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Matters raised in relation to the Bill
What is an artwork?
2.1
What is art? The Resale Royalty Right for Visual Artists Bill 2008
has defined art as:
(1) An artwork is an original work of graphic or plastic art that is either:
(a) created by the artist
or artists; or
(b) produced under
authority of the artist or artists.
(2) Works of
graphic or plastic art include pictures, collages, paintings, drawings,
engravings, prints, lithographs, sculpture, tapestries, ceramics, glassware and
photographs.
2.2
The Explanatory Memorandum notes that the above is a non-exhaustive list
and may include other items such as batiks, weaving, or other form of fine art
textiles, installations, fine art jewellery, artist’s books and wood carvings.
The definition would also cover new media art forms such as digital and video
art, and expand to cover new forms of visual artistic expression as they evolve
in the future. In essence, clause 7(1) is intended to cover works of art from
which artists have limited ability to earn money by exploiting their copyright through
reproductions, public performances and broadcasts.[1]
2.3
Many people will have other views about what constitutes art. If major
difficulties do arise then the Committee would suggest that changes be made to this coverage, by
way of regulation under s.6(a) of the Legislative Instruments Act 2003
in order to reflect the contemporary nature of artwork at the time.
2.4
The Arts Law Centre proposes that clause 7 should be redrafted to
provide terms that are more familiar such as replacing ‘graphic’ and ‘plastic’
with the term ‘visual’.[2] It also recommends that
detail contained in the Explanatory Memorandum be inserted in clause 7 so as to
help clarify the extent of artwork to be covered by the Bill.[3]
2.5
Viscopy also the supports the use of the term ‘visual art’ rather than ‘graphic
and plastic art’, which it maintains is more appropriate in the Australian
context.[4]
2.6
Others have suggested that the definition of artwork should be similar
to that contained in the Copyright Act 1968 and artwork must have
artistic quality.[5]
What resales are to be subject to the royalty?
2.7
Under the current Bill, according to Viscopy, the agency that has to
administer the scheme will have considerable difficulty establishing what
secondary resales constitute a qualifying resale.[6]
2.8
Clause 11 states that the first transfer of ownership of existing
artwork at commencement will be excluded. This transfer may or may not be
commercial in nature. If it is not a commercial transaction then difficulties
are likely to arise in determining what constitutes a transfer of ownership.
Without some legal documentation to show that the artwork has been transferred
(inheritance) from one party to another it will be very difficult for the
collecting society to determine whether a commercial resale after the
commencement of the scheme will incur the royalty.
2.9
If all commercial resales were subject to the royalty after the
commencement of the scheme then this difficulty would not arise.
2.10
The Australian Commercial Galleries Association (ACGA) believes the
exclusion of private sales from the scheme may inadvertently assist
unscrupulous practices such as ‘carpet-bagging’.[7]
2.11
Others are concerned about the growing influence of the Internet and use
of such sites as eBay and Red Bubble.[8] Some have expressed
concerns about the coverage of the scheme and the extent to which it will
involve a range of other types of commercial artwork transactions.[9]
2.12
The Committee acknowledges that difficulties will arise with respect to
what resales attract a royalty under the proposed scheme. The Committee also
believes that linking only art market professionals, as defined in clause 8,
with commercial resales may inadvertently exclude other ‘commercial resale’
involving people not normally engaged in the Australian art market. Regardless
of what is to be included under the definition of a commercial resales, the
challenge for the collecting society and others will be to adequately track
these sales. Clause 8(3)(e) may need to be clarified so as not to exclude
organisations that are generally not in the business of dealing in art (eg
second-hand furniture dealer) but, nonetheless, find themselves selling artwork
as a result of a deceased estate, bankruptcy or some other specified event and
that do not come under the current definition of an art market professional. Similarly,
‘commercial’ resales through the Internet could avoid paying a royalty.
Threshold and sales price
2.13
From a practical point of view, a minimum threshold is necessary to
overcome the problem of the royalty paid being offset by the cost of
administering the scheme.
