“Follow the paint” on a unique tour of artist Jock McFadyen’s studio whilst he reveals the mastery behind his paintings and artistic legacy

• 15 February 2022
• News

Forsters’ Head of Art and Cultural Property, Catherine Hill, joins longstanding client Jock McFadyen at his artist studio in London Fields for a captivating conversation in which Jock reveals his painting techniques, reflects on a 50-year career and the challenges of accepting the kind of artist you’ve become, as well as musings on the future of the art market. Jock wraps up the discussion by sharing some surprising advice to young artists, originally revealed by another well-known Royal Academician.

This article provides extracts of the most fascinating parts of the interview but do watch the videos for the richest insights and a unique glimpse of Jock’s working studio.

Part 1: Jock on the myth of painting landscapes and the skill of depicting skies

As Jock shows Catherine around his studio, they pause to view some of his paintings on display. Jock discusses how he is going back to some of his old paintings to rework them. He reveals to Catherine how he works up a scene in a painting:

“It’s not really imagination… because the paint throws up its own chances.

So you follow the paint, the paint is moved at the speed of thought, so there’s lots of visual research. In other words, photography, roughing things out, telling lies, saying I’m going to move this building across to here or chop that bit off, or I don’t like that mountain and all landscape painters do this.

The majority of paintings in the world are studio paintings, and the minority of paintings in the world are done from life…

Art is short for artifice, so visual research is important as is imagination. But you follow the paint.”

After some gentle persuasion, Jock shares more about his painting techniques:

“I like to paint in a method that’s called ‘wet on wet’ so you pour paint on and you paint on while the paint is still wet, even detail you can do that with. So paintings are in a constant state of adjustment.

But when you’re doing the skies…it’s a game of chance because the skies are liquid and the real sky is liquid. The real sky out there, out of these windows, because clouds are water floating about and if you’ve got paint floating about on here, you can replicate a sky…

I’m always trying to get light to come from the painting that’s underneath and the fact that the paint of the sky is liquid which solidifies overnight [helps this] because if the paint is thin, it is all oil paint, but it will be dry enough to work back into…

I think you’ve got to have the painting keep its energy, so you’re always fighting against flatness.”

Part 2: Jock on cataloguing a lifetime’s work and curating an artistic legacy

Catherine and Jock move on to the area of the studio where most of Jock’s art work is stored. Canvases of all shapes and sizes are stacked on shelves and scattered around the workspace; some of which will be reworked, and others kept to form part of Jock’s artistic legacy – a challenging endeavour that Catherine and Forsters’ Art Group have been advising him on.

Catherine asks Jock to reflect on the experience of attempting to archive art works that will represent him as an artist in perpetuity:

“It’s something that happens to painters at a certain time. If you are a young artist, say you’re 30… you’re setting out, you’re still deciding what kind of artist you [want] to be. Because the contemporary art business… is a sea of possibilities and options.

And then, this is a terrible expression “mid-career”, an artists of 50 years old, has gone some way, and they’re consolidating and they’re understanding the ramifications of the decisions they’ve made 20 years before.

But when you’re 70, you’re in neither position. You’re in the business of turning around and looking at the footprints in the snow and…not deciding at all. You have to accept what kind of artist you actually are. The decision making is over. This is what you turned out to have become. And it’s too late to change.

It’s not too late to experiment and go in new directions. What I mean is you can’t deny what you’ve previously done over the last 40 or 50 years because it’s there, it’s evidence and that is what you have to accept… Even if you hate it, you have to say, well, I seem to have done this.

…And of course, if you don’t like something, you can destroy it and shape what you want to leave in the world after you pass, so it is something which is really important and it’s something that is up to the artist to do unless you have curators you can really trust.

Because most artists who get to my age have got works in public collections and those will be there in perpetuity and so they define what kind of artist you are. So you have to join in with that perception of yourself, which is the official story of what you’ve done. Even if…sometimes you find your work in the wrong context. You can’t do anything about that. No sort of manipulation of your external image or appropriation of you or someone misconstruing…

But you know, time will pass and then work will be seen in a purer light.”

