Art Law Report

New Court of Arbitration for Art to Launch in June, Offers Exciting Opportunity for the Art Market

Posted by Nicholas O'Donnell on May 17, 2018 at 11:41 AM

 The recent announcement of the launch of the Court of Arbitration for Art (CAA) is exciting and intriguing news.  There is nothing peculiar to the art market or the art world about the existence of disputes—any businessperson in a wide variety of industries can testify to that.  But what is promising about this initiative is the opportunity it presents to streamline an important segment of art world disputes, and in so doing to create a larger body of legal guidance that will in itself be useful in and outside of formal controversies.  It does not supplant civil litigation in courts, nor does it make any pretense of doing so.  It could, however, become an important complement.  Critical will be enough buy-in from lawyers in particular to become willing to recommend its inclusion in contracts, for example.  I would certainly include myself in that group, depending on the specific circumstances. 

There is little question that the commercial art market in particular is a vessel onto which observers project their perspective; depending on whom you ask it is either a nefarious, opaque, and unregulated morass; or it is a discreet method of assembling taste and wealth; or something else.  With these assumptions come expectations about who can, and cannot be trusted.

It is beyond dispute at least that even though the art market has important hubs—New York, London, Geneva, and others—it involves actors from dozens of different countries.   This necessarily raises the question of where any potential dispute may be resolved.  As lawyers in the field know, it is often a struggle to convince parties to an art transaction to put their expectations in writing.  In multi-jurisdictional contracts this is usually addressed in what are called choice of law and choice of forum clauses.  A choice of law clause could say, for example, that a contract between a New York collector and a German auction house will be interpreted under New York law.  A choice of forum clause dictates where an unhappy party would go to court.  So the same contract could stipulate that the dispute be resolved in the courts of New York, or Munich, or a place of the parties’ choosing.  This creates something of a zero-sum problem; the idea of going to a foreign court system can be understandably very daunting. 

Even before the CAA, many agreements include mandatory arbitration provisions.  In the execution, however, speaking as a litigator, these provisions were often more about imposing secrecy and inconvenience to discourage one side from enforcing its rights.  So again, for example, one often sees provisions compelling “confidential arbitration in Geneva,” but without selecting which law applies, or how the arbitrator would be selected.  I would never tolerate a clause that vague, but I share concern among many practitioners about selecting the larger ADR providers like the AAA or JAMS because of a concern about specific subject matter expertise.  In all candor, I typically negotiate for a New York choice of law/choice of forum because I expect I’ll be able to get a smart judge and a developed body of sophisticated law.  In either event, it is important to understand that an arbitration decision will be enforceable as a court judgment absent rare circumstances mostly involving self-interested conduct by the arbitrator, not simply that the arbitrator was wrong or incompetent (just ask Tom Brady). 

But that is far from perfect too, as it may seem surprising to hear from a litigator.  Civil litigation can be a big mouthful to chew, and take on a momentum of its own that can be hard to contain. 

The CAA aims to fill that gap, and in my view has been expertly conceived to do so.  The genesis of the CAA is the Authentication in Art (AiA) group, which has been gathering in the Hague for several years to discuss authentication-related issues, certainly one of the biggest recurring issues in the art world.  After the 2016 AiA Congress, a working group formed to pursue what was initially conceived of as an authentication-focused idea.  The CAA expands on that to an art alternative dispute resolution forum of general applicability. 

Potential arbitrators will soon be able to submit applications, and the CAA/NAI will select them for experience and expertise.  The default location for the proceedings is the Hague, but the parties can agree among themselves to a different arrangement.  The actual proceedings will be under the auspices of the Netherlands Arbitration Institute (NAI).  The arbitrators’ decisions will be reasoned (i.e., a written explanation rather than simply win or lose), and they will be public.  This latter function is intended to create a developing body of decisions as guidance.  Unlike court, however, the fact of the dispute will not be public until a decision is reached.  To illustrate: if my client is sued in New York and the plaintiff makes dramatic accusations, that will be public and cannot be unsaid.  My client may yet prevail, and would have the decision to defend itself.  But if, as is often he case, the matter settles, the only public documents are the more strident ones that opened the case.  Here it would be the reverse; no one would know of the dispute until the arbitrator had rendered a reasoned decision.

In the field of restitution or title disputes, the rules of procedure have a specific provision to permit the defense of laches, regardless of the statute of limitations.  The former is a defense that the plaintiff was inattentive in pursuing its rights, even if the claim is not too late under the statute of limitations.  This is an important exception after the Holocaust Expropriated Art Recovery (HEAR) Act of 2016’s extension the statute of limitations of Nazi-looted art claims.  The HEAR Act’s effect on laches is still a matter of some dispute, but in the CAA, anyway, laches would be available. 

Like all arbitration, it is a high stakes risk; there is no right of appeal.  Arbitrators, like judges, are human and not perfect.  But like all compromises, the idea seems sensibly to be to persuade different stakeholders to participate.  Consider the area of looted art.  While sovereign defendants have shown little appetite for ADR since Austria agreed to arbitrate the Maria Altmann case and lost, the laches/statute of limitations balance might persuade them to consider it.  Likewise private collectors who are sympathetic to the issue but may have unwittingly bought a work of art with a cloud on its title.  The claimant may have more risk, but will find the answer sooner and at far lower cost, making it less of an all-or-nothing prospect. 

As noted at the top, this endeavor will succeed or not depending on whether practitioners buy in.  That does not mean, by the way, that it has to become the default option of the major auction houses.  Clearly their participation would add great prestige.  I have heard, and I usually dismiss, concerns that the mere fact of arbitration involves some inherent advantage for one side or another.  But none of the auction houses are in any rush to default to this idea, so if and when it becomes more common it can be judge on its own.  My level of concern on this point is low, for what it is worth.

For anyone interested in learning more, it doubtless be discussed at length at the Authentication in Art Congress this year, June 7-9 in the Hague.  Regrettably I cannot attend but the program as always is packed with luminaries. 

Lastly, credit is due to William Charron of Pryor Cashman LLP, and the working group of Megan Noh (Cahill Cossu & Robinson LLP), Judith Prowda of (Sotheby’s Institute of Art and Stropheus), and Luke Nikas (Quinn Emanuel Urquart & Sullivan LLP).  This formidable assemblage of practitioners  in the art law field crafted the rules of procedure now available and poured into it what I can only imagine were dozens if not dozens of hours of their valuable time. 

Topics: Stropheus, Judith Prowda, Sotheby’s Institute of Art, London, AAA, Geneva, Pryor Cashman LLP, Tom Brady, Megan Noh, New York, HEAR Act, CAA, Authentication in Art, Arbitration, JAMS, The Hague, NAI, Holocaust Expropriated Art Recovery Act of 2016, Quinn Emanuel Urquart & Sullivan LLP, Court of Arbitration for Art, Netherlands Arbitration Institute, William Charron, Cahill Cossu & Robinson LLP, Luke Nikas

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