2.14
The Coalition for an Australian Resale Royalty (CARR) have recommended
that the threshold be lowered to $500. According to CARR, the lowering of the
threshold will increase the amount of royalties for visual artists. However,
from their own modelling, the amount of revenue raised under a CARR (500)
scheme compared to their CARR (1000) scheme is only marginally higher ($35.76
million compared to $35.39 million).[10]
2.15
Clause 10(1)(b) allows for future adjustments to the threshold through
regulatory instrument to reflect such factors as inflation or any key changes
to the Australian art market.
2.16
Sotheby’s said the legislation is being promoted on the basis that the
artist will benefit as a result of the rising value of their artwork.[11]
In fact, the royalty is imposed on all resales; even if the seller makes a loss.
The Italian scheme imposes the royalty on only net increase (capital gain) in
price. However, the cost of administration could rise substantially due to the
complexities of trying to assess the actual net increase in the sales price.
Some would argue that it is unfair to put an additional impost on the seller if
the sale results in a net loss.[12]
2.17
Most schemes, possibly for administrative ease, have opted to use the
actual resale price (whether higher or lower than the previous sale price) on
which to calculate the royalty.
2.18
The Committee also notes that the original scheme, as outlined in the Issues
Paper: Australian Resale Royalty Scheme for Visual Artists—Framework and
Parameters (Department of the Environment, Water, Heritage and the Arts, 2008),
suggested the royalty be calculated on the sale price net of taxes.[13]
Clause 10(2) currently states that the sale price for the purpose of
calculating the royalty includes the GST.
2.19
According to the Explanatory Memorandum, the royalty should be based on
the sale price that most closely reflects the value of the artwork. If this is
the case then the Copyright Agency Limited, the Art Law Centre of ACGA would
argue that the sales price includes buyer’s premiums as well because this price
would best reflect the full price paid by the buyer.[14]
2.20
DEWHA told the Committee that the inclusion of the GST was based on
advice from Treasury.[15]
2.21
The Committee believes that the royalty rate should be calculated on a
price that is easy to identify and is understood by all parties to the
transaction. Sales price plus 10 per cent GST should fit that description.
Treatment of existing artwork
2.22
Clause 11, the treatment of existing artwork, has been central to this
inquiry. Those who oppose the royalty scheme argue that if the scheme does go
ahead, the inclusion of clause 11 will allow the Australian art market time to
adjust. On the other hand, those who favour a royalty scheme argue that the
retention of clause 11 will seriously undermine the short-to-medium benefits,
if at all, to most visual artists.
2.23
Clause 11 excludes the first resale of existing artwork from the date of
introduction of the scheme. The Explanatory Memorandum explains:
The prospective application of the right will help protect
the property rights of people who bought artwork not knowing that a resale
royalty would be payable when they resold them.[16]
2.24
The Minister, the Hon Peter Garrett, AM MP re-affirmed this in his second
reading speech when he said:
Importantly the right will only apply to resales of artworks
that are acquired after the right comes into effect. This is to ensure that
purchasers of artworks are aware at the time they make their purchase that a
royalty may be payable to the artist if they choose to resell the work. It will
also allow the art market to adapt gradually to the new right.[17]
2.25
In all other countries where similar schemes have been introduced, the
royalty has been payable on all resales at the date of commencement.[18]
2.26
Two issues are at stake here. First, there is the issue of turnover of
artwork and, secondly, there is the issue of the constitutional question underpinning
the decision to exclude the first resale of existing artwork.
2.27
If artwork was re-sold quite frequently, then the uptake of royalty
would not be an issue because the scheme would cover all resales after only a
few years. In the Access Economics report commissioned by the Department of the
Environment, Water, Heritage and the Arts in April 2008, two, five and 10 years
between resales were used to assess the impact of the scheme on the art market.[19]
Naturally, the higher the turnover of artwork the quicker the scheme will cover
all art resales.