Part 3: Jock on the changing business of art and the future direction of the art world

Catherine and Jock’s conversation then shifts to the business side of being a successful artist and how this has changed throughout his career. As art becomes arguably more commercialised but with that more accessible to a wider audience of potential collectors, Catherine asks for his views as to when and how the art world had changed:

“There are three stages I think of the art business.

When we were in the student refectory at Chelsea Art School off the Kings Road, crying into our cold tea, thinking about what we’re going to do when we leave art school, everybody’s dream was to have a three-week solo exhibition in Cork Street. Cork Street was the street where all the galleries were, like Savile Row is to suits, and that was what people wanted.

And, in my career, it’s gone from three weeks in Cork Street to, in the 1990s, it was three days at Art Basel Miami.

And in the nineties and the early 2000s, the group exhibition became just as important as the solo exhibition because it gave you context. And then it moved from three days…to three hours on the Thursday evening at Sotheby’s…

But now we have NFTs and a virtual pair of trainers, and we’re in a strange world because the auction rooms are desperate to get in on NFTs because they daren’t miss anything commercially. So I’ve seen a lot of changes.

But the thing is, back in the day you had a critical backdrop. If you did have one of these exhibitions in Cork Street and I had a few in the 1980s, when that was the thing to have, you hoped to be reviewed by the F.T., The Guardian, The Observer, or The Times. And that was what you needed, the critical backdrop and that’s just art journalism.

But the critical backdrop is not now done by writers – it’s done by money. It’s underpinned by money. So the more important art is the most expensive art.”

As Jock mentions NFTs, Catherine picks up on this hot topic and considers the potential positive aspects for artists of these technological advancements:

“There’s opportunities within blockchain for linking artwork. If you imagine a studio where you can scan your work and it becomes part of the blockchain. It may develop such that the artists then have much more control over their work.

The other idea is that you might be able to link in effectively a quasi-royalty within the blockchain that requires a payment back to the artist every time the works change hand. So I think we’re going to see some quite seismic change.”

As the conversation draws to a close Jock reflects on the wide range of matters discussed and muses:

“It’s amazing. I mean, it’s a case in point that we’ve come here to talk about painting. Of course, we’ve ended up talking about the business side. Money.”

And finally Catherine ends with one last question:

If you are thinking back over your career and also considering young artists today, have you got any key words of advice for them, things you might have done differently yourself looking back at your existing legacy?

Be sure to watch the videos to discover Jock’s surprising answer!

You can view Jock’s artwork at his current exhibition “Tourist without a Guidebook” at the Royal Academy of Arts in London, which Forsters is proudly sponsoring.

To find out more about how Forsters’ Art Group advises living artists and others in the art world please contact [email protected] or visit www.forsters.co.uk/art.

Painting a legacy: How Forsters’ Art Group advised pre-eminent artist Jock McFadyen on his estate planning

• 15 February 2022
• News

Jock McFadyen is a pre-eminent contemporary British painter and Royal Academician who is best known for his gritty urban landscapes and use of texture. Jock’s works are held in 40 museum collections, including the Tate, National Gallery, the V&A, the British Museum and the Scottish National Gallery of Modern Art. Jock was previously Artist in Residence at the National Gallery and, in 2019, curated the Summer Exhibition at the Royal Academy. As part of Jock’s 70th birthday celebrations, he has a solo exhibition in the Weston Rooms at the Royal Academy running from February to April 2022 titled ‘Tourist without a Guidebook’, sponsored by Forsters. The exhibition brings together 20 works spanning 30 years, showcasing Jock’s fascination with London’s changing urban landscapes.

Estate planning

Jock came to us for advice on his estate planning, wanting to be proactive about safeguarding his artistic legacy after his death whilst balancing this objective with the need to provide for his family and his desire to support philanthropic organisations that helped him in his early days as an emerging young artist.

