Can the Statute of Frauds Impart More Transparency into the Art Trade?

A recent ruling in the New York State court, Appellate Division, has caused quite a stir among folks who follow the art trade.  There has been some initial speculation among observers of the art trade that this ruling may cause the trade to meaningfully shift the way it does business and impart much-needed transparency into the sale of art. Unfortunately the shift is incremental only, and will not in itself change the way the art market does business. Larry Rothfield hopes the ruling “will give policymakers a reason to start thinking more carefully about how that market could and should be regulated in ways that do the most possible to prevent looting of archaeological sites.” Paul Barford similarly  thinks about what this might mean for auction houses and the “old argument that the collecting history has been lost can no longer be believed by those who want to shut their eyes to freshly ‘surfaced’ (from ‘underground’) material.” In reality though, the likelihood that this ruling will have much of an impact on the art trade or the antiquities trade generally remains remote. Here’s why.

The facts of the case are straightforward. A buyer, Albert Rabizadeh, refused to pay the purchase price for a work of art he won at auction, and because the Jenack auction house failed to comply with the Statute of Frauds, the appellate court in New York has held the contract to be unenforceable. The provision at issue is a New York state law known as the statute of frauds. the term stems from a jolly old legal principle which the English Parliament passed in 1677. The original purpose of the law was to prevent fraud from being given legal effect in certain important agreements. It encouraged contracting parties to reduce their bargain to a writing so as to prevent a 17th century jury from enforcing contracts that had never been made. This provision has now been largely done away with under English law, but survives in the U.S. under the Uniform Commercial Code.

Currently the legal safeguards known as the statute of frauds require a signed writing for certain kinds of contracts to be enforced (the sale of goods over $500, the sale of land, contracts that can’t be performed within a year, etc.). The contract at issue in the dispute between Rabizadeh and Jenack was over a silver and enamel box, a Russian work of art, which was bid for $460,000 including the buyers premium. It might have looked something like this.

New York’s state law provision requires that at the time of sale the nature of the property, the terms of sale, the name of the purchaser, and the name of the person on whose account the sale was made shall be entered in something called a sale book. N.Y. Gen. Oblig. Law § 5-701(a)(6)(2012). Both New York and California have enacted these kinds of provisions, and it should be noted these two states surely account for the bulk of the American art market and a substantial share of the world art trade as well. Any changes made to how auctions are conducted in these jurisdictions demands serious attention. General practice in the art trade has been to skirt by and assume that the anonymous number is enough to satisfy the requirement that the seller and buyer are named in writing, and this is the argument the Jenack auction house pressed unsuccessfully on appeal.

The New York court held that the consignor’s number (in this case 428) was not enough to satisfy the plain language of the statute. Now the question becomes, does this ruling require auction houses to reveal the identity of buyers and sellers? Yes, but only to each other. From my reading of the decision, only the auction house, the buyer and the seller would know who each other are. And even so, the only time that this requirement of transparency were to be enforced would be if a buyer refused to pay, as happened here, or if there were some other difficulty with the agreement. There may be other creative steps the auction house could take to ensure buyers who do not pay their winning bids can be removed from the auction process.

All of this would only incrementally shift the needle towards imparting the light of day into the art trade, which is anonymous and involves a labyrinthine set of relationships between all the parties involved. I have been a big advocate of more transparency in the trade, but I do not think this ruling by itself will accomplish much in that regard. At present it seems likely that the auction house, likely joined by others will attempt to appeal this case to New York’s highest court. And even if this ruling were to be upheld it seems likely that that the big auction houses would attempt to have the New York state legislature correct any errors they feel were made. Justice Skelos himself acknowledge this in the opinion:

To the extent that the requirement in General Obligations Law § 5-701(a)(6) that the memorandum contain the name of, rather than an assigned number for, the “person on whose account the sale was made” may be at odds with the general industry practice, and may be burdensome to consignors or auction houses or both, a change in the law to eliminate that requirement may be warranted. However, consideration of the propriety of that change is not for the courts, but rests with the Legislature.