2.28
However, Access Economics was quick to note that:
Modelling the implications of a prospectively applied Scheme
without estimates informed by a long time series of resale data is necessarily
imprecise in nature. While the assumptions adopted here follow the typical
approach to modelling turnover in goods markets it does not necessarily follow
that these assumptions are consistent with knowledge of the operation of art
markets.[20]
2.29
The Arts Law Centre of Australia and Viscopy both maintain that the
average turnover of artwork is closer to 20 years. Therefore, it is likely to
be around 40 years before all artists will benefit from the resale of their
artwork.[21]
2.30
Indeed, CARR used auction sales data for the last 10 years to show that
under the proposed prospective scheme (current Bill) only six per cent of
artwork sold within this period had been resold by 2008.[22]
Therefore, CARR concluded that under this proposed scheme it would take far
longer than 10 years before the scheme would capture all resales of artwork.[23]
2.31
According to CARR, the uptake of the royalty and the benefits flowing to
artists would be very slow under the proposed prospective scheme.
2.32
In the publication entitled, Implications of the Australian
Government’s Proposed Resale Royalty Scheme (November 2008), CARR used
auction house sales data for the 10 year period from 1 January 1998 to 31 December
2007 to assess the impact of its proposed scheme as compared to the government’s
proposed scheme.
2.33
The key difference between models rests on the inclusion of all resales
of existing artwork (CARR model) as opposed to the government’s exclusion of
the first commercial resale of existing artwork following the introduction of
the scheme.
2.34
CARR used thresholds of both $500 and $1000 compared to the government’s
proposed threshold of $1000.[24]
2.35
Both schemes are similar with respect to the flat rate of 5 per cent and
no cap.
2.36
According to CARR (see also Figures 2.1-2.4 below), the impact for
artists under both schemes are as follow:
n Royalties raised: CARR $35.4-35.8 million, Government $4.6 million
n Artists in receipt of
royalties: CARR (500) 3176, CARR (1000) 2456, Government 845
n Indigenous artists
royalties: CARR $5.25-5.3 million, Government $0.95 million
n Indigenous artists in
receipt of royalties: CARR (500) 1076, CARR (1000) 900, Government 389.[25]
Figure 2.1 Comparison of resale royalty
in $A if the resale schemes had been operating for 10 years from 1/1/1998
to 31/12/2007 using auction house sales data
Source IMPLICATIONS
OF THE AUSTRALIAN GOVERNMENT’S PROPOSED RESALE ROYALTY SCHEME, November 2008,
p. 8.
Figure 2.2 Comparison of the number of
individual artists who would have received resale income if the resale schemes
had been operating for 10 years from 1/1/1998 to 31/12/2007 using auction house sales data
Source IMPLICATIONS
OF THE AUSTRALIAN GOVERNMENT’S PROPOSED RESALE ROYALTY SCHEME, November 2008,
p. 9.
Figure 2.3 Comparison of the amount of
resale income received by Indigenous artists if the resale schemes had been
operating for 10 years from 1/1/1998 to 31/12/2007 using auction house sales
data
Source IMPLICATIONS
OF THE AUSTRALIAN GOVERNMENT’S PROPOSED RESALE ROYALTY SCHEME, November 2008,
p. 11.
Figure 2.4 Comparison of the number of
individual Indigenous artists who would have received resale income if the resale
schemes had been operating for 10 years from 1/1/1998 to 31/12/2007 using
auction house sales data
Source IMPLICATIONS
OF THE AUSTRALIAN GOVERNMENT’S PROPOSED RESALE ROYALTY SCHEME, November 2008,
p. 12.
2.37
The CARR proposed scheme would deliver more royalty, and more artists
(both Indigenous and non-Indigenous) would benefit.
2.38
In evidence to the Committee, witnesses estimated that sales through
other art market professionals were around the same level as through the
auction sales.[26] Therefore, the above
figures would be considerably higher if all commercial resales were taken into
account.
2.39
If turnover of artwork is closer to 20 years then the exclusion of
existing artwork (clause 11) at the commencement of the scheme will provide
minimal benefits to most artists.
2.40
The issue therefore comes down to whether or not existing artwork comes
within the definition of acquisition of property on just terms within s.51(xxxi)
of the Constitution or whether the scheme simply creates a fresh right or
further particular rights or liabilities with respect to the artist’s existing
copyright.
