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There are a few institutions, such as the Pro Arete investment fund, that are involved in fundraising and collective investing in art; however, leading artwork acquisitions are generally financed directly by private collectors.

Given the relatively low value of individual art pieces traded in the Czech Republic in comparison with artwork auctions taking place in leading art centres across the globe, the Czech market has not been a particular focus of international art finance providers either.

VI ARTIST RIGHTS

i Moral and resale rights

The moral and resale rights of artists in the Czech Republic are governed by the Copyright Act, as amended.5 According to the Copyright Act the authors (artists) have the following moral rights:

athe right to decide on making his or her copyrighted work public;

bthe right to claim authorship, including the right to decide whether and in what way his or her authorship is to be indicated when his or her copyrighted work is made public and further used;

cthe right to the inviolability of his or her copyrighted work; in particular, the right to grant consent to any alteration or other intervention in his or her copyrighted work, unless otherwise stipulated in the Copyright Act; and

dthe right of supervision over another person’s right to use the copyrighted work (i.e., the author’s supervision), unless its nature or its use implies otherwise, or unless it is not possible to fairly require the user to enable the author to exercise his or her right to supervision.

None of the above-mentioned rights can be waived, transferred or assigned to a third person. Furthermore, all moral rights last for the lifetime of the author, but no one may arrogate authorship of the copyrighted work after the author’s death. The copyrighted work may only be used in a way that shall not detract from its value, and the name of the author must be

indicated (unless the copyrighted work is anonymous).

With respect to the resale rights of the author, according to the relevant provision of the Copyright Act, where the original work of art (that has been transferred by its author to the ownership of another person) is subsequently sold for a purchase price of €1,500 or more, the author (or his or her heirs for the duration of the author’s economic rights) shall be entitled to royalties from any resale of the work as set out in the Annex to the Copyright Act, provided that a gallery operator, auctioneer or any other person who consistently deals in works of art takes part in the sale as a seller, purchaser or intermediary. The royalty ranges from 0.25 per cent to 4 per cent of the relevant part of the purchase price (depending on the amount), but the total amount of the royalty may not exceed €12,500.

The persons liable to pay the royalty shall be the seller and the dealer jointly and severally, who pay it to the relevant collective administrator, the Authors Copyright Protection Organisation, which is an association of authors of works of art, architecture and visual components of audiovisual works.

5 Act No. 121/2000 on copyright and related rights and on amendment to certain acts.

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The right to royalties shall not apply to the first resale if the seller obtained the original work of art directly from the author less than three years before the resale and if the purchase price of the original work, when resold, does not exceed 250,000 Czech korun.

ii Economic rights

According to the Copyright Act, the author has the below-stated economic rights. However, if more than one person participated in the creation of the copyright work, the economic rights can only be exercised jointly.

Generally, economic rights last for the lifetime of the author plus 70 years. However, there is an exception in the case of anonymous or pseudonymous copyrighted work, where the economic rights last 70 years from the time the work has been lawfully made public.

Economic rights include:

athe right to use the work by:

•reproduction;

•distribution;

•rental;

•loan;

•exhibition;

•life performance of a work;

•performance of work from fixation;

•broadcasting;

•retransmission of the broadcast; and

•performing broadcast;

bresale rights;

cthe right to remuneration in connection with the reproduction of work for personal use and for legal persons’ own use; and

dthe right to remuneration in connection with the rental of originals or copies of the work.

None of the above-mentioned economic rights can be waived, and are not transferable or subject to the execution of a decision. Furthermore, unlike moral rights, economic rights are inheritable.

VII TRUSTS, FOUNDATIONS AND ESTATES

The possibilities for the holding and administration of artworks and art collections as a specific type of asset do not substantially differ from the possibilities generally available for other types of assets. In determining a suitable method of acquiring and administering a work of art or an art collection, the decisive factor is the purpose of administration and the investor’s (current or potential owner’s) long-term plan.

i Holding and administration via a foundation, endowment fund or trust

In addition to direct ownership by a natural person and administration of property by the owner, there is the possibility of using traditional or less traditional entities that are often a safer and more effective and meaningful alternative. Suitable entities that can be set up under Czech law include a foundation, an endowment fund and a trust, all of which are regulated by the Civil Code.