So we will wait then for this dispute to reach a final result, and wait for any potential action by the legislators in Albany. Should more consideration be given to the role of the UCC and the art trade, this would give heritage advocates an opportunity to revisit the current practice of the auction art market, which would be a welcome change.

Finally a quick reply to Tom Flynn, who I’ve never known to have much good to say about lawyers. There’s nothing wrong with that of course, but in this case he badly misses the mark badly. He brandishes a quick indifference to the role of courts and makes the claim that this four-judge panel has dealt a blow to the New York art market and the “judges, largely ignorant of the nuances of the art trade” have done damage here by as he puts it: “sticking their oar in.” If one disagrees with this ruling, the real culprit is the New York state law, which was likely drafted to assist auction houses in using the courts when difficulties arise in an auction. The court merely applied the plain text of New York’s statute of frauds. If one were impolite enough to label anyone ignorant, it would hardly be these judges. If given the opportunity to thoroughly read the court’s straightforward opinion and word his thoughts more carefully one hopes Tom would see that what the New York court has done here is apply the law as it was given to them by the New York legislature.  It was the auction house itself which brought suit, attempting to enforce a bid. I can understand frustration with a result, but judges do not simply pick a tree and grab a rope. They apply the law as it is, to the facts as they are presented.

  1. Jenack Inc. v. Rabizadeh, 2012 NY Slip Op 6211 (2012).
Questions or Comments? Email me at derek.fincham@gmail.com

U.S. Repatriates 4,000 Looted Antiquities to Mexico

Yesterday U.S. law enforcement officials returned 4,000 object to Mexico. They are the fruit of 11 different investigations in cities like El Paso, San Antonio, Fort Stockton, Phoenix, San Diego, Chicago and Montana. These kinds of ‘art on the table’ news conferences are quite common. But I admit to feeling conflicted about them. On the one hand they certainly speak to the degree of seriousness with which ICE agents and the Federal Government take these crimes. But as with any crime that becomes federalized like this, the incentives are I think primarily geared towards rewarding these big investigations and successful returns. Yet the underlying problems endemic to the antiquities trade itself are not treated or targeted. It is an important step, but also the more of these returns I see (and there are a lot of them) the more frustrating it becomes as well. Because these investigations target the objects. There is no mention of arrests, prosecutions or of much of anything which would produced sustained compliance on the part of the art trade.

In fact after reading the news release I feel more pessimistic about the mass of objects which are being smuggled up from the south. Consider that three statues were smuggled in by a migrant worker on a bus; another clay statue was hidden in luggage in El Paso; another statue was hidden in the dash of a vehicle; a grinding stone was found in another vehicle; another millstone was found in the back of a truck; and the list goes on. These are straightforward and low-cost means to smuggle the objects into the country. We cannot I think expect ICE agents to catch every smuggled object found in luggage, trucks or cars. The trade itself and art buyers need to step up at some point and correct a market which routinely accepts these looted and stolen objects. But that kind of sober reflection on these recoveries is not to be found in the statements of U.S. and Mexican officials. From the ICE news release:

“The plundering of cultural property is one of the oldest forms of organized cross-border crime and has become a worldwide phenomenon that transcends frontiers,” said HSI Assistant Director Janice Ayala. “The teamwork and cooperation that exists between ICE’s Homeland Security Investigations and our Mexican law enforcement counterparts, as well as with U.S. federal, local and state law enforcement agencies made it possible for us to secure these cultural artifacts and to ensure that they are returned to the government of Mexico. HSI will remain committed to combating the looting and trafficking of Mexico’s cultural treasures.”
Consul General of Mexico Jacob Prado stated, “The restitution to Mexico of more than 4,000 archaeological pieces, which were seized by ICE’s Homeland Security Investigations special agents, is proof of the excellent collaboration that exists between Mexico and the United States, and attests to the relevance of the institutions and legal framework that our authorities have developed to successfully address the many different issues of our bilateral agenda.” Consul General Prado also expressed the gratitude of the government and the people of Mexico to the six HSI offices involved in recovering the artifacts, “for their support to ensure the restitution of these archaeological pieces, which are part of the cultural heritage and the historical memory of the people of Mexico.”

