Gagosian not off the hook

The New York state Supreme Court in Manhattan has ruled that Larry Gagosian and Gagosian Gallery Inc. must continue to defend a fraud claim brought by Ronald Perelman.

By way of background, in September 2012, Perelman, an American businessman with a mere net worth of around US$14.1 billion, sued Gagosian Gallery Inc. and its founder and owner, Larry Gagosian alleging that they had "concealed material information from [Perelman] and used their dominant position in the contemporary art world to manipulate the price of a certain artwork in transactions with [Perelman] in gross violation of the fiduciary duties owed to [Perelman]."

Perelman brought claims for breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment and deceptive business practices.

On the same day Gagosian sued Perelman, accusing him of reneging on an agreement to buy two works of art. In October 2012, however, the Gagosian parties dropped their suit and subsequently filed a motion to dismiss all of Perelman’s claims.

Unfortunately for Gagosian, while New York State Supreme Justice Barbara Kapnick dismissed the majority of the charges (in her decision of 31 January 2104), she ruled that the fraud claim may stand.

Businessweek reports:

The judge said that while the plaintiffs, Perelman’s MAFG Art Fund and MacAndrews & Forbes Group LLC, are “experienced and sophisticated” business investors, the allegation that Gagosian and his gallery had “superior and unique” knowledge of the art world is enough for the fraud claim to survive.  

“Plaintiffs allege that Gagosian has enormous power to influence, and even set, the markets for the artists he represents because of his impressive roster of artists and his access to and knowledge of the largest private art collections in the world,” Kapnick wrote. “Even though the plaintiffs are sophisticated art collectors and investors, the court cannot say, as a matter of law, that plaintiffs’ alleged reliance on defendants’ representations regarding the art market and intrinsic value of particular works of art was per se unreasonable or unjustified.”

The full decision can be found here.

Gagosian has 30 days (from 31 January) to file and serve an Answer to the fraud claim.

Perhaps most interesting is the power and influence that one individual is said to wield in the art world - and the other scary insights into the art world that the case provides. Details can be found in the initial complaint and amended complaint.


Source: Businessweek, 4 February 2014

Hong Kong's art market boom as China slows?

At the beginning of October, leading Chinese auctioneer China Guardian held its debut auction in Hong Kong, having been lured by Hong Kong's international buyers, low tax regime and stable regulatory framework.

Landscape series by Qi Bashi, Album of Mountains and Rivers
1922, which led China Guardian's auction

Reuters reports on the apparent shift in the Chinese art market as follows:

China Guardian's sale of Chinese art and classical furniture in the former British colony follows its rise as the world's third largest auction house on the crest of China's art market boom, with sales of $1.77 billion last year...

The sale, though relatively small, is seen as a symbolic foray by China's top auction company into the turf of goliaths Christie's and Sotheby's who have long dominated international auction hubs like Hong Kong, New York and London.

China Guardian's key rival, Poly International is also planning an inaugural Hong Kong sale in late November, while A&F Auction and Beijing Rongbao Auction aim to enter Hong Kong in one or two years, according to art market reports.

China's wave of millionaire buyers and investors have helped propel Hong Kong into the world's fourth largest art auction hub, with nearly 7 percent of global art auction revenue in 2011, according to French art database Artprice.com...

Art dealers and experts say the Chinese expansion into Hong Kong is also being driven by a tightening regulatory environment in China, that has grappled with widespread art crimes including tax evasion, a proliferation of fakes, money laundering and manipulative bidding practices...

In April, a large-scale Chinese customs probe into tax evasion on art imports delivered a blow to the art market, with at least six prominent art dealers, collectors and artists being investigated, according to art dealers and Chinese media reports. "The tax probe had a huge impact on the spring auctions in China," said the owner of an art gallery in Taipei who is a frequent buyer in the Chinese art market, but who declined to be identified because of the sensitivity of the matter. "Everyone finds himself in danger so the market is extremely cold." According to market researcher ArtTactic, total auction sales this spring from the biggest four auction houses in the China market dropped to $1.5 billion, 32 percent lower than the autumn season in 2011 and 43 percent less than a year before...

Art market experts, however, say Hong Kong's laissez-faire economy, solid regulatory framework and zero-tariffs on art imports, make it a secure and stable alternative for China's auction firms. Although Beijing has lowered its import duties on arts to 6 percent from 12 percent since the beginning of 2012, another 17 percent of value-added tax still poses a huge burden to Chinese auction houses.

It certainly seems that the Hong Kong market can only continue to grow, especially in light of its favourable tax regime as compared to China, as well as, obviously, its proximity.

Source: Reuters, 7 October 2012

Skilled in the art: legal answers to questions of authenticity

An interesting issue which has been flagged by the press recently is whether the courts are qualified to make judgments as to the authenticity of artworks.