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A foundation is a traditional legal entity (endowment institution). It is created to permanently serve a socially or economically beneficial purpose. The purpose of a foundation may be public benefit, if it involves support of a public good, but also charitable, if it involves support for a certain group of persons. The setting up and operation of a fund is bound by a rigid legal regulation with unambiguous rules and clear-cut limits. The law prescribes the basic structure of the foundation’s bodies (a management board, supervisory board or a supervisor) and determines the minimum amount of the principal (capital) of a foundation: 500,000 Czech korun. The legal regulation restricts the business of a foundation (which can only be its secondary activity), dealing with the assets of a foundation and the method of acquiring assets and contributions. From the practical perspective, administration of art collections via a foundation is a traditional and conservative option; major art collections are administered in this way, in particular where the owner wishes to preserve the collections and to support the development of fine arts and culture or other publicly beneficial purpose.

An endowment fund is also a traditional legal entity (endowment institution). It is more flexible than a foundation, offering the possibility of being used for a socially or economically beneficial purpose, which means that it can be used for purely private purposes that could also be achieved via business. The law regulates only the main state-related issues, all the rest is left to the settlor’s will. An endowment fund does not create any principal or capital; its assets are formed by a set of donations and contributions. Dealing with the assets of an endowment fund is easier than in a foundation. An endowment fund is frequently used for dealing with works of art and is well suited to modest investor plans or for specific private or family situations. Endowment funds are also traditionally used to support art and culture.

A trust is a new concept to Czech law (since 1 January 2014). Its legal regulation was inspired abroad, namely and most closely by the legal regulation of trusts under the law of the Canadian province of Quebec. A trust is an entity without legal personality (it is not a person) and functionally it falls within the concept of administration of the property of others. The key functional role of a trust is the trustee, who administers the property of a trust in their name on account of the trust. A trust is more flexible than a foundation; the legal regulation is very minimal, with all its internal functioning (internal organisation, control, selection of beneficiaries, dealing with the property) being governed by rules set out by the settlor in the trust deed. The property of a trust is not owned by any person, it is appropriated to the purpose of the trust. In the context of dealing with art, a trust is an ideal means of asset protection, which also allows solving complicated and unique personal situations that would be difficult to solve if the property was privately owned or if traditional entities were used.

Foundations, endowment funds and trusts are subject to general tax regulation; particularly relevant are the Income Tax Act6 and VATA. From the income tax perspective, for foundations (with some exceptions), the status of publicly beneficial taxpayer is applied, which involves the relevant tax benefits, such as application of special items reducing the tax base, subject to compliance with certain conditions. Also, the status of a family endowment institution (a foundation or an endowment fund set up to support the founder or persons close to the founder) may entail an advantageous tax regime, in particular in relation to the exemption for gratuitous income (of beneficiaries – natural persons) from a family endowment institution’s property, subject to compliance with certain conditions. Under tax law, a trust operates de facto based on a legal assumption similar to a legal entity as a taxpayer of the respective tax; for example, gratuitous income (of beneficiaries – natural persons) from

6 Act No. 586/1992.

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a trust’s property is also (income) tax-exempt in certain circumstances. The appropriation of property to a trust or a family endowment institution for income tax purposes is regarded as a contribution to a company. Family endowment institutions, as well as trusts, constitute what are called tax-neutral entities, the existence and operation of which are basically not associated with any specific tax benefits or burdens based on which these entities could become effective tools for wider tax planning.

