News:

A new arbitration court, to be seated in The Hague and approved by the Netherlands Arbitration Institute, will focus on art-related disputes which have traditionally been at odds with the court litigation process.

Following the efforts of a working group comprising practitioners with specialist know-how on art-related disputes, a new court known as the Court of Arbitration for Art (CAA) has been formed.

The CAA is seated in The Hague and will focus on commercial and private disputes, such as forgery, authenticity and transactions, with its rules having come into effect on 30 April 2018, and its awards being enforceable under the New York Convention.

Working group member William Charron, who is co-chair of the art law practice Pryor Cashman and an advisory board member of Authentication in Art, said in a statement:

“The idea behind the CAA was to ‘flatten the learning curve’ in these cases by having experienced art lawyers be the deciders. Practitioners should be better equipped to understand and more properly weigh the evidence in a manner that the market will accept.”

He added: “The same principle applies to all manners of commercial art claims, from arguments about chain of title to disagreements about contract entitlements to disputes over copyrights.”

CREATING THE BLUEPRINT

In addition to Charron, the working group also included Luke Nikas, who joined Quinn Emanuel Urquhart & Sullivan late last year, Megan Noh, a partner at Cahill Cossu Noh & Robinson, and renowned art lawyer Judith Prowda;all of whom are New York-based.

Nikas, a well-known figure in the art world, having previously defended former Knoedler Gallery director Ann Freedman in a highly publicised lawsuit over a forged Rothko painting, tells CDR that when looking at the framework for the specialised court, the working group set out to balance the principle factors in the art world and how those principles would translate into certain issues, such as whether the experts would be retained by the arbitral panel or by the parties, as they are in traditional arbitration and litigation.

Questions arose around where experts would be sourced, how experts would be managed and how the discovery process would be overseen.

“Ultimately, creating a court like this, you need to balance two big principles: decisional accuracy, because you want to get the right outcome and market legitimacy, because you need to ensure parties feel like they are a part of the process, that they have had the opportunity to get all of their arguments and facts on the table before decision,” Nikas explains.

UNSUITABLE FOR LITIGATION

Where disputes between dealers, auction houses, collectors, sellers, museums and even states have ended in court litigation, courts in different jurisdictions will often have conflicting views on points of law because those disputes are primarily international in nature, meaning that judgments can fail to make their mark as the definitive ‘word’ on the matter in the art world, which is sceptical of the ability of courts to resolve those disputes.

Moreover, in the United States, the Court of Appeal’s inability to deal with certain art-related issues, such as a plaintiff seeking a finding of fact in an authentication dispute, came to light in Joel Thome v The Calder Foundation (2009) where it held: “[D]eterminations of the authenticity of art work are complex and highly subjective assertions of fact. As such, disputes concerning authenticity are particularly ill-suited to resolution by declaratory judgment. The law cannot give an art owner a clear legal right to a declaration of authenticity when such a declaration by definition will not be definitive.”

It added: “[B]ecause of the procedures and processes by which our civil litigation is decided, courts are not equipped to deliver a meaningful declaration of authenticity. For such a pronouncement to have any validity in the marketplace or the art world, it would have to be supported by the level of justification sufficient to support a pronouncement by a recognised art expert with credentials in the relevant specialty.”

When judgments have been handed down, Nikas says the market has sometimes rejected those decisions:

“It comes back to the burden of proof; are you going to buy a USD 20 million painting on the basis a court found to a 51% degree of certainty that it’s authentic? Particularly when you are not confident the court system had all the right and neutral experts involved,” he explains.

ENTER ARBITRATION

A question lies around whether an arbitral panel, and the experts it puts forward, will be any better equipped to fill the gaps where court litigation has failed.

Here, Nikas says the CAA has written into the rules several provisions to serve the overarching goal of getting it right.

The arbitral panel itself will be drawn from a pre-approved group of lawyers with significant expertise in art-related disputes, whereas judges are generalists in court litigation.

Parties will not appoint their own arbitrator; instead, in disputes valued over EUR 500,000, the tribunal will consist of three arbitrators which will have been chosen from a pool of potential arbitrators by an administrator of the process. Parties will have the option to reject the panel selection within a certain time period. For disputes under that value a sole arbitrator will be appointed.

On the expert side, where in litigation party-appointed experts can often conflict with one another, objectivity can come into question; at CAA, experts will be assigned by the court and will only be responsive to the panel to ensure neutrality and the parties will pay equal costs.

Additionally, Nikas says it was important to appoint a person to provide oversight of the expert discovery process – “a second set of eyes”.

“We originally called it a ‘special master’, drawn from analogous provisions in the US to oversee discovery. The CAA rules ended up calling this person a ‘technical process adviser’. Basically, it’s a person who will in certain cases, where the parties consent, oversee the expert discovery process and will discuss with the experts (alongside the parties) whether additional testing is needed.”

READ FOR BUSINESS

Traditionally, the art world has been tardy in its adoption of formal contracts.

“Art transactions have not been memorialised in contracts where people are thinking through the types of issues that most business people think through,” such as representations of warrantees, choice of seat for litigation and choice of applicable law.

With art disputes becoming more common and the value of art increasing significantly, and therefore putting a lot more at stake, Nikas says that parties have started to move toward basic contracts and have started to think about their rights if there is a dispute.

Now is the prime time to insert CAA dispute resolution clauses into contracts, he asserts: “Every single dispute that currently exists in the art world, can – and in many instances should – be resolved through the CAA. That’s from title issues, to authenticity issues and ownership issues generally. The art world has an opportunity to go to a place where the experts, the composition of the arbitration panel and the rules are as perfect as they could be to resolve their cases.”