Art issues
Introduction
If your charity is the specific legatee of a work of art or the residuary beneficiary of an estate that includes a work of art, such as a valuable painting, interesting issues can arise that will need careful consideration by your team.
For example, what steps should the executors/the charity take? Who pays the cost of insurance and transport? What happens if the painting has gone missing from the deceased's home?
If your charity is able to sell an artwork received as a specific legatee or as a residuary beneficiary, what are the practical and legal considerations around that? For example, what happens if there are issues around the provenance of the painting?
Executors' duties
Sarah Aughwane's notes (which can be found at Jumping the Executor's hurdle) provide a helpful summary of an executor's duties but, by way of summary, executors' duties are defined in the Administration of Estates Act 1925 and in the Trustee Act 2000.
Executors have a duty to:
(a) Safeguard the assets of the estate (s. 1, Trustee Act 2000). This includes providing adequate security safeguards (Job v Job [1877])
(b) Pay the debts of the deceased
(c) Distribute the estate to the beneficiaries of the estate
Insurance generally
Under s.19 of The Trustee Act 1925, executors have the power to insure any property in the estate against risks of loss or damage. However, it is not clear whether there is a duty to insure chattels.
lf the executors do decide to insure chattels, they are under a statutory duty to take reasonable care in selecting insurance (Sch.1, para 5, Trustee Act 2000). Where there is a valuable chattel, the executor should check what insurance is in place and that the insured value corresponds to the current market value.
Specific legacies – who pays?
The case of Clough-Taylor, Coutts & Co v Banks and Others confirmed the principle that specific legatees should bear the costs of a number of different types of expenditure (for example, packing, transport, insurance, upkeep, care, preservation) for that specific asset.
In that case, the deceased had made a specific bequest of a chattel to the defendant. The chattel was in the deceased's house at her death but was removed by a person who claimed that the deceased had given it to him during her lifetime. He sold the item to a third party.
The defendant contended that the executor was under a duty to collect in the assets of the estate and should take action to recover the chattel gifted to him. The residuary legatees argued that the specific legatee must bear the costs of trying to recover the chattel.
Mr Justice Lloyd said there is a clear principle that specific legatees must bear the costs of a number of different types of expenditure (see above). It was clear that an executor has no duty to take anything other than normal or routine steps to collect in assets and deliver them to specific legatees. The executors are not under a duty to litigate to recover the painting in the case of a gift of that asset to a specific legatee.
Having determined that the chattel was not required for the payment of debts or expenses or any other purpose of the administration, the judge determined that the executor can vest it in the specific legatee by means of an assent. The specific legatee could then take legal action to recover the item at their own personal cost.
Missing artwork
Imagine the scenario where a valuable painting believed to have been owned by the deceased has gone missing and the Executors cannot locate it. What are some of the practical steps that could be taken by the Executors?
(a) Check records amongst the deceased's possessions: eg insurance documents, valuations, sales' invoice or auction house receipt, catalogues, photographs.
(b) Check online sales databases (such as Artnet) to establish whether that painting has been sold by auction (before or after the deceased's death).
(c) Consider asking an art historian/dealer/auction house to conduct due diligence and provenance research to establish the likely chain of possession.
(d) Search of the Art Loss Register . The ALR in its words, 'maintains the world's largest private database of stolen art, antiques and collectables'. The ALR can search its database to establish whether the artwork is listed as an artwork with third party interests in it. The Executors can also apply to the ALR to include the missing painting on the Art Loss Register in order to prevent sales by a third party and maximise chances of recovery.
(e) If it does appear that the painting has been lost / stolen then the Executor may want to advertise the loss / theft in the Antiques Trade Gazette (or other similar publications). Such publication may also act to inhibit onwards sales.
(f) Consider reporting a theft to the police.
(g) Consider making an insurance claim. Prior to doing so it will be important to consider if the painting had been insured for its current market value. Consider acquiring recovery rights from the insurer – if you do, and the painting is found, you may be able to claim it back subject to making a payment to the insurer (equal to the insurance proceeds).
(h) lf the executors are aware of the whereabouts of the painting after a re-sale and it is in England, then they can bring a civil claim in conversion for recovery (and/or damages) against the third party in possession of the painting. Under English law, broadly speaking, title to a stolen artwork will not pass upon transfer of the painting to a third party, including innocent third parties buying in good faith, (but there are exceptions to that principle). However, if the painting was acquired from the thief in good faith, the innocent purchaser will be protected from a claim in conversion after a period of six years from the date of the good faith acquisition . As covered above, executors are not under a duty to litigate to recover the painting in the case of a specific legatee. However, the cause of action can be assigned to the specific legatee.
Executors will not be liable for any loss of property that arose prior to the administration of the estate, but are potentially liable for loss of the painting during administration as a breach of duty/professional negligence.
Executors will not be liable for any loss of property that arose prior to the administration of the estate, but are potentially liable for loss of the painting during administration as a breach of duty/professional negligence.
