At the end of 2018, the Department for Digital, Culture, Media & Sport (DCMS) opened a consultation on the proposed changes that would introduce a legally binding mechanism into the export control process for retaining national treasures in the United Kingdom.
Before making the final decision on the matter, DCMS seeks to understand the potential beneficial and adverse impacts on individuals, businesses, public institutions, and any other interested parties. The Public Consultation closes on 24th February 2019.
The consultation can be accessed here.
Responses to these questions should be sent to nationaltreasureconsultation@culture.gov.uk by Midnight on the 24th February 2019.
Current Position:
Artworks of cultural interest which exceed the specified financial and age thresholds (see Table 2 & 3 of the UK Export Licensing for Cultural Goods guide) require an individual license to be exported from the UK. These works will be assessed by the Review Committee on the Export of Works of Art and Objects of Cultural Interest (RCEWA). The RCEWA uses the ‘Waverly criteria’ to establish whether the artworks should be considered a national treasure. Should the artworks be considered a national treasure the granting of the license will be deferred, giving the opportunity for an appropriate UK purchaser to come forward with a serious expression of interest (during the first deferral period) and subsequently, a matching offer (during the second deferral period). If funds are not raised, an export licence will usually be issued. The owner’s confirmation that they are prepared to accept an offer is currently by way of a “gentleman’s agreement” and is not, in the current system, legally binding. It is for the buyer and the owner to agree the terms of any subsequent sale, however, if the parties do not agree the sale, the export licence is usually refused.
The difficulty with the “gentleman’s agreement” is that if an institution has gone to great lengths to fundraise to acquire a particular artwork for the nation, its efforts are then wasted if the owner decides not to sell. The institution is not usually expected to return the funds to its donors or the general public and whilst they would be put towards another cause, this may understandably discourage donors who wish to see particular artworks remain in the UK.
Proposed Changes:
To avoid this situation becoming common practice, DCMS have introduced a legally binding mechanism into the export control process in the form of a legally binding Option to acquire the artwork that the owner would agree to at the second stage of the deferral period, together with a Transfer Deed which would be signed and held pending completion. Whilst the proposal seeks to offer some protection to owners, such as permitting the purchase in a different currency than GBP (subject to certain conditions), the new procedure is largely buyer friendly and is much more onerous for owners. Given that buyers of national treasures for the nation are largely institutions with vast experience and knowledge, the buyer friendly mechanism proposed in the template Option Agreement and Transfer Deed creates an unfair balance between buyer and seller.
Tipping the balance:
Some of the proposed changes that DCMS have included in the new mechanism are highlighted below:
Negotiation: Firstly, the Option Agreement and the Transfer Deed are non-negotiable. Previously, the parties would be free to negotiate the terms of purchase. Negotiation is standard practice and is very often necessary in the art world.
Condition Report: Despite the RCEWA often considering the condition of the artwork as part of their review and an owner often commissioning a condition report prior to export or sale, the new mechanism anticipates that the buyer would prepare a separate condition report. On submitting this report, the owner has only 5 days to object, otherwise it is deemed to be accepted. Whilst it is standard practice for both parties to agree the condition report, this onerous time period is highly unusual and is prejudicial to a non-expert owner who may well require specialist advice.
If the parties cannot agree on the condition report, they are then required to agree an independent third party to provide a report that will automatically become binding. However, if they cannot agree on an independent third party, the President of the Law Society of England and Wales shall make the nomination! A bizarre choice of authority and highly inappropriate for an art related matters, particularly concerning artworks of such significance.
Warranties: The Option Agreement and Transfer Deed require some warranties to be absolute and include an indemnity for such warranties. This does not reflect the nature of the art market, where parties typically qualify warranties to the best of their knowledge and belief, as often it is impossible to know enough information to make such warranties absolutely, especially for a non-expert owner. If bought at auction, the owner often only has the very little information given at that time and cannot be expected to give more than he/she was given. In the case of national treasures, the RCEWA will have studied the artwork, its condition, authenticity, provenance and history to determine if it really is a national treasure. Further, a UK institution seeking to acquire the artwork is likely to have much more knowledge and expertise as to the origin and provenance than private owners.
Fairer solutions might include the owner giving: all warranties to the best of its knowledge and belief; only those warranties it is legally required to give; or only those warranties that it had offered to a non-UK buyer (if export is for sale).
Damaged and decrease in value: In the unfortunate event the artwork has been damaged during the deferral period, the buyer may refer the matter to an independent third party to make appropriate reductions in price. This independent third party is once again to be nominated by the President of the Law Society. As noted above, giving the President of the Law Society the final say on this topic is puzzling. The RCEWA is the more suitable body to have the final say. Perhaps more concerning, the reduced price will be binding on the parties. This is prejudicial to the owner who may not wish to sell the artwork at the lower price. A fair compromise would be for either party to withdraw within a set time period but otherwise continue the sale at the reduced price.
Completion:
Solicitors: The new mechanism assumes that all owners will engage a solicitor, which is not always the case in the art world. Given the owner cannot factor legal fees into the fair market price of the artwork, this seems an onerous requirement.
Exercise Notice: Under the new mechanism, the buyer can exercise the option notice at any time during the second deferral period once it has received the funds. The mechanism gives the buyer absolute discretion as to the completion date, which shall be between 5 to 10 days from the option notice. This is simply unrealistic and not appropriate for the art world. As the export licensing process could take many months, the artwork is most likely to be in storage. The requirements to remove it from storage, organise transport (and potentially transit insurance), secure experts for condition checks and contact solicitors all within 5-10 days seems onerous, not to mention that the owner may not be immediately available. A sensible alternative would be to opt for a mutually convenient date within a reasonable timescale, such as 30 days.
Agents: The new mechanism isn’t drafted for sales through an agent, which is commonplace in the art market, with confidentiality being of the utmost importance to many owners. It is important that this is taken into account and confidentiality is preserved.
Other points to note:
Deferral period: To further protect the rights of owner, DCMS has proposed that the second deferral period should be limited to six months, except in very special circumstances. Under the current rules there is wide discretion to extend the deferral period beyond the six months.
Final thoughts:
Whilst it is difficult to disagree with the objective of the new mechanism, the mechanism proposed goes far beyond what is needed to achieve the objective and creates an imbalance between the owner and buyer, leaving the owner with disproportionate restrictions on how they can deal with their artwork. Hopefully, the results of the consultation will highlight these issues and DCMS will re-address the balance.
Fionnuala Rogers and Jonathan Hadlow