One of the fundamental law-related issues in the art world in China seems to be a basic question about the role that lawyers have to play (if any!) in the field of art. For many Chinese, the principal, if not sole, role of a lawyer is as a litigator – someone who gets called in when you are embroiled in a dispute which has either already gone to court or is threatening to do so. Disputes over payments, arguments about damage to consigned art work, misunderstandings between artists and galleries – the causes of conflict are as varied in the art field as they are in any other. However, as in every other field of human endeavor, the best value a lawyer can provide is to help people avoid such disputes before they start. This is not an impossible goal – a clearly drafted, fully discussed and honestly negotiated contract, that complies with all the laws and regulations applicable to the parties, is a potent tool for avoiding lengthy, painful and expensive conflicts in the future.
One of the major obstacles, however, is rooted in one of the “special characteristics” of the art world culture the world over: people are reluctant to use written contracts, unless a transaction is particularly large (and often times not even then!), or once a transaction or deal is basically completed. Even then, contracts are often single-page memoranda that mention only a few of the many details of the arrangement, leaving much more unsaid and unrecorded. More normally, the convention in the art world is to do deals on the basis of an oral agreement, a handshake, and in reliance on the power of friendships. This is one of the most admirable aspects of the art world, and also one of the riskiest. A good adage to bear in mind is: must a contract be in writing to be enforceable under the law? No (in most, but not all, cases). Should a contract be in writing to be enforceable in practice? Yes.
Artists, gallery owners, buyers and sellers – everyone conducting any kind of business in the art world, whether full-time or as an occasional participant – should have some idea of the kind of documentation that is needed to protect him or herself down the road. Some common documents would include:
- purchase contracts
- sale contracts
- consignment agreements
- exhibition loan agreements
- contracts to receive and hold artworks
Every individual and company is likely to need to use one or more of these legal documents at one time or another, and, if you are in the art business, you will use (or should use!) some or all of these contracts many, many times.
Even secondary agreements that are not directly related to creating, buying or selling art works are important to participants in the art world:
- lease agreements for gallery or exhibition space
- shipping contracts
- warehouse or storage space agreements
- insurance contracts
-- all these activities should be documented, with each party feeling confident that the document accurately reflects the arrangements that have been made. Often the very exercise of “negotiating” the document can lead to better understanding and, ultimately, smoother cooperation in the future between the people involved.
What About "Standard" Contracts?
We all like the idea of a “standard contract,” or a “form contract.” The notion conveys efficiency, ease, substantive content that has been road-tested by others before us, and, probably most importantly, low cost! Lawyers like standard contracts as well, and we recommend using them when appropriate. (Here comes the “but” clause.) But – in actuality, it is rare that a standard form contract is appropriate – for you. No two transactions are ever truly the same, and as a result, no “standard” form will ever accurately reflect the actual transaction. Even if two separate transactions appear to be the same, the specific goals, concerns and priorities of the different individuals participating in the transactions will be different. Sometimes the players wish to obtain the best price; other times the overriding goal is to cement a long-term relationship between the two contracting parties; at other times the real aim may be to serve the interests of a third party, such as an artist, who may not be a direct party to the contract at all.
Everyone doing business in the art field deserves to have his or her specific interests served by the documents he or she uses. Over time, a gallery, artist, auction house, etc, can develop his, her or its own library of documents that constitute the basis for contracts to be signed in the future, but always to be used only after review for “fitness for the specific transaction.” Ideally, by a lawyer who knows both your individual business, the details of the specific transaction, and the current state of the laws affecting the transaction that is the subject of the contract.
Use of Contracts in Chinese Art Transactions on the Rise
The foregoing discussions notwithstanding, it appears that the use of written contracts and lawyers within the art world in China is on the rise. This is good news – and it is also bad news. It is bad news for people who do not want to go to the trouble and expense of hiring their own lawyer, but prefer to rely on the other party to the deal to handle the legal side of things, to find and hire the lawyer or draft the contract. We’ve heard tales of an artist being handed a 10-page contract by a gallery -- and just closing his eyes and signing. (We’ve also heard stories of galleries doing the same thing, so this is a widespread phenomenon.) If one party to an arrangement has a contract or a lawyer, then both parties should have a lawyer, each reviewing the contract solely for the benefit of his or her own client. It is very hard, and not good practice, for one lawyer to represent both sides of a transaction fairly and without bias, especially if only one of them is paying the legal fees!
There is no rule that says the side who proffers a written contract first gets any special advantages. Even individual players in the art world, not to mention galleries, art fair organizers, museums and other corporate entities, should be prepared to go out and hire their own legal advisor, if presented with a contract by the other side to a deal or potential deal. Even if you don’t want to draft your own contract, it’s not a bad idea to have a lawyer who can, at the very least, review the other side’s contract – on your behalf – before you sign it. Finally, remember that reviewing documents is something that lawyers routinely do, and it need not be an expensive service. If you’re thinking of using a lawyer, discuss the details of fees and billing practices right up front – you may find that protecting your legal interests is not as prohibitive as you might have thought!
CAL will continue to discuss the questions of “why, when and how to use a lawyer” in future editions. Your questions on this topic are welcome.