available only to consumers.
So, if a dealer sells online to another dealer acting in the course of business, the buying dealer cannot enforce these rights against his seller.
This aspect opens up a whole other question to solve, once we consider all the collectors/investors who today are used to selling regularly (even monthly, if not weekly).
But this is probably worth another specifically dedicated insight, which could examine and compare all the different criteria which define a collector as a dealer, in different legal systems.
To conclude, the main point is: as the art world moves and apparently gains confidence in buying online, would (and should) also conditions of online sales adapt and be clarified, in order to protect equally and reasonably both buyers and sellers in different countries, within a dramatically changing trade setting?
[1] Valentin, Pierre, “Danger Ahead – Auctions Undermined by New Consumer Protection”23/11/2013 - available at https://www.artatlaw.com/blogpost/danger-ahead-auctions-undermined-by-new-consumer-protection