Friday, October 26, 2012

Could New York legal ruling deliver greater transparency to the art market? The jury’s out

Thanks to Larry Rothfield’s Punching Bag blog for drawing attention to the recent law case in the New York Supreme Court which, if it is upheld, could force fine art auctioneers to disclose the identities of consignors to their auctions.

The implications for an art market that thrives on its inherent opacity are interesting, to say the least.

The ruling concerns a case that dates back to 2008 when Albert Rabizadeh, a Long Island dealer, bid $460,000 (including buyer’s premium) at William J. Jenack auction house in Chester, New York (above left) for a Russian silver and enamel box by the imperial jeweller Ivan Petrovich Khlebnikov (1819-1881).

When Rabizadeh later failed to pay for the lot, Jenack sued Rabizadeh in the New York courts before reoffering the box in their May auction. The New York Supreme Court ordered Rabizadeh to pay the full original price of $460,000, less the $109,250 which the box realised at the May auction.

However, instead of complying with the court order, Rabizadeh counter-sued, arguing that the original contract was effectively void on the grounds that the auction house had failed to disclose the identity of the consignor.

His case rested on what is known in contract law as The General Obligations Law § 5-701(a)(6) which requires that the necessary memorandum of sale, “be it in one writing or multiple writings, reveal the identity of, not merely a number assigned to, the parties to the contract.” (See a link to the original Appellate court judgement at the foot of this piece.)

In a surprise judgement in September, the New York Supreme Court upheld Rabizadeh’s argument, ruling that for a sale contract to be binding it must specify the names of both buyer and seller.

Perhaps understandably, the Jenack auction house is appealing that judgement and it has now been joined by Christie’s. So what chance of this ruling be upheld?

Larry Rothfield is understandably interested in the implications for antiquities sales since it is a reasonable assumption that a legal obligation on the part of auction houses to reveal the identity of their consignors might go some way towards reducing the number of illicitly-acquired antiquities reaching the open market. After all, it is common knowledge that the big auction houses are less than diligent in screening the provenance of goods consigned for sale.

But there are other implications for fine art auctions in general. Auction houses are already required to make clear, via a symbol in their conditions of sale, which lots in the catalogue are the subject of “irrevocable bids” (third party underwriting of guarantees.) Given that the bigger fine art auction houses now frequently act as principals in auction transactions rather than as agents for the vendor, this Supreme Court ruling, if it is upheld, would surely require the auction houses to specify when they are themselves vendors in the transactions. At present that is far from clear.

On a positive note, the ruling, if upheld, might help provenance research since it would offer immediate clarity on the most recent owners. It would also deliver a long-overdue death blow to the risible “Swiss Private Collection” — surely the most obscurantist citation in the antiquities trade — while the traditional “Property of a Gentleman” may no longer be sufficient either.

The identity of consignors has for generations, indeed centuries, been shrouded in secrecy. The vast majority of dealers, and indeed private private vendors, do not want their identities revealed when consigning goods to auction. My guess is that overturning that tradition would be widely perceived as a step too far. For good reasons, the notional transparency that is permanently on everyone’s lips never actually materializes in practice.

At a recent open forum at a major fine art fair in Miami, the distinguished panellists were asked by a member of the audience whether they thought greater transparency and openness would improve the art trade or impede it. After much shilly-shallying and mumbling into water glasses the consensus seemed to suggest that, depending on how far it went, it could irreparably damage the trade.

The art law professors will have their own opinions, but I, for one, cannot see a New York judge upholding a ruling that could blow a big hole in New York’s status as a fulcrum of the international art market. The inexorable growth of China is enough of a challenge to the American art market without judges, largely ignorant of the nuances of the art trade, sticking their oar in as well.

The Swiss Private Collection may yet survive...

View a PDF of the September 19 court ruling in William J. Jenack Estate Appraisers & Auctioneers, Inc. v Rabizadeh here

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