Over a period of seven months, the Paris Court of Appeal has reached two different decisions over whether Christie’s France can collect from the buyer at auction an amount equal to the resale royalty, as opposed to charging the royalty to the seller. Now the dispute has been referred to the French Supreme Court, which is calling the Court of Justice of the European Union to the rescue.

In March 2013, we reported on a judgment by the Paris Court of Appeal (12 December 2012) in which the Syndicat National des Antiquaires (SNA), a trade association representing French antique dealers, succeeded in its claim that the clause in the conditions of sale of Christie’s France imposing liability on the buyer to pay (an amount equal to) the artist’s resale royalty was null and void. The clause was held to infringe Article L. 122-8 of the French Intellectual Property Code transposing the EU Artist’s Resale Right Directive, which, according to the Court, did not allow a professional intermediary such as Christie’s to shift the obligation to pay the royalty from seller to buyer. Whilst the SNA was not a party to Christie’s contract with its buyers, the SNA was allowed to bring a claim against Christie’s because, said the Court, Article L. 122-8 of the French Intellectual Property Code pursued an objective of public economic order, namely the proper functioning of the EU internal market in works of art. By shifting the burden of the resale right onto the buyer, Christie’s distorted competition within that market, thereby giving the SNA grounds to complain.

Seven months later, the same issue was considered by the same Court of Appeal, this time at the behest of the Comité Professionel des Galeries d’Art (CPGA), another trade association of French art dealers. They too were critical of Christie’s practice of charging the buyer an amount equal to the resale royalty, claiming, as the SNA had done, that such practice was anti-competitive.

In this second judgment (3 July 2013), the Paris Court of Appeal found for Christie’s. The Court re-affirmed the principle that under the EU Directive and under French law, the seller only was liable for the resale royalty. However, said the Court, French law did not prevent buyer and seller from agreeing who, between them, would pay the resale royalty.

The Court appears to have endorsed the distinction made in December 2012 between, on the one hand, the economic burden of the resale royalty, and, on the other hand, the liability to pay. The Court stated that pursuant to Article L. 122-8 of the French Intellectual Property Code, the seller was ultimately liable for the royalty, and there were no exceptions to that principle. Pursuant to that same article, the seller shared the liability to pay the royalty with the art market professional handling the sale who would deduct it from the sale price and pass it on to the artist or their heirs, before paying the balance to the seller. In effect, the art professional acted as a paying agent, with the economic burden falling on the seller. But the Court went further. Relying on an opinion by the European Commission of 22 December 2008, the Court ruled that seller and buyer could decide who, between them, would pay the royalty, if this facilitated payment to the artist or their heirs. Therefore, said the Court, the seller could contractually agree with the buyer that the latter would pay the resale royalty. The claim against Christie’s was dismissed.

Thus, Christie’s lost the first appeal, but won the second. Conflicting decisions are hardly helpful. We would suggest that, in both cases, the Court of Appeal erred, at least in part.

The first Court of Appeal focused primarily on the anti-competitive argument. The argument ran like this: the objective of the EU Directive was to harmonise the resale right within the European Union. The Directive clearly states that the seller should bear the economic burden of the resale right. There are no exceptions to that principle. The Directive has been implemented in French law exactly as required by EU law. If an exception were now introduced (by allowing Christie’s to pass the economic burden onto the buyer), the competitive landscape would be distorted as between auction houses and dealers, which would defeat the purpose of the Directive.

The first difficulty with that argument is that the Directive gave Member States more flexibility than assumed by the Court of Appeal. Recital 25 of the Directive provides that ‘the person by whom the royalty is payable should, in principle, be the seller’ (our emphasis). The Recital continues: ‘Member States should be given the option to provide for derogations from this principle in respect of liability for payment’. This option is found at Article 1(4): ‘The royalty shall be payable by the seller. Member States may provide that one of the natural or legal persons referred to in paragraph 2 other than the seller shall alone be liable or shall share liability with the seller for the payment of the royalty’. The natural or legal persons referred to in paragraph 2 are ‘sellers, buyers or intermediaries art market professionals, such as salerooms, art galleries and, in general, any dealers in works of art’ (our emphasis). Other Member States (including the UK) have taken advantage of the flexibility offered by Article 4 by providing that the buyer may be liable to pay the royalty. We would suggest that the Court of Appeal erred when asserting that the Directive did not allow Member States to provide that the buyer could be liable for the royalty. In our view, their concern that, by allowing Christie’s to charge the royalty to the buyer, they would undermine the raison d’etre of the Directive, was unwarranted. It is worth pointing out that the main objective of the EU Directive was the removal of distortions of competition amongst Member States by subjecting all qualifying transactions within the European Union to the resale right, in order to avoid the displacement of sales to countries not applying the resale right. An agreement between the parties to a transaction requiring the buyer to pay the royalty, should have no effect on inter-State competition as long as the sale is subject to resale right.