Family endowment institutions and trusts are suitable forms of inter-generational transfer of assets (works of art and art collections). In all cases, it is possible to simultaneously set detailed rules and prevent undesired disintegration of property in inheritance proceedings; it is also possible to involve second and further generations in the implementation of the owner’s (investor’s) plan during the owner’s lifetime.

ii Holding and administration by other means

In the case of a prevailing business or commercial plan there is the possibility of using companies for holding and administration purposes (most often limited liability or joint-stock companies) pursuant to the Companies Act7 or an investment company or investment fund pursuant to the Act on investment companies and funds.8 A work of art or an art collection is then administered as part of the company’s assets or an investment portfolio.

iii Key estate planning considerations relevant to art holdings

The most crucial aspect in planning the holding and administration of art (individual works of art or art collections) is the initial situation and vision. To choose a suitable model or course of action, the following factors are decisive: (1) the owner’s or investor’s personal situation, (2) the quality, quantity, nature and value of works of art or art collections, and

(3) the owner’s or investor’s plan and objective. A personal situation determines whether planning requires active or passive involvement of the owner (investor) in a new project, whether the goal is to expand or effectively optimise an art collection or whether the reason for planning is an inter-generational transfer of assets or other involvement of third parties. The second factor involves requirements regarding the suitability of the solution chosen from the perspective of economic justification and tax implications, and the third aspect involves a timeline approach.

If art is considered a conservative investment with the potential for steady and permanent appreciation, the key aspect is the long-term goal, which means that such an investment needs to be set so that:

ait outlives the original owner (investor);

bthe art is suitably separated from the owner’s (investor’s) personal and business assets;

cit enables achieving the owner’s (investor’s) long-term goals;

dit enables efficient and continuous administration of the property;

eit enables appreciation of the property and involvement of select persons; and

fit enables the flow of revenue from the administration of the property or other benefits to select persons.

7Act No. 90/2019.

8Act No. 240/2013.

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When taking the above criteria into account, the most important steps in planning are

(1) carefully formulating the owner’s (investor, settlor or founder) plan and (2) carefully considering all legal, economic and tax implications as the plan will run simultaneously with the entity’s business operations.

In addition to these criteria, in planning the administration of art collections, tax implications (e.g., complex issues of VAT on works of art) and specific legal regulations limiting certain types of dealing with works of art also play a role. These circumstances should be kept in mind in specific cases, in particular in relation to imports and exports of artefacts; in general, however, they do not play a significant role.

VIII OUTLOOK AND CONCLUSIONS

The major obstacles in the art market in the Czech Republic are primarily the lack of commonly accepted market standards of legal documentation that both merchants and buyers can safely rely on. This is especially important as the legislation is still underdeveloped, which creates an aura of legal uncertainty that prevents the market from further developing and adopting international standards. We can expect the legislation to slowly follow such developments and market trends. This is particularly applicable to tax legislation, which also significantly impairs this emerging market.

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Chapter 14

FRANCE

Jean-François Canat, Philippe Hansen, Line-Alexa Glotin and Laure Assumpçao1

I INTRODUCTION

Before the covid-19 crisis, 2019 had marked a flourishing year for the art market in France, with auction revenue at an all-time high of €1.07 billion (including buyer’s premium).2 Most of this revenue originated from the five most important auction houses in France, namely – in rank order – Sotheby’s, Christie’s, Artcurial, Aguttes and Millon.

France ranks fourth among the major powers in the art market and is the second top-selling country, just behind the United States (with 99,000 lots sold) and ahead of the United Kingdom (70,000 lots) and China (66,000 lots) for 2019.3 The French auction house Artcurial is now the largest in Europe and ranks 11th worldwide.4 Auction sales collapsed by 80 per cent during the pandemic lockdown and auction houses are attempting to carry on by organising more and more online auction sales.

One big change that impacted the French art market in 2019 was Brexit, which has enticed prestigious international galleries, such as David Zwirner, to open – or consider opening – premises in the French capital, thus boosting total revenue in the French art market.

From a legal point of view, art law transactions are subject to the common law rules of the French Civil Code but with favourable tax rules specific to the art market. Overall, these rules are extremely protective of participants in the art market and especially buyers of artworks. An error in the attribution of an artwork can very easily void a sales contract – and may have implications for sales and value for a very long period afterwards. Misattribution of an artwork thus creates much insecurity in the sphere of art market transactions and intermediaries may incur liability if they provide an unqualified opinion without making the status of the opinion clear and it subsequently proves to be erroneous (see Section IV).