Steps taken

The first step was to run through Jock’s assets, their values and examine how each is held. This included his studio and gallery space; his impressive portfolio of works; and a foreign property where he has a second studio. We advised on succession planning in relation to his foreign property and prepared a will and letter of wishes for Jock, using trusts to structure Jock’s legacy. The letter of wishes provided a framework for Jock’s legacy planning, including a strategy for categorising Jock’s works as follows:

• core works which would form part of his legacy;
• important works which would be gifted to the nation in lieu of inheritance tax; and
• works which could be sold to partially settle inheritance tax.

Tax

In terms of tax, we took Jock through how the inheritance tax regime works in the UK and advised on how best to maximise the available reliefs. For example, we advised on the availability of business property relief on Jock’s studio, gallery space and works to reduce significantly the inheritance tax bill on his demise. We also considered the charitable nature of an artist in residence scheme in light of the ‘public benefit’ requirement and arranging for annual grants to be made after his death to young contemporary art students to subsidise the costs of renting studios.

Specialist advice for artists

Artists, like the rest of us, need to consider carefully and plan what should happen to their estates on death. However, for artists, maintaining or enhancing the value of their works after they are gone is paramount not only to provide an endowment to sustain their artistic legacies but also to support their families. To achieve these dual aims, it is important to get the right advice and plan ahead.

How Forsters can help

Forsters advises on artists’ business structures; taxation; succession and legacy planning; property advice relation to homes and studios; wills; intellectual property, Artist Resale Rights; representation agreements, consignment agreements and contracts generally; international aspects of studios owned abroad; movement of works across jurisdictions; and advice on foundations, charities and gifts to the nation.

Learn more about our Art & Cultural Property team

Forsters sponsors acclaimed artist and client Jock McFadyen’s exhibition at the Royal Academy

• 7 February 2022
• News

Forsters are honoured to be sponsoring a nine-week long exhibition of celebrated contemporary artist and longstanding Forsters Art Group client Jock McFadyen at the Royal Academy of Arts. The Exhibition “Tourist without a Guidebook” will run from 5 February – 10 April 2022, and will bring together 20 of Jock’s works spanning almost 30 years. The free display in the Weston Rooms will explore the artist’s fascination with London’s changing urban landscapes.

We are also delighted to be displaying a range of Jock McFadyen prints in our office waiting and meeting rooms for the appreciation of all clients, visitors and staff.

Jock McFadyen is a long-standing client of Catherine Hill, Partner and Head of Art and Cultural Property at Forsters. Catherine is a recognised legal expert in advising living artists with their estate and legacy planning. Most recently she co-launched Artistate, an innovative professional services platform providing artists and their estates with integrated legal, tax and financial advice.

For more details of this collaboration, please contact our Art Group or visit https://www.forsters.co.uk/art.

Catherine Hill co-launches Artistate

• 27 September 2021
• News

Forsters’ Head of Art and Cultural Property and Private Client Partner, Catherine Hill, co-launches Artistate, an innovative professional services platform for artists to plan and protect their artistic legacy and estate.

Catherine has cofounded Artistate with a group of specialist professional advisors in the art industry, with the aim of providing artists and their estates with integrated legal, tax and financial advice that addresses their wide range of needs.

Through the team’s panel of professional experts, Artistate provide a range of services for artists in order to maximise the value of their art and, in the long-term, build an enduring legacy. Services include:

• Writing a Will
• Documenting relationships with galleries and museums
• Employing studio assistants and managers
• Tax advice and support
• Creating a corporate structure around a body of works
• Creating and managing an artist’s archive
• Managing intellectual property rights
• Collecting royalties

How does Artistate work?

The service offers an initial consultation to artists and their representative(s) to review the artist or estate’s circumstances; the Artistate experts then provide their recommended action points for the artist or the estate to consider. Once the artist or estate has selected the advice they require, the relevant Artistate advisor will provide a fee estimate and provide the services directly to the client.