Questions or Comments? Email me at derek.fincham@gmail.com

International Symposium on Nazi-looted art at the Peace Palace, Nov. 27

I have been forwarded some details about an international symposium: Fair and Just Solutions? Alternatives to Litigation in Nazi-Looted Art Disputes: Status Quo and New Developments. The symposium is taking place in the Peace Palace in the Hague, the Netherlands on 27 November 2012.

This symposium is being staged to mark the tenth anniversary of the Dutch Restitutions Committee, an independent committee that advises on claims relating to Nazi-looted art. The chairman of the Restitutions Committee is Willibrord Davids. During the symposium five European looted-art advisory committees, distinguished scholars, experts, representatives of museums, art dealers, auction houses and pressure groups will explore the question of how to reach a fair and just solution in disputes about Nazi-looted art. Attendees at the symposium will not only gain a good overview of the current state of affairs, but will also be able to share their thoughts about desirable developments in the future. Registration for the symposium is open to anyone with an interest. For more practical information about the main issues, the programme and the registration form please go to the Restitutions Committee’s website: http://www.restitutiecommissie.nl/en/symposium_introduction.html.

Questions or Comments? Email me at derek.fincham@gmail.com

An Update on the Koh Ker Statue and Sotheby’s

The United States and Cambodia are locked in a legal battle with the auction house Sotheby's over this 1,000-year-old statue of the Hindu warrior Duryodhana that may have been looted from the Cambodian temple complex at Koh Ker.

Anthony Kuhn reports for All Things Considered on the ongoing dispute between Cambodia and Sotheby’s over this Koh Ker statue. The feet were found at the complex, but Sotheby’s is attempting to prevent any seizure of the statue. This looting likely took place in the late 1960’s. The Cambodians make a compelling case for the statue, while Sotheby’s refused to comment for the piece. I’ll update the case here as it develops.

Questions or Comments? Email me at derek.fincham@gmail.com

Looting and Cultural Destruction Happens in Big Prosperous Cities Too

The environmental justice movement got its start here in Houston when communities saw the unjust impact of hazardous siting decisions. Today this same neighborhood is at risk of gentrification, historical destruction, and architectural looting. I made a case and talked about the idea of cultural justice for areas like this in a forthcoming piece.

But I suspect Lenwood Johnson, in this terrific video report by Houston’s alt-weekly, the Free Press, makes a more compelling case than I ever could:

Questions or Comments? Email me at derek.fincham@gmail.com

New Book on the Illicit Trade in Art and Antiquities

I’ve been forwarded information on what looks to be an excellent new work by Janet Ulph and Ian Smith, The Illicit Trade in Art and Antiquities: International Recovery and Criminal and Civil Liability, published by Hart. The publisher has kindly offered readers of this blog a discount. Here are the details:

This new text provides practical guidance on the modern law relating to cultural objects which have been stolen, looted or illegally exported. It explains how English criminal law principles, including money laundering measures, apply to those who deal in cultural objects in a domestic or international setting. It discusses the recovery of works of art and antiquities in the English courts where there are competing claims between private individuals, or between individuals and the UK Government or a foreign State. Significantly, this text also provides an exposition of the law where a British law enforcement agency, or a foreign law enforcement agency, is involved in the course of criminal or civil proceedings in an English court. The growth of relevant international instruments, which include not only those devoted to the protection of mankind’s cultural heritage but also those concerned with money laundering and serious organised crime, provide a backdrop to this discussion. The UK’s ratification of the UNESCO Convention on Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property 1970 in 2002 is considered. The problems posed in attempting to curb trafficking in art and antiquities are explored and the effectiveness of the current law is analysed. Janet Ulph is Professor of Commercial Law at the University of Leicester and the main author ofCommercial Fraud: Civil Liability, Human Rights, and Money Laundering (Oxford University Press, 2006).
Ian Smith is a barrister based in London at 11 Stone Buildings, and co-author of Smith, Owen and Bodnar, Asset Recovery: Criminal Confiscation and Civil Recovery (2nd Edition, Oxford University Press, 2007).
 Link to table of contentshttp://www.hartpub.co.uk/pdf/9781841139647.pdf
Oct 2012   352pp   Hbk   9781841139647RSP: £75 / €97 / US$150 / CDN$150DISCOUNT PRICE FOR BLOG READERS: £60 / €78 / US $120 /  CDN $120
http://www.hartpub.co.uk/books/details.asp?isbn=9781841139647
Order OnlineIf you would like to place an order you can do so through the Hart Publishing website (link above). To receive the discount please mention ref:‘ULPH_SMITHBLOG’ in the special instructions field. Please note that the discount will not be shown on your order but will be applied when your order is processed.

