French Court rules that the resale right must be borne by the seller.

In December 2012, the French Court of Appeal held that where the resale royalty is due in France on the sale of an original artwork, the economic burden of the right falls upon the seller. A contractual term purporting to displace the economic burden onto the buyer is void.

The decision declared null and void a clause in the general terms and conditions of Christie’s France that sought to shift the economic burden of the royalty from seller to buyer. The offending clause was challenged following its introduction by Christie’s in the conditions of sale of the collection of Yves Saint Laurent and Pierre Berge, and the clause had then featured in the terms of sale of subsequent Christie’s auctions. This prompted the French Association of Antique Dealers to take action against the auction house. The association alleged that under French law, Christie’s could not require the buyer to pay the royalty rather than deduct it from the hammer price paid to the seller. The association’s principal argument was that by shifting the economic burden from seller to buyer, Christie’s behaved anti-competitively: a seller selling at auction at Christie’s in France would receive the hammer price without deduction of the resale royalty (paid by the buyer at auction), whereas the same seller selling through a dealer member of the association would receive the price less the resale royalty, because dealers charged the resale royalty to the seller in accordance (so the argument ran) with French law. This situation, alleged the association, worked to the advantage of Christie’s because it made a sale by auction more attractive to sellers than a sale through a dealer.

Preamble 25 to the Resale Right Directive 2001/84/EC of 27 September 2001 (the Directive) states that “the person by whom the royalty is payable should, in principle, be the seller.” However, this is just the “principle”, as the preamble then states that “Member States should be given the option to provide for derogations from this principle in respect of liability for payment.” Article 1(4) of the Directive provides that “the royalty shall be payable by the seller”, but the Member States can provide in their national legislation that a person other than the seller is liable to pay or share liability with the seller for payment of the royalty.

In France, the Directive was implemented by Law 2006-961 of 1 August 2006. Article L. 122-8 of the Intellectual Property Code (Book 1, Vol. II) now provides that “the seller is liable for the resale right”. It goes on to provide that “the responsibility for payment of the royalty falls on the professional intermediary acting in the sale, and if the sale is between two professionals, on the seller”.

The Court of Appeal rejected Christie’s claim that nothing in French law prevented the parties to a transaction (in this case, the seller, the buyer and the auction house) from agreeing contractually that the buyer would pay the royalty to the auction house who in turn, would pay the royalty to the artist or the artist’s estate on behalf of the seller. First, the Court found that the French Parliament had considered whether liability for the resale right might be contractually assigned to the buyer by the parties to a transaction, and rejected it. Secondly, the Court ruled that if Christie’s argument prevailed, competition between auction houses and art dealers would be distorted. The Directive was adopted to prevent distortions of competition between the Member States levying the resale right on the one hand, and Member States that did not levy it on the other. The Court was not prepared to sanction a contractual derogation to the principle enshrined in French law that the seller is liable for the resale right as such derogation would create a new distortion of competition, this time between French auction houses and French art dealers. For these reasons, the Court found the clause in Christie’s contract null and void – there was no scope in French law for shifting the economic burden of the resale right from seller to buyer.

In the UK, the Directive was implemented by the Artist’s Resale Right Regulations 2006 (as amended by Statutory Instrument No.2873 of 2011) (the Regulations). Under Article 13 (1), the seller and “the relevant person” (as defined in the Regulations) are jointly and severally liable for payment of the royalty. The Regulations define a “relevant person” as someone who is acting in the course of a business and who is either (i) the agent of the seller; (ii) if there is no agent of the seller, the agent of the buyer; or (iii) if there are no agents, the buyer. Whether such liability to pay can be contractually displaced is undecided.

Interestingly, the French Court of Appeal took the view (as indeed had the French Senate) that the Directive did not permit Member States to allow parties to a transaction to shift the economic burden of the resale right from the seller to the buyer. It seems that the Court of Appeal and the French Parliament distinguished between, on the one hand, the person liable to pay the resale royalty (the professional intermediary), and on the other, the person ultimately carrying the economic burden of the resale right (the seller). The view was taken in France that the Directive placed the economic burden of the resale right squarely on the seller. Arguably, this is the proper construction of the French text of Article 1(4) of the Directive (“The resale right is borne by the seller”). The English text of Article 1(4) places the emphasis on the obligation to pay (“The royalty shall be payable by the seller”). This may explain why the UK Regulations deal only with the liability to pay, not the economic burden, whilst in France, a distinction is made between the two, with the economic burden being placed on the seller and the liability to pay resting on professional intermediaries./

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