Who are the Artistate experts?

Catherine Hill: Forsters’ Private Client partner, Catherine has many years’ experience acting for living artists and their families, including several leading contemporary figures, on legacy, succession and taxation issues. Catherine also advises collectors, galleries and museums. She has lectured at the Royal Academy on Legacy Planning and on art law matters generally and is a member of PAIAM (Professional Advisers to the International Arts Market) and the Heritage Lawyers Group. She acts as trustee and executor for many of her artist clients.

Keith Graham: an experienced Chartered Accountant, advises individuals and businesses on Tax (both UK and International) and general financial matters, as well as providing accounting and audit services.

John Martin: the gallery director of John Martin Gallery which he opened in 1992. He was the founder of Cromwell Place in South Kensington and co-founder and fair director of Art Dubai (2007-9).

Pierre Valentin: founding partner of Constantine Cannon LLP (London) where he heads their art and cultural property law team. Prior to joining Constantine Cannon, he was a Senior Director and Associate General Counsel at Sotheby’s.

Catherine Hill comments: “Our research shows that many artists never get round to writing a Will. To die leaving a studio full of art and archives without proper planning will not do any good to an artist’s legacy. Thankfully, artists and studio managers increasingly realize how important it is to define and establish an artistic estate whilst the artist is alive. That’s when ARTISTATE comes into its own.”

If you wish to find out more or to arrange an initial consultation, please do visit the Artistate website or get in touch with Catherine.

Image courtesy of Walter Finch

Anti-Money Laundering Rules: Impact on the Art Market

• 5 October 2020
• News

The EU Fifth Anti-Money Laundering Directive (5AMLD) was enacted into UK law with effect from 10 January 2020. It requires art businesses to put in place systems intended to prevent their potential use in money laundering or for various other offences (in addition to those systems already required under the Proceeds of Crime Act 2002).

The rules apply to those trading, storing or acting as intermediaries in works of art (as defined in the VAT Act 1994), where the value involved is more than €10,000 (either for a single work of art or as part of a series of transactions). This is a significant extension to the existing rules, both in terms of those that are being made subject to additional regulation and the level of compliance required.

Those affected will be expected to register with HMRC. Senior management and beneficial owners will be subject to approval as part of this process. The deadline for registration was originally 10 January 2021, but it has now been proposed that this be extended to 10 June 2021 (although the other requirements are already in force).

The penalties for non-compliance are significant and senior management may be personally liable. Breaches may incur a maximum sentence of up to two years imprisonment.

Affected businesses should have implemented systems and checks to address the new rules. This is potentially difficult for an industry that has emphasised discretion and whose clients may be unused to the level of due diligence information required.

Practical impact of 5AMLD on the art sector

Given the high values involved, the portability of works, the clandestine nature of the market, and of course the lack of regulation to date, it is not difficult to see why the art market has historically been vulnerable to money laundering. Many therefore consider this legislation to be long overdue, and view it as a belated (and welcome) application of normal regulatory standards to the art world.

1) Who is affected?

As discussed briefly above, this legislation applies to any firm or sole practitioner that “by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art” or who “is the operator of a free port when it, or any other firm or sole practitioner, by way of business stores works of art in the free port”. It therefore applies to agents, auction houses, galleries, dealers, warehouses, and any other individual or firm involved in the buying, selling or storing of art.

This wide definition, together with the low threshold of applicability (i.e. €10,000), means that the majority (if not all) of those operating in the art world have been (or will be) in some way affected by the new rules.

2) What do they need to do?

Those caught by the new regulatory framework will need to take a number of steps, including:

• Carrying out an internal risk assessment (including understanding the rationale for complex transactions, which will ultimately involve a level of judgment).
• Creating an anti-money laundering (AML) policy (which must cover a list of specified criteria and should be relevant and proportionate to the business in question).
• Carrying out client due diligence (CDD) both at the outset and on an ongoing basis (see below).
• Maintaining appropriate records in line with the above.
• Registering with HMRC.
• Training staff (with such training being appropriate to the staff in question and training records being maintained).
• Appointing a nominated officer to make reports to the National Crime Agency (there are also increased responsibilities for senior management).
• Reporting suspicious transactions.