Questions or Comments? Email me at derek.fincham@gmail.com

Reactions to the Kunsthal Theft

Yesterday we learned that the Kunsthal Museum (I’ve also heard it described as essentially a gallery) had suffered a theft of seven works of art in a late night theft, likely aided by the building’s difficult-to-secure windows. The tireless Catherine Sezgin has a good roundup of all the news reports at the ARCA blog.  Here’s some reactions from the security and law enforcement experts I found thoughtful:

Anthony Amore, the director of security at the Isabella Stewart Gardner Museum in Boston debunks the popular impression of art thieves in an Op-Ed for the New York Times:

As usual, a combination of master art thieves and faulty security was blamed. But this seductive scenario is often, in fact, far from the truth. Most of us envision balaclava-clad cat burglars rappelling through skylights into museums and, like Hollywood characters, contorting their bodies around motion-detecting laser beams. Of course, few of us have valuable paintings on our walls, and even fewer have suffered the loss of a masterpiece. But in the real world, thieves who steal art are not debonair “Thomas Crown Affair” types. Instead, they are the same crooks who rob armored cars for cash, pharmacies for drugs and homes for jewelry. They are often opportunistic and almost always shortsighted.

Chris Marinello of the Art Loss Register tells NPR’s Morning Edition:

MONTAGNE: And do insurers pay ransom?  
MARINELLO: Absolutely not, they do not want to encourage further art theft and then the thieves are going to have to go to Plan C. They usually contact me and see if I have any ability to pay them to return the works. They won’t succeed there, either. The pieces are likely to travel in the underworld at a fraction of their true value, maybe five or 10 percent, used as currency for drugs, weapons, even something called a Get Out of Jail Free card. If a criminal thinks that they’re going to be arrested, they may try to make a deal with the prosecutor for a lesser sentence, if they have information that leads to the recovery of the seven paintings.   
MONTAGNE: Is it likely than that they will resurface eventually?  
MARINELLO: Well, I have a lot of faith in the Dutch police and they are meticulous. We might see something over the next few weeks. I mean sometimes when they realize they can’t get rid of the haul that they just brought home, they just return them. But if we don’t see that happening in the next few weeks, it could be decades before these resurface.

Bob Wittman, formerly of the FBI’s art crime team talks to the Atlantic:

Here’s the story on selling stolen art. Paintings that are stolen like last night, those pieces that were taken out of the Kuhnsthal museum, are not going to get sold on any kind of market, whether it’s a black market or any kind of market. They’re going to get recovered. But what happens with pieces that are worth much less — let’s say the $10,000 and less market, pieces that aren’t well known — is a burglar goes into a home and steals a $5,000 painting. That can be sold in a flea market, that can be sold on what they call the secondary art market, because it’s not well known. And that’s the vast majority of art heists. It’s not these once a year museum thefts. It’s burglaries around the world. And that’s the major part of the art theft business and the collectibles business. Even the smaller works of art have no value if they have no provenance, authenticity, or legal title. But when you talk about pieces that are under that amount, people don’t do the due diligence. When people go in and pay $5 million for a Cézannes, they’re going to do the due diligence to make sure everything is right. If a piece is $300 at a flea market, it’s not done.

Questions or Comments? Email me at derek.fincham@gmail.com