Beneficiaries have a right of action known as 'devastavit' for breaches of duty arising out of the executor's maladministration and misappropriation of the estate's assets. The standard of care required of executors in the performance of duties is 'reasonable' S.1 Trustee Act 2000 and is judged in relation to the knowledge of the executor or to the standards of profession or business
Issues around Selling Art - How to sell art to its best advantage?
Assuming the charity can sell and wishes to sell, how can you sell the artwork to its best advantage?
Who can help you to sell a valuable work of art?
You can sell privately through an art dealer (who may or may not have a gallery) or through an auction house (both of which we will refer to here as a 'selling agent').
An appropriate selling agent would be a reputable dealer or auction house with an existing track record of buying and selling the type of artwork you are trying to sell.
An appropriate selling agent would be a reputable dealer or auction house with an existing track record of buying and selling the type of artwork you are trying to sell. Someone without experience in the particular field is more likely involve others in the sales process (often meaning profits and confidential information leak along the sales chain). In any event, in order to prevent such leakage, it is recommended you enter into confidentiality agreements and also a well drafted agency or consignment agreement with any selling agent.
The art market can be riddled with conflicts of interest. In the absence of a trusted friend in the art market to help guide you to the most appropriate selling agent, there are certain art advisers who style themselves as independent and able to act with impartiality. They market their services of going out to each of the main auction houses (and/or perhaps other recommended selling agents) to obtain competing quotes on your behalf. We would recommend checking their terms and conditions carefully and obtaining references, in addition to entering into a confidentiality agreement with them.
How should the artwork be sold
Selling agents (whether dealers or auction houses) will have a view as to what is likely to obtain the best price for your particular work of art (although thought should of course be given to the other factors that might be informing their views). Of course, well marketed auction sales create competition and therefore potentially the highest price, but they also risk the artwork failing to sell and therefore having its value tainted (unless a guarantee agreement can be negotiated with the auction house). On the other hand, if there is a known collector in the space and the selling agent can negotiate a good private treaty sale quickly and discretely (without having to wait for the right time in the auction calendar, and without the risks of publicly failing to sell) then that may also be preferable.
We would advise that you take legal advice on the negotiation and drafting of consignment and guarantee arrangements for auction sales (including negotiating deals to take a cut of the buyer's premium). Additionally, we would also advise that you take advice on the negotiation and drafting of consignment agreements for a private sale arrangement (within which we would recommend the inclusion of a profit share arrangement over and above a minimum net return to the seller).
When and where should the artwork be sold
Your independent art adviser and/or the selling agent will likely have strong views on this. If you decide to sell by auction, much will depend on the auction calendar and the jurisdictions in which those collectors who are likely to be interested in your artwork are located. You may also be advised to wait to sell the work (because, for example, prices are rising steadily or because the market is currently flooded with similar works).
If your work is being marketed internationally, consider issues around the potential for damage in transit, the costs of marketing, the costs of packing, shipping and insuring for that journey. You should attempt to push the related costs on to the selling agent if commercially possible. Also consider the impact of any international laws, and also customs duties and any export restrictions.
Issues around Selling Art – What issues could arise in the course of the sales process?
In selling a work of art, you may come across a number of other issues:
(a) Title issues & Restitution
(b) Authenticity
(c) Other unexpected issues on sale
Family fall-out
The art world is no exception to family fall-outs. While the recent case of Hilden Developments Ltd v (1) Phillips Auctioneers Ltd (2) Robert Tibbles did not concern a probate dispute, it is still an interesting example of a family dispute. It concerned litigation around the ownership of a Damien Hirst painting, 'Beautiful tropical, jungle painting (with pink snot)'.
Robert Tibbles bought the painting in 1999 for £68,000, paying in two instalments. The painting hung on Robert's wall for 20 years and he insured it.
In 2014, family relations broke down and "litigation warfare" ensued with Robert's father, Nigel, and brother, Sebastian, making multiple claims. In 2020, Robert sold the Hirst for £350,000. Nigel and Sebastian sued claiming that Nigel had loaned some of the funds to purchase the painting. There were two invoices issued to two BVI companies controlled by the father/brother (the family had frequently used offshore companies to purchase assets in the context of a gallery run by the family) for the painting.
The court found that Robert was the ultimate source of the payments and had always held full title to the painting. Nigel had 'no interest in abstract or contemporary art' and 'no real memory of the details relating to the purchase'. Sebastian 'had no direct knowledge about the purchase of the painting'. The Court went on to award a non-party costs order against Sebastian personally as the 'real party to the litigation'.
Conclusion
Much like the idiosyncratic artworld itself, sometimes there can be surprises when dealing with fine art.
Where your charity is left a piece of work it will be important to take professional advice in order to maximise its potential.
Key contacts
Sarah Barker
Partner | Head of art law | London
Alice Tomlin
Knowledge Lawyer | London