CDD requires clients (including beneficial owners) to be identified, their identities verified with independent documents, this information documented and records kept. The source of funds and the transaction as a whole must also be understood.

For some businesses, the new rules merely formalise practices already in place (many already carry out due diligence, e.g. for provenance and title purposes). However, for others (particularly smaller entities dealing in high volumes), the measures that need to be taken are burdensome and expensive. It is worth noting in this regard that the legislation applies to businesses regardless of their size, and that the penalties for non-compliance are severe (see above).

Although regulated entities are expected to have started taking steps to comply with the new rules, they have been given a “grace period” for registration. This was initially one year, to 10 January 2021, and it appears likely that it will be extended to 10 June 2021. A spokesperson for HM Treasury said that the proposed extension is intended to “mitigate the risks of an application backlog due to Covid-19 pressures on HMRC’s and businesses’ resources”. In part, this may be an acknowledgment that the burden being placed on newly regulated entities may be heavy in some circumstances, particularly in view of the fact that for many, resources are greatly reduced due to the impact of the COVID-19 pandemic.

Collectors tend to be familiar with AML procedures (not least because they are a prerequisite to legal and other types of professional advice). Whilst for many, the new measures are probably little more than an inconvenience (in view of delays to transactions), for some, the new rules give rise to confidentiality issues and threaten to damage longstanding relationships by injecting a feeling of mistrust.

3) What other practical issues arise?

In terms of the legislation’s applicability, the term “intermediary” can be interpreted widely. For example, does this cover someone who introduces parties to a transaction but does not receive any commission?

Since regulated entities need to carry out CDD on ultimate clients, in the first instance, they need to consider who are the ultimate clients. In the context of the art world, this is not necessarily straightforward.

For example, where regulated dealers sell works via an agent, they will be required to carry out CDD on both the agent and the ultimate buyer. Agents are understandably reluctant to disclose the identities of their principal (since this risks them being sidestepped and losing their fee). The alternative is for the dealer to trust that the agents have carried out satisfactory CDD on the ultimate buyer, which is obviously not without risk: the British Art Market Federation (BAMF) guidance reminds regulated entities that, whilst they are permitted to rely on CDD carried out by other regulated entities, the party “conducting the sale retains responsibility, and is liable for any failure to comply with CDD obligations”. This therefore puts regulated agents and dealers in a difficult position.

Compliance with these rules at art fairs may be difficult on the basis of the high volume of impulse purchases and the fact that CDD generally has to be completed before transactions are finalised. Although it is possible for transactions to be agreed subject to CDD, works cannot be released until the relevant AML procedures have been completed. Whilst unfortunately most of 2020’s art fairs have fallen victim to the pandemic, these appear to be returning cautiously (Berlin Art Fair took over venues including Berlin airport and the Berghain earlier this month) and UK dealers will therefore need to turn their minds to this issue.

The widespread impact and practical issues discussed above have led some to question whether the new rules will push transactions to more favourable jurisdictions and could risk London losing its place as one of the global art market’s leading international hubs. However, given that 5AMLD applies across the EU, the UK is not alone in tightening regulation of the art market. Further, following a recent report by a US Senate Sub-committee describing the international art market as “the largest, legal unregulated industry in the United States”, many are expecting renewed pressure to be placed on Congress to pass AML legislation targeting the art sector.

4) How will the legislation be implemented?

There have been complaints about the clarity of the drafting and the lack of detailed guidance accompanying the legislation. Since the consequences of misunderstanding the rules are severe and can lead to registration being refused (in which case regulated entities will be prevented from transacting), clear rules are essential.

