Privacy has long been of utmost importance in the art world. But in the context of the recent global move towards transparency in business and finance, the art market has increasingly been the subject of criticism for its perceived opacity. A great deal of publicity has been generated by exceptional cases in which criminal investigations have been launched against people alleged to have laundered money through art transactions: take, for example, an embezzlement case being investigated by the US Department of Justice in which Christie’s appears to have been used by the Malaysian sovereign wealth fund 1MDB to purchase art worth millions of dollars.
However, most collectors, dealers and galleries wish to preserve their privacy not because their behaviour is untoward, but because individuals’ collections are personal and part of their private affairs. Sometimes collectors are compelled to sell artworks due to financial problems that they wish to keep secret; in other cases, privacy can add to the allure of artworks that have been held in an exclusive collection. Obviously, businesses operating in the art market always need to remain vigilant, and be mindful that they do not become vehicles to facilitate money laundering or any other criminal or fraudulent activity; it is only if they are vigilant from within, by keeping strict checks and balances in place and reporting anything that looks wrong, that the market may be able to maintain and preserve the level of privacy at which it often prefers to operate.
Art-related disputes between collectors and dealers, or between buyers and sellers and/or auction houses arise all the time. Such parties often find themselves the subject of court proceedings that are entirely public, and often include the details of private affairs and finances relating to the dispute. The threat of publicity can be such that parties with good claims may abandon them without recompense because they simply do not wish to go through with court proceedings.
If the dispute relates to the authenticity of an artwork, court proceedings can have disastrous implications for that work’s value: where authenticity has been called into question, however weak the arguments, any future prospective buyer is bound to hesitate, and certainly not offer the price they might have done prior to public court hearings.
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Arbitration, particularly in London (which has a well-developed arbitration jurisdiction), can provide a suitable forum for resolving art disputes in private. Importantly, at this point it is also a good way to make sure that any decision granted can be enforced in most countries around the world, irrespective of the result of Brexit negotiations – which, until there is greater clarity in the negotiations, cannot be said of cases heard in the British courts in respect of other countries in the EU.
In arbitration, disputes are resolved with binding effect by a person or persons acting in a judicial manner in private, rather than by a national court of law that would have jurisdiction unless the parties have prior agreement to exclude it. It requires a decision by the parties, at the time of making their agreement, to take any dispute outside of the court system and have it settled in private by an arbitrator jointly funded by the parties. Such an arbitrator, usually an experienced lawyer, would have the role of a judge, and their decision would be entirely binding and enforceable in most countries under the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (1958).
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Professionals in the art world increasingly prefer to put paperwork in place rather than operating, as in the past, on the basis of handshake agreements.
Link to the rest at Apollo
PG says arbitration has application to the publishing world as well.
Under a typical Big Publishing contract, if there is a dispute, it will be handled in New York City. If the author lives anywhere but the state of New York, either party can file or ask for removal to the US District Court in the Southern District of New York.
This means that a US District Judge will be in charge of trying the case. District Judges are usually well-qualified for their work, but their work is not specialized. They’ll handle criminal and civil cases, including a great many drug cases. It is unlikely that a typical Federal Judge has ever seen a publishing contract before. Since criminal cases take precedence for constitutional reasons, civil cases, such as a dispute between an author and publisher, get bumped to pretty close to the bottom of the priorities list.
The District Judge may also assign the case to a Federal Magistrate who works with the District Judge. While some magistrates are well-qualified, others are less-qualified than a typical District Judge. The magistrates are also overwhelmed with criminal cases.
Most criminal cases are settled via plea bargain or dismissal for errors on the part of law enforcement. Many civil cases are settled by the parties while awaiting trial, sometimes because one party runs out of money. Others are dismissed on pre-trial motions because of defects in pleadings, etc. Only a relatively small number of cases are typically taken to trial before a magistrate and even fewer before a District Judge.