Reports the New York Times:

Federal District Court Judge Paul G. Gardephe’s résumé includes many impressive accomplishments but not an art history degree. Nonetheless he has been asked to answer a question on which even pre-eminent art experts cannot agree: Are three reputed masterworks of Modernism genuine or fake.

Judge Gardephe’s situation is not unique. Although there are no statistics on whether such cases are increasing, lawyers agree that as art prices rise, so does the temptation to turn to the courts to settle disputes over authenticity. One result is that judges and juries with no background in art can frequently be asked to arbitrate among experts who have devoted their lives to parsing a brush stroke.

The three art cases on Judge Gardephe’s docket in Manhattan were brought by patrons of the now-defunct Knoedler & Company who charge that the Upper East Side gallery and its former president Ann Freedman duped them into spending millions of dollars on forgeries.

The judge’s rulings may ultimately rely more on the intricacies of contract law than on determinations of authenticity. But the defendants and plaintiffs are busily assembling impressive rosters of artistic and forensic experts who hope to convince the judge that the works — purportedly by Jackson Pollock, Willem de Kooning and Mark Rothko — are clearly originals or obvious fakes.

Of course judges and juries routinely decide between competing experts. As Ronald D. Spencer, an art law specialist, put it, “A judge will rule on medical malpractice even if he doesn’t know how to take out a gallstone.” When it comes to questions of authenticity, however, lawyers note that the courts and the art world weigh evidence differently.

Judges and juries have been thrust into the role of courtroom connoisseur. Legal experts say that, in general, litigants seek a ruling from the bench when the arguments primarily concern matters of law; juries are more apt to be requested when facts are in dispute.

 The problem is that ultimately it may not matter what the judge or jury decides. In reality, if the art experts declare that a work is fake, a legal pronouncement is likely to have little effect – the market will heed the experts.


One of the paintings, attibuted to Jackson Pollock,
 in respect of which Judge Gardephe will be required to rule



Source: New York Times, 5 August 2012

Chinese art market: call for regulation

There were calls this week from the deputy director of the culture market department of the Ministry of Culture, Tuo Zuhai, for more comprehensive regulations for the Chinese art market.

In 2011, the Chinese art market overtook the US as the world's largest art market. China now leads the world in art auction sales, with the biggest sales revenue and highest auction results, and with trade volumes reportedly totalling 195.9 billion yuan (£19.8 billion). However, legal regulation has not kept up with the boom in the art trade. As reported by China.org:

"...if a consumer buys fake or substandard art works at a gallery, his rights and interests are protected in accordance with the Law on Consumer Legitimate Rights and Interests Protection. But if he gets cheated at an auction, there are no relevant protection regulations in the Auction Law. The lack of fair and open regulations in the art trade has caused continued disquiet among art investors.

The Ministry of Culture is now consulting professionals in both law and the art trade over legislation related to art market management. The draft will regulate the conditions of operating businesses in the art market, define tradable art works and protect the rights of the owner, consumer and traders of art works.

The ministry has also been devising sectoral rules to solve specific real-world problems, which will serve as the foundation of the future Art Law."

With no sign of an end to the growth of the Chinese art market, no doubt the worldwide art trade will be monitoring the Ministry of Culture's consultation and eagerly awaiting the results.

18th century Qianlong porcelain vase which sold for a world record-breaking £53.1 million at auction in 2010

Source: China.org.cn

Litigating the Californian "droit de suite" ?

Christie's Inc and Sotheby's Inc were sued last Tuesday in U.S. District Court, Central District of California, by a class of artists: New York painter Chuck Close, the L.A. artist Laddie John Dill, the estate of Robert Graham and the Sam Francis Foundation (only for Christie's).

The proposed class action was filed alleging that, the auction houses violated the California Resale Royalty Act, unlawfully failing to pay artists resale royalties for their works' sales in California.

1977 California resale royalty law grants  to visual artists 5% of the proceeds from the resale of artworks under certain conditions, that: the seller lives in California or the sale occurs there, and only for specific kind of art defined as "an original painting, sculpture or drawing or work of art in glass". This resale right is extended for 20 years after the artist's death, also to the artist's heirs. 

This law was inspired to the European visual artists royalties known as the French "droit de suite" now spread throughout the European Union, thanks to the implementation of the European Directive 2001 /84, that took effect, also in Ireland and Great Britain, which previously didn't allow visual artist's resale royalties.

The plaintiffs charge the auction houses ruotinely violate the law hiding the identity of the sellers and their residencies. In their turn, Christie's and Sotheby's have announced they will charge this law for constitutionality issue, since it could conflict with U.S. federal copyright law.

Finally, if successful, these suits could shift business elsewhere, opening a new scenario in American art market.

Read  more on L.A. times here

Read more on Artjournal here
Read the complaint against Sotheby's here