In terms of property law, French law clearly favours the bona fide purchaser over the dispossessed owner, in that it seeks to secure ownership arising from a transaction through the creation of a new title that stems from mere possession of the item (see Section III.i). Auction sales are subject to a specific body of rules with a clear trend over the past 20 years towards

1Jean-François Canat, Philippe Hansen and Line-Alexa Glotin are partners and Laure Assumpçao is a senior associate at UGGC Avocats.

2M Potard, ‘2019, année exceptionnelle pour les maisons de ventes en France’, Le Journal des Arts, 16 January 2020, www.lejournaldesarts.fr.

3Le marché de l’art en 2019, artprice.com (https://fr.artprice.com/artprice-reports/ le-marche-de-lart-en-2019).

4Le marché de l’art en 2019, artprice.com (https://fr.artprice.com/artprice-reports/ le-marche-de-lart-en-2019).

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greater liberalisation of the sector, reflecting its adaptation to the rules of the European single market (see below). Other professional art market intermediaries (such as galleries and art dealers) are not subject to specific rules but, rather, self-regulate.

II THE YEAR IN REVIEW

The year 2020 was marked in France by a vast investigation led by the Central Office for the Fight against Trafficking in Cultural Property (OCBC) into possible trafficking of antiquities looted in war zones and politically unstable areas in the Near and Middle East and sold on the French art market. Five important personalities from the French art market were arrested and questioned by the OCBC, two of whom have been indicted.5

This case takes place in a context of the ever growing concern of the French public authorities to condemn the traffic of cultural goods in relation to money laundering and the financing of terrorism. France adopted in early June 2016 a law6 creating a new specific offence criminalising intentional participation in the trafficking of cultural property from areas under terrorist control.7 New provisions were adopted concomitantly prohibiting the import of cultural goods from a state party to the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (the 1970 UNESCO Convention) against illicit trafficking in the absence of a document attesting to the legality of the import from its country of origin.8

The year 2020 has also been marked by a bill currently being examined by the French Parliament (it was adopted unanimously on 6 October 2020 by the National Assembly) for the restitution by France of 26 objects to Benin and a sword to Senegal. This bill is part of President Emmanuel Macron’s public wish, expressed in his 28 November 2017 speech in Ouagadougou, to have cultural heritage taken during colonial times restituted to African countries.9 A report, commissioned on that occasion, was published by two academics in November 2018 advising the French government on the modalities of the restitution of African cultural heritage.10

IIIART DISPUTES

iTitle in art

Each transfer of an artwork creates a new title (independent from the former title) that stems from mere possession of the artwork according to a core principle under French law, which states that possession equals title as far as movable goods are concerned.11 A reminder

5‘Trafic d’antiquités du Moyen-Orient en France: un expert en archéologie et son mari inculpés’, Le Journal des Arts, www.lejournaldesarts.fr.

6Law No. 2016-736 of 3 June 2016 strengthening the fight against organised crime, terrorism and their financing, and improving the efficiency and guarantees of criminal procedure.

7Criminal Code, Article 322-3-2.

8Heritage Code, Articles L.111-8 to L.111-12.

9Bill No. 3221 on the restitution of cultural property to the Republic of Benin and the Republic of Senegal, 16 July 2020.

10See Sarr–Savoy report commissioned by President Emmanuel Macron published on November 2018 advising the French government on the modalities of the restitution of African cultural heritage (https://bj.ambafrance.org/Telecharger-l-integralite-du-Rapport-Sarr-Savoy-sur-la-restitution-du).

11Civil Code, Article 2276.

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of one notable exception to this rule was recently provided by the French Supreme Court in a 13 February 2019 decision.12 The Court ruled that a new title could not be validly refused to the French state, even by a bona fide possessor, when the state claims the return of cultural goods that belong in the public domain (i.e., goods belonging to a public institution that are of particular interest from a historical, artistic, archaeological, scientific or technical point of view). The Court found that state interference of this kind pursued a legitimate aim insofar as the protection of the integrity of the French public domain relates to the general public interest.