2.41
Many artists, as evidenced by the large number of proforma submissions
and the reported 2,000 plus signatories to a petition to the Minister, stated
their unhappiness that existing artwork will be excluded at the commencement of
the scheme. They believe that this exclusion will deny the current generation
of artists receiving significant royalties.[27]
2.42
Sotheby’s and Deutscher and Hackett have both stated that in the event
of the Bill proceeding, they vigorously support the retention of clause 11
because it will ‘provide certainty to the market’ and help the art market
adjust to the new regime.[28]
2.43
John Walker, a local artist, opposes the scheme but would support the
retention of clause 11:
As a mid career artist, I have no right and certainly don’t deserve
a royalty on resales of the hundreds of artworks I have sold at good prices to
buyers years ago; buyers who were innocent of knowledge of a future royalty.
These buyers gave me bread and wine for my journey. I am grateful for the help
and support they gave me.[29]
2.44
The Bill as drafted is based on legal advice that artwork comes within
the purview of acquisition of property on just terms within s.51(xxxi) of the
Constitution.
2.45
Mr Tucker, Deputy Secretary, Department of the Environment, Water,
Heritage and the Arts (DEWHA), said:
...there was no intention to arrive at the conclusion we were
after; it was the advice that the government received, and, in terms of the
risk on potential constitutional issues, it decided to take the course of
action it has taken.[30]
I think it would be unusual for a government and a parliament
to, where there has been advice from the Solicitor-General about constitutional
validity, introduce a bill that they thought may not be constitutionally valid.[31]
2.46
The droit de suite concept which underpins every resale royalty
scheme assumes that the relationship between the artist and his/her artwork is
ongoing and continues even after the artwork has been sold.
2.47
The Arts Law Centre of Australia has provided a memorandum of advice by Mr Robertson SC of the NSW Bar (see Appendix D) which puts forward a contrary view that the
proposed scheme does not involve an acquisition of property within s.51(xxxi)
of the Constitution. Rather, all the resale royalty scheme would do is to
create a fresh right or further particular rights or liabilities with respect
to the artist’s copyright which is already in existence.[32]
2.48
This view is also supported by Mr Dearn and Dr Rimmer, who stated in
evidence that:
…We are of the view that the preferable position is that the
legislation is supported by the intellectual property power and that there
would not necessarily be a problem in terms of acquisition of property on just
terms.
…governments can always seek to put in place compensation
provisions to deal with the chance that the other view will prevail to satisfy
the requirement in terms of just terms, and clearly that was demonstrated in
the northern territory intervention case.[33]
2.49
Indeed, the compensation option has been exercised in other legislation,
including the Copyright Act.[34] The Arts Law Centre of
Australia and the National Association for the Visual Artists Ltd. (NAVA) also
support this position:[35]
In some legislation, the compensation is payable by the
government. However, alternatively, another model is evident in section 116AAA
of the Copyright Act, (which relates to amendments to the Copyright Act 2005
where performers were granted a share in copyright in existing sound recordings),
the compensation payable by a performer rather than by the government.[36]
2.50
The advice of Mr Robertson SC and the evidence of Mr Dearn and Dr Rimmer have drawn the Committee’s attention to four recent cases in which the High Court has
ruled on whether or not a particular event involves the acquisition of property
on other than just terms:
n Grain Pool of
Western Australia v Commonwealth (2000) 202 CLR 479
n Nintendo Co Ltd v
Centronics Systems Pty Ltd (1994) 181 CLR 134
n Australian Tape
Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480
n Wurridjal v
Commonwealth (2009) HCA 2 (2 February 2009)
2.51
The first two judgments would seem to support the conclusion that a
resale royalty scheme would not be interpreted as an acquisition of property on
unjust terms. In other words, the removal of clause 11 would not render the
scheme unconstitutional.
2.52
In the Blank Tape Case, the majority judgment concluded that if the ‘royalty’
had been levied on vendors of blank tapes this would have amounted to an
unconstitutional acquisition of property on other than just terms. However, the
majority held the Act to be invalid because their Honours concluded that the
levy was in fact a tax and hence did not comply with s.55 of the Constitution. In
the minority, Justices Dawson and Toohey, in a strong dissent, found that the
blank tape levy did not constitute an ‘acquisition of property’ within the
meaning of s.51(xxxi) of the Constitution.