There is, however, an appeals process where registration has been refused. Further, the BAMF Guidance clarifies that regulated entities will be allowed to proceed with any transactions within the scope of the regulations whilst they are awaiting confirmation that their registration has been approved (provided they are meeting all their other obligations under the new rules). Although this is expressed in the context of the January 2021 deadline for registration, we can expect this to apply similarly if the proposed extension is passed into law.

It is unclear whether HMRC will show any leniency following the registration deadline to enable interpretation and other issues to be resolved. For example, will HMRC take a more sympathetic approach to small businesses for which the costs and complexity of introducing the measures are proportionately greater than for larger businesses, particularly in view of the financial impact of the pandemic?

5) What next?

It is not surprising that the art world is now subject to similar regulatory standards as other sectors. Notwithstanding this, the drastic widening of the regulatory net has not been met with universal applause.

In the short term, we hope to see more detailed guidance and (assuming registration is extended as proposed) HMRC taking a more sympathetic approach to non-compliance during the period following 10 June 2021. In the long term, it will be interesting to see how the art market reacts and whether this legislation will cause there to be a cultural shift in an industry which is notorious for its lack of transparency and regulation. The BAMF guidance notes that “[w]hile confidentiality and discretion will continue to be a feature of the art market, the changes introduced by the new regulations may in some cases result in a degree of increased transparency between art market participants.”

Given the economic downturn currently facing the UK, the Government will be considering how to balance the need to recoup the funds that have been spent as a result of the pandemic against the need to avoid over-taxation in order to encourage spending. As such, the wealth lodged in the international art market may be a politically attractive target.

If you have any art-related questions prompted by this note or otherwise, please do get in touch with the authors or your usual Forsters contact.

Robert Payne is a Senior Associate in the Private Client team, and Rebecca Welman is an Associate in the Dispute Resolution team.

Art in the time of Coronavirus: Disputes in the Art World

• 24 April 2020
• News

With one third of the global population living under lockdown, we are witnessing the dawn of a new, and hopefully temporary, normal. We are all having to adapt to significant changes to our daily lives, social interaction and the operation of our businesses.

As the virus has spread, so has the closure of galleries and museums, the cancellation of art fairs and auctions and the shutting of borders, thwarting the movement of art works and the completion of international sales. Like most (if not all) other industries, the art world is feeling the effects of the pandemic.

There are specific legal issues arising from the UK government measures designed to combat the pandemic that affect clients operating in the art world. These include matters relating to tax, employment, financing, tenancy obligations and charities, which are discussed in our articles on these topics.

In the same way, there will be (and already are) disputes that arise as a direct result of the pandemic (for example, because parties are defaulting on their contractual obligations or due to copyright issues concerning virtual exhibitions and online viewing rooms). As litigators specialising in this area, we also need to consider how pre-existing or traditional art disputes may be managed and resolved in these unusual circumstances.

Disputes arising directly as a result of the pandemic

Defaulting on contractual obligations

The cancellation of auctions, exhibitions and fairs, together with the interruption to cross-border travel and shipping, has made it very difficult, and in some circumstances impossible, for clients (and / or their contracting counterparties) to comply with contractual obligations. This is a breeding ground for disputes since people and companies will want to look to defaulting parties to recover their losses.

We do not yet have any certainty as to when lockdown in the UK is likely to end, and indeed what the “end” of lockdown will look like (and this will differ from country to country). Accordingly, clients find themselves having to balance the risk of crystallising, but hopefully reducing, their losses by terminating contracts now (if the contract in question allows them to do so), or holding off in the hope that the restrictions will be lifted or the other party will be the one to default.

Further, in circumstances where only “key workers” are encouraged (or in some countries permitted) to go to work, we are seeing the security capabilities of storage facilities, museums and galleries being heavily (and worryingly) reduced. Notwithstanding the admirable displays of altruism that are arising in response to the crisis, unfortunately, public spiritedness does not appear to be all-encompassing. On the first day after the French “self-confinement” measures came into force, thieves took advantage of the halt in the restoration of Notre-Dame and took stones from the cathedral to sell on the black market. In Holland, a Van Gogh was stolen from a museum closed because of the virus.