Good faith is always presumed.13 A possessor is deemed to be in good faith if he or she regards himself or herself as entitled to the property, and this belief must be reasonable.

In the context of a sale, title passes from seller to buyer as soon as they have agreed on the artwork to be sold and on its sale price. This is so even if the artwork has not yet been delivered nor the price paid.14 However, buyer and seller can contractually agree to postpone the transfer of ownership until, for instance, payment or delivery of the artwork. At auction, title passes from seller to buyer at the time the auctioneer declares the lot sold to the highest bidder, although many auction houses in their conditions of sale contractually postpone the title transfer until the payment of the price by the purchaser in full and the funds cleared.

The purchaser has no formal legal duty of inquiry as to title. However, the purchaser will be considered to be in bad faith if he or she has reasons to doubt, or has been grossly negligent in assessing, the seller’s title; for example, by not conducting basic research on available databases of stolen works.

ii Nazi-looted art and cultural property

Claims to Nazi-looted art and cultural property are still governed by a 21 April 1945 ordinance15 adopted after the Second World War. The claimant in a Nazi-looted art claim must first establish the ownership of his or her ancestor over the item, and this is becoming more and more difficult with the passage of time. The claimant must also prove that his or her ancestor was wrongly dispossessed during the Nazi occupation. The wrongful dispossession may be presumed on the basis of contextual elements, such as the date of the transactions (during the Nazi occupation in France), the identities of the parties to the transaction (such as parties known to be implicated in the Nazi regime) and the conditions of the sale (if the sale was made under threat of violence, for instance). Finally, the claimant must show that he or she was unable to launch an action before 31 December 1949.

In a 1 July 2020 decision,16 the French Supreme Court upheld the first instance judges who had ordered the return of a Camille Pissaro painting, La cueillette des pois, to the heirs of a businessman wrongfully dispossessed of his artwork during the Nazi occupation in France. The Court recalled that subsequent purchasers of a property recognised as looted cannot become the legal owners, even if they purchase it in good faith.

On 30 September 2020, the Paris Court of Appeal also ordered the French state to return three André Derain paintings to the heirs of a Jewish art collector, overruling a first instance decision that had found there were ‘persistent uncertainties as to the identification

12Supreme Court, 1st Civil Chamber, 13 February 2019, No. 18-13.748.

13Civil Code, Article 2274.

14Civil Code, Article 1583.

15Ordinance No. 45-770 of 21 April 1945 on the nullity of acts of spoliation carried out by the enemy.

16Supreme Court, 1st Civil Chamber, 1 July 2020, No. 18-25.695.

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of the paintings’.17 The Paris Court of Appeal ruled to the contrary, finding that there were ‘precise, serious and concordant indications’ that the three paintings had indeed been looted and that their sale thus had to be voided pursuant to the 21 April 1945 ordinance.

iii Limitation periods

Art claims in France are subject to the general rules relating to limitation periods. The principle under French law is that the right of ownership is imprescriptible.18 In theory, the restitution claim of a dispossessed owner is thus not subject to any statute of limitations.

In practice, since French law provides that bona fide possession immediately creates a new title independent from the former,19 restitution claims are often unsuccessful despite their theoretically imprescriptible character. In a notable exception, a new title will only be created after a three-year period if the artwork has been lost or stolen.20

Neither Nazi-looted art claims nor restitution claims from public entities regarding art that belongs in the public domain are subject to any limitations in time nor may they be validly opposed on grounds of adverse possession.

iv Alternative dispute resolution

French law increasingly encourages recourse to alternative dispute resolution (ADR) methods. For instance, following the adoption of a decree on 11 December 2019,21 any claim for the resolution of a dispute (and art disputes are no exception) whose financial stake is less than €5,000 is inadmissible in court if it has not first been subject to an attempt at conciliation or mediation.

French law is also highly favourable towards arbitration. Paris is a recognised centre of arbitration, in particular as the seat of the Court of Arbitration of the International Court of Commerce.

