Over the past decade, the demand for fine art has skyrocketed. Global art sales reached an unprecedented high of more than $12 billion in 2013 and are up by almost $1.5 billion from 2012. The growing consumer base in China, Russia and the Middle East, as well as the overall growth in global wealth, has helped fuel the art market. Online sales have also contributed to this rise in sales by giving people wider access to auctions.
One thing driving the increasing demand is the perception that art is a lucrative investment, immune to the risks of things like stocks. It is certainly true that art can be wildly profitable, and the art market—despite dips in the 1970s and the 1990s—weathered the most recent recession remarkably well. But buyers should be aware of the risks, including the possibility that they will buy forgeries. As the value of authentic items increases, there’s a greater incentive for con artists to sell high-quality fakes.
Although forgeries have existed in the art world for centuries, they have become more common and more sophisticated. Even the most revered experts have been taken in by good imitations and become victims of the biggest scams in history. The forgers (and the dealers who cast a blind eye) have made hundreds of millions of dollars selling and reselling fakes.
Minimizing The Risk
A buyer can only do so much to avoid purchasing a bogus work. A low sale price is one red flag. But the art market is currently structured so that buyers lack important information about the prices at the time of sale. Since many art deals are shrouded in secrecy and occur in private, buyers cannot use price to assess a work’s value—and certainly not its authenticity. Even if the price is set at public auction, it doesn’t always reflect the work’s true value because many sellers employ bidders to artificially drive up prices.
Even if you hire experts to make sure a work is genuine, they cannot always identify a skillful copy. It’s also hard to find a disinterested third party. Many experts are reluctant to become embroiled in litigation should they make a bad call. Other experts are biased—if they plan to do more work for the seller, for instance, they are more likely to say a work is good.
In a perfect world, a buyer would only buy from reputable sellers, get written assurances from the sellers that a work is real and hire a neutral expert qualified to assess it. The savvy buyer would also purchase an insurance policy that covers art forgeries and take steps to document who has had custody of the work. Buyers should also check the Art Loss Register to make sure the work they want to buy was not stolen.
But even these steps aren’t enough to keep some fakes from slipping past a buyer. When most people buy artworks, they are not likely anticipating future litigation. They may feel that the seller is reputable and trustworthy (and sellers can be very persuasive when making assertions about something’s value). Sometimes, the price of the art doesn’t justify the cost of hiring an expert.
A Buyer’s Legal Options
So what options do buyers have if they learn they have fakes—perhaps years later?
Sometimes, they may have viable legal claims against the sellers. But getting past procedural barriers to trial and getting to the merits of a claim can be difficult. The statute of limitations may prevent claims from reaching a trial if the forgery is discovered many years after the original sale. Sometimes, judges will ask for proof that the piece the buyer is disputing is the same as the one he or she purchased. (The judges may be skeptical of art disputes in general, looking at them as quibbles between the very wealthy.)
But depending on the facts of the case, these problems can be overcome, and it may be possible to bring a claim against a seller even years after the sale occurred. The buyer could argue, for instance, that the seller continued to represent the work as genuine long after the sale—and the statute of limitations should run from the point of the buyer’s last contact with the seller.
A buyer in certain circumstances could seek civil damages for a breach of contract, for a breach of an express or implied warranty, for a breach of fiduciary duty or even for fraud. Each of these inquiries would focus on the context of the sale as well as the behavior of both parties before and after. A court would be more inclined to find in favor of the buyer if the seller made credible promises and reassurances that the work was authentic. The court would be less inclined to side with a sophisticated buyer who failed to investigate the work at the time of sale and make sure it was real.
Settling Out Of Court
Some fine art buyers have a distaste for litigation and fail to pursue viable claims against sellers, either because they are too embarrassed or because they don’t understand their rights. Buyers also fear losing access to other sellers if they sue—and thus losing status as art investors. If the buyer is also a seller, other buyers may question his judgment, since a lawsuit is an admission he was duped.
Furthermore, drawn-out litigation can be costly.
On the other hand, disputes can be resolved quickly and never go to court. Instead, a buyer can negotiate with the seller and come to a mutually agreeable settlement.
Given the delicacy of the situation, a seller would be remiss not to at least consider that route, because even unsuccessful claims can harm sellers’ reputations—often the most important asset they have. Defending a weak claim might not be worth the expense.
In order to increase his or her bargaining position in these negotiations, the buyer should discuss with legal counsel the remedies available, the required evidence and the laws of the jurisdiction in question.
Patrick Eoghan Murray and Edward Alan Woods are an associate and partner, respectively, in the Los Angeles office of Akin Gump Strauss Hauer
& Feld LLP. Murray focuses on civil litigation and Wood focuses on complex commercial litigation and entertainment.