Theft is first and foremost a matter for the police and the criminal courts. However, where for example art is stolen from warehouses where security has been reduced as a by-product of lockdown measures, victims may want to seek recourse from the party who had agreed to store their works safely. Whether this is feasible will depend on the provisions of the contracts in place.

Under English law, the absolute nature of contractual obligations that require ongoing performance means that parties are still required to carry out those obligations regardless of the effects of the pandemic and are liable to their contractual counterparty for any failure to do so. There are, however, two exceptions to this rule: force majeure clauses in contracts and the common law doctrine of frustration.

Force Majeure Clauses

These clauses provide that where events outside the control of the contracting parties prevent the performance of contractual obligation(s), the relevant party will not be liable for its failure to comply with relevant contractual obligation(s).

The wording of the particular clause will determine whether it is applicable to Covid-19; some provisions set out the events to be covered (e.g. war or natural disasters) and particularly where these are non-exhaustive, careful scrutiny of the drafting, taking into account the governing law and the relevant circumstances (including industry and trade practices), will be required. It is worth noting that some force majeure clauses expressly exclude government measures taken in response to an event, in which case parties will need to analyse whether performance of the contractual obligations was thwarted by the virus itself or the restrictions put in place to prevent its spread.

Usually, these clauses are only triggered where performance of an obligation has been rendered impossible (not merely difficult) and the burden of showing that the clause is applicable is on the party seeking to rely on it. Practically speaking, parties will also need to consider whether and what duties of mitigation and notification apply.

Frustration

In the absence of a force majeure clause, in some circumstances, parties may be able to rely on the common law doctrine of frustration.

Parties seeking to invoke frustration will need to demonstrate that a change in circumstances has made it physically or commercially impossible to perform the contract, or that performance of the contract would be radically different under the changed circumstances.

If frustration is successfully invoked, the defaulting party will be discharged from their contractual obligations. However, case law demonstrates that the circumstances in which this doctrine will apply are extremely limited.

Given the severity of the restrictions in place and the significant and in some cases devastating impact that these are having on businesses, it appears highly likely that the UK Courts will soon be examining the applicability of both force majeure clauses and common law frustration. The individual circumstances will come into sharp focus and the outcome of such cases will therefore turn on the specific facts. Further, in view of the potential volume of such claims, the Courts may also need to bear in mind relevant policy considerations.

The counterparties against whom a force majeure clause or common law frustration is successfully invoked will no doubt want to seek compensation from their insurers. However, it may be that typical business interruption policy wording does not cover losses arising from Covid-19 on the basis that loss of income does not stem directly from physical damage. However, this will obviously depend on the precise terms of the policy. Nevertheless, looking at the aftermath of 9/11, even where policy wording provides good arguments for non-payment, in reality, it may be a political necessity for insurers to pay such claims. Indeed, recent tweets from the US President, as well as comments from the Financial Conduct Authority in the UK, indicate that the insurance sector may be under significant pressure to pay out on business interruption policies.

Shift to the virtual realm

Thanks to technological advancements combined with a new generation of buyers who grew up in the internet age, the development of an online art market was already underway. Indeed, in March 2019 the Gagosian gallery sold a painting for a record-breaking $6 million through an online viewing gallery after just three hours of its display and without the purchaser having seen the painting in person.

That said, the headline grabbing nature of this sale exemplifies that the art market’s shift to the virtual realm has thus far been limited. However, the current crisis appears to have accelerated development in this regard; as people are gradually adapting to the new normal, online sales appear to be gathering momentum. A recent online sale of 25 prints by Banksy totalled $1.38 million (i.e. approximately $70,000 over the high estimate) and Sotheby’s online sale on 3 April (which was originally planned to be a live auction at their NYC headquarters) reached a total of $3 million, with several works out-performing their estimates.

