Buyers beware! …You may owe re-sale right royalties.

November 2018 is most certainly a good month for the auction house Christie’s. Last week, Christie’s recorded the highest sale for an artwork created by a living artist. ‘Portrait of An Artist (Pool with Two Figures)’ by David Hockney, sold for 90.3 million dollars, beating Jeff Koons’ ‘Balloon Dog’ (58.4 million dollars). Two weeks before the record sale, the auction house won a tortuous legal battle over which party has the burden of the re-sale right royalty, ruling in favour of the seller (Christie’s) and thereby overturning the position in place since 1920. 

At stake was the [rather fundamental] question: ‘who owes the re-sale right royalty: seller or buyer?’. This point of law had been agitating the French jurisprudence since 2012, despite a ruling of the CJEU in 2015, against which the French appeal judges subsequently resisted.

The French Supreme Court (Cour de Cassation) put an end to all suspense and resistance, stating it was perfectly legal for a contract to stipulate that the buyer bears the re-sale right royalty in the context of a sale between professionals, thereby siding with the CJEU (here). Read on for more.

Portrait of An Artist (Pool with Two Figures) by David Hockney

The dispute

The dispute began by reference to Christie’s standard terms and conditions, providing that the buyer of the artworks shall settle the resale right royalty. The ‘Syndicat National des Antiquaires’ (read -- National Union of Antique Dealers) (SNA) took issue with this clause, which they argued was a breach of the French Intellectual Property Code (IPC). Article L 122-8, paragraph 3, of the IPC reads:

The resale right is discharged by the seller. The professional involved in the sale assumes the responsibility of discharging the right and, when the transfer is arranged between two professionals, the burden of the payment rests on the seller.*

 The SNA submitted that Article L 122-8 was of ‘public order’ (‘ordre public’) and therefore it could not be waived by contract. It should be noted that Article L 122-8 of the IPC was implemented to transpose the 2001/84/CE Directive on the harmonisation of sales and re-sales of art works in the common market.

The Union’s argument was accepted by the Paris Court of Appeal in 2015, which ruled the clause to be null and void, on the ground that such a clause goes against the provision of the IPC and the aims of the 2001/84/CE Directive to “guarantee the harmonious functioning of the art market”. 

Referral to the CJEU

Christie’s then appealed the decision of the Paris Court of Appeal to the French Supreme Court (here). The Supreme Court chose to refer this question to the CJEU, which replied in a decision of the 26 February 2015 (C-41/14 – Christie’s France SNC v Syndicat national des antiquaries, see previous post here).

The question that the French Supreme Court put to the CJEU was:  

Must the rule laid down by Article 1(4) of Directive 2001/84, which makes the seller responsible for payment of the royalty, be interpreted as meaning that the seller is required definitively to bear the cost of the royalty without any derogation by agreement being possible?

In the CJEU’s words, the answer to the question is that:

Article 1(4) of Directive 2001/84 must be interpreted as not precluding the person by whom the resale royalty is payable, designated as such by national law, whether that is the seller or an art market professional involved in the transaction, from agreeing with any other person, including the buyer, that that other person will definitively bear, in whole or in part, the cost of the royalty, provided that a contractual arrangement of that kind does not affect the obligations and liability which the person by whom the royalty is payable has towards the author. (C-41/14, para 14)

In short, it does not matter who pays the re-sale right royalty, so long as it is paid.

Following the CJEU judgment, the French Supreme Court overturned the 2012 decision of the Paris Court of Appeal (see, Cour Cass, first civil chamber, 3 June 2015, 13-12.675, ECLI:FR:CCASS:2015:C100605) and referred the parties to the Court of Appeal of Versailles to proceed with the final ruling on the dispute, as is the procedure in France.

The Versailles Court of Appeal resists

French resistance.

To everyone’s surprise, in a decision dated 24 March 2017, the Versailles Court of Appeal resisted the interpretation put forward by the French Supreme Court and the CJEU. The Court of Appeal declared that the clause shifting the burden of the re-sale royalty onto the buyer remained unlawful, a second time, because it is in contradiction with the IPC [NB: the Versailles Court of Appeal awarded only 1 euro in damages to be paid to the claimant]. 

How can it be that the Versailles decision complies with the CJEU ruling?  The answer, according to the Versailles Appeal Court, is that basic EU law principles still govern. Their reasoning is as follows:

[1] Article L 122-8 transposes into national law a directive which, by definition, is only binding on EU Member States insofar as its objective is concerned. The means to achieve this goal however are for national legislators to do so as they see fit.

[2] The Re-sale Right Directive “is silent about the identity of the person who must definitively bear the cost of the re-sale right royalty”* -- a point made by the CJEU itself in  its  ruling (C-41/14, para 27).

[3] Thus, in the words of the  Versailles court, “national legislators enjoy the discretionary power to determine the person who bears the cost of the re-sale right royalty”.* The French legislator clearly exercised that right and expressed such intention in Article L 122-8, in which it “clearly assigned the burden of the re-sale right to the seller […] where there was no obligation to do so under the directive”.*

For the Versailles Court of Appeal, Article L 122-8 is an intentional decision on the part of the French government to have the burden of the re-sale right rest solely on the seller, as a way to regulate competition in the national (art) market.

“Suite et Fin” on the ‘droit de suite’ 

On 9 November 2018, the Plenary Assembly of the Supreme Court reversed this interpretation of the IPC (here). The very concise ratio decidi of the decision states that the Versailles Court of Appeal wrongly interpreted Article L 122-8 as proscribing that the burden of the re-sale right may be borne by the buyer – without any further explanation.

The submission of Advocate General Ingall-Montagnier, supported overturning the position of the Versailles Court of Appeal (here), relying on three main elements.

[1] The parliamentary debates regarding the drafting of this particular provision of the IPC are sufficiently clear to unequivocally support either decision. As such, it should not be inferred that the IPC prohibits the re-allocation of the burden of the re-sale right to the buyer.

[2] It is the aim of a rule that determines whether or not the rule has the quality of “public order” or not, and can be waived or not by contract as a result. In this case, the aim of the rule is to ensure that the author of the work is paid. No other purpose or objective is enshrined in either the Directive or the IPC. On that basis, it does not matter which party discharges the re-sale right, as long as one of them does. 

[3] The means adopted by a Member State is to achieve the goal of a directive must be justified and proportionate when it is not prescribed by the directive. In this case, the Advocate General considers that prohibiting the re-allocation of the discharge of the re-sale right to the buyer is not justified or proportionate because it creates an unnecessary bar to the freedom of contract, which is not necessary to achieve the aim of the directive.

Although the Supreme Court makes no reference to any of these arguments in its decision, presumably one or more must have carried enough weight to justify not only reversing the interpretation of the Versailles Court of Appeal but also overturning a legal principle that had been treated as good law in France for nearly 100 years.  

 * Kat’s translation