Contested civil cases like a dispute between an author and a publisher which are not dismissed during preliminary jousting between the parties can take 2-3 years, sometimes longer, (and sometimes much, much longer) to actually reach a trial.
By comparison, arbitration is handled by an experienced attorney who is knowledgeable about the subject matter in dispute. The Arbitrator (it can also be a retired judge with similar qualifications) is typically more active during the earlier parts of the arbitration, looking for shortcuts, pressuring the parties to pare away peripheral matters, etc.
The arbitrator is chosen by the arbitration agency (often the American Arbitration Association) based upon his/her expertise and evaluations of prior arbitrations conducted by the arbitrator. However, if either party objects to a particular arbitrator due to something like potential bias, another arbitrator may be appointed.
The arbitrator is paid a fee for arbitration services. Generally speaking, each party posts 1/2 of the anticipated fee. Depending upon the terms of the underlying contract and/or arbitration agreement, the arbitrator may require that the losing party pay arbitration costs and/or attorney’s fees of the winning party. Generally speaking, it’s probably a good idea for each party to assume he/she/it will pay their own attorneys fees and half the arbitration fees.
After the arbitration is complete, each party (or their attorney) is asked to evaluate the arbitrator’s performance, including how quickly the arbitrator moved the case to conclusion. The arbitrator may or may not receive future arbitration appointments based upon the evaluations of the parties.
It is common for the arbitrator to schedule some time for the parties to discuss settlement prior to the hearing. The arbitrator may participate in these discussions to help reach a settlement. Unless the parties and their attorneys are within a relatively short distance of the arbitrator, settlement conferences are often handled by phone.
The arbitration is set for a specific time and place and is very unlikely to be postponed or rescheduled absent serious illness or some similar reason. One of the ways the arbitrator is evaluated is by how long it takes the arbitrator to move a matter to hearing and to deliver a final verdict.
If both parties agree, either in the original contract between them or otherwise, the arbitration can be confidential. By contrast, federal court records are generally open to the public for examination.
In an earlier day, before PG stopped handling litigation matters, he represented clients in both litigation and arbitration matters. The arbitrations were generally faster and the qualifications and subject matter knowledge of an arbitrator with respect to nature of the dispute were better than a typical trial judge, who is a generalist due to the wide range of cases that come into his/her court.
What about costs? Each dispute is unique in some ways, so there are no hard and fast rules. A judge-tried case is overseen by a judge who receives a salary paid by the government. As mentioned before, an arbitrator is paid by the parties. On the other hand, in both a trial and arbitration, typically the parties are each paying their own attorney. If there are a couple of years between filing a civil court case and trial, the attorneys won’t sit around doing nothing during that period and fees will mount up as discovery matters, including depositions, examination of documents and records, etc., happen.
If the losing party is unhappy with the court’s decision, he/she/it may file post-trial motions that require a response from the winning party, through the attorney. If the losing party files an appeal, the winning party has a lot more attorneys fees to look forward to.
In an arbitration of a contract dispute, an arbitrator may be able to take a matter to a final decision within a matter of a few months. Typically, arbitrator’s decisions are not subject to appeal.
In PG’s litigation experience, a drawn-out court matter is a definite drain on the emotions of both parties, to say nothing of their bank accounts. If a case is set for trial, then postponed, that’s an additional drain.
As far as cost differences between arbitration and a civil trial, it depends. If the civil trial is a drawn-out matter, arbitration is probably cheaper, even if the parties are required to pay the arbitrator. A good arbitrator is also a good and active case manager, working with the parties to resolve the case and discouraging or denying permission to either party to try to slow the case down. Since the arbitrator is already an expert in the subject of the dispute, it is not necessary for the parties to educate the arbitrator about the legal background in which the case takes place, unlike the parties would do with a judge.
As usual, PG is a lawyer, but he is not your lawyer unless you hire him to be your attorney. PG’s comments are a general discussion of the topic, so don’t take any of this as legal advice. You obtain legal advice by hiring an attorney.