[MSN] art loss registry problems

[MSN]

Over the past several weeks, this discussion group has received a number of
posts about the activities of the Art Loss Register that merit serious
consideration.  These questions are broader than the operation of a
particular organization.  They raise general issues about the kind of system
that can best protect both owners and buyers of artwork.  I use ALR as an
exemplar only because it seems to be the largest such organization and the
one whose operating methods are best known.

It appears that the Art Loss Register engages in three activities:

1. It will register a description of your artwork for a small fee, whether
that artwork is still in your possession or has been stolen or otherwise
disappeared.

2. It will search its registry for a somewhat larger fee to discover whether
a work you describe is listed either in an “owned” registry or in a “stolen”
registry, and provide you with a certificate setting forth the results of
that search.

3. It will assist the owner in recovering stolen artwork for a negotiated
fee, commonly around 20% of the current fair market value of the work. 
(This is not clearly spelled out on its website, but is alleged in posts to
this list.)

First Question: Is there an ethical incompatibility between these three
functions? 
 
In function 1, ALR is the agent of the owner; in function 2, ALR is the
agent of the person requesting the search, who may be either a potential
buyer or a potential seller; in function 3, ALR is the agent of the owner,
its compensation is contingent but, if successful, it greatly dwarfs the
compensation provided by functions 1 and 2.  Is that a problem that might
distort the proper performance of function 1 or 2?

It appears that in a recent case, ALR told a person who employed it for a
search that the item searched did not appear in its registry when in fact it
did.  In one version of the facts, this helped induce the client to purchase
the item.  In another version of the facts, the client had already purchased
the item without searching the registry, and apparently only searched the
registry to assure a potential buyer that the item was not stolen.  The
result was that the artwork was retrieved from the person making the search
inquiry, causing a substantial financial loss to that person.
                          
Second question: On either version of the facts, has ALR violated either its
ethical or legal obligation to the client who hired it to search its
registry?

There was a suggestion that if the client had been someone who was a
collector or dealer known to the personnel at the Art Loss Register, ALR
would have honestly answered that the item searched was on their stolen
list.

Third question: In offering these sorts of services to the public, is it
appropriate to provide a different result depending on whether you know the
person who orders the work, and how much you know about that person?

It was also suggested on this list that substantial shareholders of ALR
include auction houses and major galleries.  Those businesses are often
involved in disputes over ownership of artwork.  It is not clear from ALR’s
website which of these entities are major shareholders, nor is it specified
what internal standards are in place to prevent these persons from
exercising undue influence over the activities of ALR when they are parties
to a dispute.

Fourth question: Is a potential conflict of interest between a person’s
status as a significant shareholder and someone who might be involved in an
ownership dispute problematic?

Real estate and personal property security filing systems work differently. 
In those systems, the person recording a document pays a small fee, the
records are open to the public, and the person searching the records pays no
fee to the recordkeeper.  With ALR, the records are not open to the public,
the person recording the artwork pays a small fee, and the person who wishes
the record searched pays about double that fee, but still a quite modest
amount.

Fifth question: Is the fact that the recordings are not open to public
inspection problematic? Is the search fee problematic?

The website states that 170,000 items are registered, and roughly 10,000 new
items are registered each year.  The website does not list how many searches
are ordered each year.

Sixth question: Is it common in the art world for museums or galleries to
register their items as they acquire them?   How common is it to register
works that have “disappeared”? Is it common to order a search before
purchasing?  

The numbers seem quite small to me compared to the collections of modest
museums, and absolutely dwarfed by the collection of any single major
museum.  Have we arrived at the point where ALR registration is common for
museums, galleries or private collectors, as recording a deed is common for
owners of real property?

It appears that ALR will issue a search certificate in two different
situations.  It will issue a search certificate to a person who is
contemplating buying an artwork as a matter of title security.  It will also
issue a search certificate to a person who is trying to sell an artwork as
part of that person’s marketing campaign.  ALR may or may not know in what
context it is issuing the certificate.  In the first case, the certificate
is designed to protect only one person.  In the second case, the certificate
may be shown, like an audit statement, to a large number of persons.
 
Seventh question:  Does this possibility of dual use raise any problems?

I have not seen the text of the contract between ALR and a person who wishes
to use its search facilities.  I have seen contracts between auction houses
and their clients, and between "authentication foundations" and their
clients, which purport to relieve the auctioneer or authenticator of
liabilities to which they would ordinarily be subject.

Eighth question:  To what extent should an enterprise providing
registration, search or recovery functions be able by contract to relieve
themselves of liability for their negligent or intentional wrongdoings, or
breaches of contract?

The members of this list have a great deal of experience in the art world. 
I hope they will share both their views and their experience on these and
related questions.

Bert

Herbert Lazerow

Visiting Professor

University of California Law School (4 Boalt Hall)

Berkeley CA 94720-7200

(510)642-2098

lazer at sandiego.edu

Professor and Director, Institute on Int'l & Comparative Law

University of San Diego

5998 Alcala Park

San Diego CA 92110-2492

(619)260-4597

fax 619-2230