This increase in online sales will likely shape, or at least impact, the types of art-related disputes that arise in a post Covid-19 world, not least because in the UK different statutory provisions govern the terms and conditions of such sales. Therefore, we are likely to see an increase in disputes arising under the different applicable provisions and it is important that both vendors and purchasers are aware of the discrepancies. From a UK perspective, several of the rules applicable to the international art market are subject to change following the end of the Brexit transition period.

Advantages of the move online

Without downplaying the potentially devastating effect of the pandemic on some aspects of the art market (for example, several museums and galleries may find themselves unable to reopen after government restrictions are lifted), there is no doubt that the shift online could offer opportunities. For example, as we see people become more comfortable transacting in the virtual realm and the relevant technology develops further as a result, it may be that the post Covid-19 world gives rise to a more fluid and efficient art market.

Separately, it is anticipated that shifting the art market further online could eventually have a positive impact on issues concerning questions of provenance, which account for a significant portion of art-related disputes. To date, establishing a work’s provenance has required reliance on paper-based systems and the word of single authoritative bodies; transacting through online platforms (and specifically via blockchain) leaves permanent and accessible records of a work’s provenance from initial authenticity to present ownership. As such, if the art market’s transition to online sales and auctions continues to gain momentum, it may be that one of the legacies of this challenging period is a gradual change (and improvement) to how we record and establish provenance and therefore eventually to a reduction in disputes connected with authenticity.

Resolving disputes in the current climate

Enforcing liabilities and recovering losses

The restrictions put in place by the UK Government mean that the Courts are not operating normally. Alternative dispute resolution (including arbitration and mediation) has also been affected. Our commercial dispute resolution articles discussing these issues can be found here.

In relation to cases that have settled, it is worth noting that we are also likely to see an increase in defaults on contractual obligations under settlement agreements, with parties failing to comply with payment obligations as a result of cash flow difficulties resulting from the interruption or suspension of their business activities. Clients therefore need to consider how best to react, e.g. whether extensions can be agreed or security obtained.

Regulation

This global crisis is dominating the UK Government’s agenda (as well as those of Governments worldwide) and has therefore inevitably interrupted the oversight and enforcement of laws. Government bodies are therefore unlikely to be in a position to issue guidance in relation to legal and regulatory frameworks. For example, there is a backlog of queries concerning the new anti-money laundering rules that came into force in January this year following the implementation of the European Union’s fifth anti money laundering directive (“5AMLD”).

It is inevitable that the effect on the UK economy of the suspension of business activities will be significant. Governments worldwide are facing economic downturn and economists are projecting that mitigation will be a lengthy process. Following the crisis, Governments will be looking for ways to balance the requirement to service and repay debts that have arisen as a result of the crisis with that of protecting taxpayers from heavy taxation in order to encourage economic recovery. As such, among other targets, Governments may consider the scope to increase their revenue from the wealth lodged in the international art market.

The art world’s well-publicised lack of transparency has historically been regarded as a useful cloak for money launderers and tax evaders. Now that regulation is in place in the form of new compliance obligations imposed on art dealers under 5AMLD, the UK Government (and others, no doubt) are likely to focus their efforts on pursuing such avenues (whilst being careful to maintain the UK art market’s position globally).

Players in the art market must not mistake the Government’s current distraction as reflective of a lack of inclination to enforce the new rules. It is perhaps more important than ever for art dealers and others involved in the art market to review their activities and ensure that they are compliant with the new regime.

Conclusion

The impact of this unprecedented global crisis is and will be significant, with every aspect of people’s lives and businesses affected.

Nonetheless, the art market remains active (albeit in different forms), and careful attention should be paid to the new challenges and opportunities that are arising.

As the situation develops and the restrictions are modified, clients operating in the art world should ensure that they are aware of any relevant changes and take legal advice where necessary.

If you require any advice in relation to contentious, or potentially contentious, art-related issues that you or your business are facing, whether arising from the COVID-19 crisis or otherwise, please contact Rebecca Welman.

Disclaimer

The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.