The second difficulty with the argument is that it is by no means certain that the authors of Directive ever intended that the economic burden of the resale right should rest with the seller to the exclusion of anyone else. The Directive focuses on the obligation to pay which, as Article 1(4) states, may be the seller’s only, or it may be shared with the buyer and/or professional intermediaries. The notion that the resale right was meant as a limitation placed on the seller’s ownership rights, as developed during the French parliamentary debate leading to the adoption of Article L. 122-8, may be a French notion, not an EU notion, possibly derived from earlier French legislation on the resale right.

The third difficulty with the argument is that if Christie’s were allowed to shift the burden of the resale right to the buyer, the same option would be open to other French auction houses and French dealers, thereby removing the perceived distortion of competition amongst art market operators in France.

The other argument raised by the first Court of Appeal is, we would suggest, a better one, namely that Article L. 122-8 of the French Intellectual Property Code does not allow for the resale royalty to be charged to the buyer. The Court referred to the parliamentary debate leading to the adoption of Article L. 122-8 which seems to leave in no doubt that Parliament’s intention was that the seller should bear the economic burden of the royalty. Specifically, the French Senate considered the possibility of allowing a shift of payment of the royalty to the buyer but rejected it. A Member of Parliament lamented that, unlike other Member States, France had decided that the burden of the royalty should rest only with the seller. Thus, the first Court of Appeal concluded that French law did not allow contractual provisions shifting the burden of the royalty to the buyer.

The decision of the second Court of Appeal is perhaps more problematic. The Court accepted that, under French law, the economic burden of the royalty fell on the seller, and that this principle suffered no exception. Yet the Court ruled that contractual provisions between buyer and seller, placing the obligation to pay on the buyer, were allowed in order to facilitate the payment of the royalty. In other words, the parties to a sale subject to the resale right could agree amongst them that the buyer would pay the royalty.

We suggest that there may well be a conflict between, on the one hand, asserting that, under French law, the economic burden of the resale right rests with the seller, and, on the other hand, allowing a contractual provision providing that the buyer should pay. There may be circumstances where seller and buyer agree that the seller will invoice the buyer the sale price less the amount of the resale royalty, and the buyer will in turn pay the resale royalty to the relevant collecting society. In that scenario, the buyer pays the resale royalty, but the economic burden remains with the seller. Christie’s conditions of sale sought to achieve a different objective: relieving the seller from the obligation to pay by charging the buyer, in addition to the sale price, an amount equal to the royalty, and passing it on to the collecting society. In that scenario, the buyer ends up bearing the economic burden of the royalty.

The Court’s reasoning is somewhat obscure. Relying on a non-binding opinion of the European Commission, it concluded that contractual derogations were not expressly prohibited. Without giving reasons, it then jumped to the conclusion that the sub-paragraph of Article L. 122-8 dealing with payment, was not a matter of public order. Relying on Christie’s observation that, under English law, the liability to pay the resale royalty rested on the art market professional, it inferred that as a matter of EU law, the obligation to pay could fall on other parties to the transaction. It then noted that no evidence was adduced showing that the CPGA had suffered a prejudice arising from the controversial clause in Christie’s terms of sale, and concluded that the CPGA had not standing to bring the claim.

Christie’s appealed to the France’s Supreme Court against the decision of the first Court of Appeal.
On 22 January 2014, the Supreme Court confirmed the decision of the first Court of Appeal insofar as it confirmed the right of the SNA to bring a claim against Christie’s. The objective of Article L. 122-8 was not simply to protect the right of authors but to contribute to the proper functioning of the internal market in works of art. Given that the members of the SNA compete with Christie’s, and that they claim that the controversial clause in Christie’s contract distorts competition, the SNA had the right to claim against Christie’s.

Christie’s went on to argue that nothing in the Directive or in Article L. 122-8 prohibits parties to a sale and purchase of art from deciding amongst themselves which party shall be liable to pay the resale royalty. This is purely a contractual matter which does not affect the legal liability to pay stated in Article L. 122-8 as resting on the professional intermediary acting in the transaction or, if there are two professionals involved, the seller. As Christie’s raised an issue of interpretation of the EU Directive, the French Supreme Court decided to refer to the Court of Justice of the European Union the following question: does Article 1(4) of the Directive on the resale right mean that ‘the resale royalty shall be payable by the seller’ should be interpreted as prohibiting any contractual derogation?

Given its heavy workload, the European Court of Justice is unlikely to deliver its preliminary ruling on the interpretation of the EU Directive until 2015 or even 2016. In the meantime, the resale right remains in limbo.

Pierre Valentin

Articles published on this blog reflect the opinion of the stated author of the article only. The information they contain does not constitute legal advice.