Nevertheless, recourse to arbitration or other ADR mechanisms still appears relatively scarce in France in the context of art disputes, in particular since art professionals almost always provide for the exclusive jurisdiction of the French courts in their contracts or general terms and conditions of sale.

There are no specialist ADR organisations or institutions dealing specifically in art matters in France.

IV FAKES, FORGERIES AND AUTHENTICATION

French law is very protective of the buyer of fakes, forgeries and inauthentic pieces. There are two main remedies available, often brought in conjunction.

First, the buyer may bring an action against the seller to void the sale on the basis that his or her consent was vitiated by an error on the authenticity of the artwork. If the buyer successfully demonstrates that his or her consent was vitiated (almost exclusively after obtaining an expert report from a court-mandated expert), the contract is voided ab initio

17Paris Court of Appeal, 30 September 2020, RG No. 19/18087.

18Civil Code, Article 2227.

19Civil Code, Article 2276.

20Civil Code, Article 2276.

21Decree No. 2019-1333 of 11 December 2019 reforming civil procedure.

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(i.e., the sale is treated as never having been concluded).22 Hence the parties must be returned to the situation they were in before contracting the sale: the buyer must return the artwork to the seller and the seller must refund the price to the buyer. The action to void a sales contract is subject to a five-year limitation period, which starts to run from the discovery of the error; it is stipulated that no action on a contract may be brought once 20 years have elapsed after the date the contract was entered into.

Second, the buyer may also bring an action in contract or in tort against the professional seller, depending on the source of the rights and obligations of the latter. In the context of a contract, the seller’s liability will depend on the contract terms.

When conducting public auctions, auction houses and their experts incur joint liability

– of a tortious nature as regards the buyer with whom they have no contract – and this liability may be neither limited nor excluded23 and must be covered by professional liability insurance.

While tortious liability is normally only incurred if a fault was committed, recent case law has seemed to adopt a form of strict liability, judging that ‘the expert who asserts the authenticity of an artwork without reserve incurs liability on this mere assertion’, thus exempting the buyer from having to prove that the expert was either negligent or reckless.24 In a recent decision,25 the Supreme Court may have initiated a shift from the position taken in its previous case law requiring conduct that could be characterised as a fault, when it judged that the auctioneers in the case, in asserting the authenticity of a bronze, incurred liability. Indeed, the Court not only found that authenticity had been asserted without reservation, but also noted that the auctioneers had particular knowledge in the relevant domain of the arts and had admitted having had a doubt as to the estimate to give, which had prompted a request for a second expert opinion and that despite this doubt they still proceeded with the auction sale. The Court found that not only did the auction catalogue fail to mention any reservations as to the authenticity of the work, but also insisted on the exceptional character of the bronze and its prestigious provenance to increase the attractiveness of the disputed property to potential purchasers and to strengthen their belief in its authenticity.26

VART TRANSACTIONS

iPrivate sales and auctions

Private sales of artworks are not subject to any specific body of law and are governed by the general rules governing sale contracts under French law. The general legal warranties granted by the seller to the buyer thus apply. It should be noted that auction houses were originally forbidden to conduct private sales. The authorisation for auction houses to conduct private sales was first limited to unsold lots at auction27 and then, from 2011,28 to any consigned goods, provided that the auction house has duly informed the client of the possibility of resorting to auction.29

22Civil Code, Article 1130 et seq.

23Commercial Code, Article L.321-17.

24See, for instance, Supreme Court, 1st Civil Chamber, 7 November 1995, No. 93-11.418.

25Supreme Court, 1st Civil Chamber, 3 May 2018, No. 16-13.656.

26M Ranouil, ‘Un an de droit du marché de l’art’, CCE No. 3, March 2019, chron. 5, 2A.

27Law No. 2000-642, 10 July 2000 regulating the voluntary sale of goods at auction.

28Law No. 2011-850, 20 July 2011 of liberalisation of auction sales of goods.

29Commercial Code, Article L.321-5.

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