2.53
In Nintendo v Centronics, Mason CJ, Brennan, Deane, Toohey,
Gaudron and McHugh JJ said:
That the operation of s.51(xxxi) to confine the content of
other grants of legislative power, being indirect through a rule of
construction, is subject to a contrary intention either expressed or made
manifest in those other grants. In particular, some of the other grants of
legislative power, clearly encompass the making of laws providing for the
acquisition of property unaccompanied by any quid pro quo of just terms. Where
that is so, the other grant of legislative power manifests a contrary intention
which precludes the abstraction from it of the legislative power to make such a
law.[37]
…It is of the nature of such laws that they confer such
rights on authors, inventors, and designers, other originators and assignees
and that they conversely limit and detract from proprietary rights which would
otherwise be enjoyed by the owners of affected property. Inevitably, such laws
may, at their commencement, impact upon existing proprietary rights. To the
extent that such laws involve an acquisition of property from those adversely
affected by the intellectual property rights which they create or confer, the
grant of legislative power contained in s.51(xviii) manifests a contrary
intention which precludes the operation of s.51(xxxi).
The cases also establish that a law which is not directed
towards the acquisition of property as such but which is concerned with the
adjustment of the competing rights, claims or obligations of persons in a
particular relationship or area of activity is unlikely to be susceptible of
legitimate characterization as a law with respect to the acquisition of
property for the purposes of s.51 of the Constitution. The Act is a law of that
nature. It cannot properly either in whole or in part, be characterized as a
law with respect to the acquisition of property for the purposes of that
section.
…Consequently, it is beyond the reach of s.51(xxxi)’s
guarantee of just terms.[38]
2.54
Mr Dearn and Dr Rimmer, in evidence to the Committee, also conclude
that:
[We] have deliberated about the matter and we think the preferable
view would be that the right of resale legislation is much more similar to the
circuit layouts case[ Nintendo], in the sense of it is another sui generis [one
of a kind] piece of legislation that is being created.[39]
2.55
The NT Intervention Case considered whether the Commonwealth
intervention laws involving a grant of lease over the Maningrida land
constituted an acquisition of Land Trust property that was not on just terms
within the meaning of s.51(xxxi) of the Constitution. The majority held that
the creation of the statutory lease constituted an acquisition of property but did
not breach the Constitution, due to the compensation provisions in the
Northern Territory National Emergency Response Act.[40]
All of the judgments consider the question of acquisition of property on other
than just terms.
2.56
In particular it is worth noting the judgment of French CJ, where (at
[91]) his Honour said:
A law which is not directed to the acquisition of property as
such, but which is concerned with the adjustment of competing rights, claims or
obligations of persons in a particular relationship or area of activity, is
unlikely to be susceptible of legitimate characterisation as a law with respect
to the acquisition of property for the purposes of s.51(xxxi). Such a law would
therefore be beyond the reach of the just terms guarantee.[41]
2.57
Several of the judgments in the NT Intervention Case also consider the
use of ‘fail-safe’ measures similar to s.21 of the Historic Shipwrecks Act
1976 or s.4AB of the Customs Act 1901.
2.58
The significance of this very recent decision of the High Court is that
it may clarify this difficult area of the law and warrant the seeking of further
advice which takes the High Court decision into account.
2.59
Given the significance of clause 11 on the impact of the scheme and the
benefits to artists from the commencement date, and also in view of the most
recent High Court judgment, the Committee would ask the Minister to seek
further legal advice with respect to whether the scheme would be unconstitutional
if clause 11 was omitted and whether a ‘compensation’ or ‘fail-safe’ clause
could be inserted in the legislation, to cover the possibility of a future
legal challenge in relation to the acquisition of property on other than just
terms.
2.60
The Committee would also suggest that, if after having obtained further
legal advice the government was still of the opinion that the scheme would be
unconstitutional should clause 11 be omitted, the reasoning for that decision
should be explained in any revised Explanatory Memorandum and by the Minister
at the resumption of the second reading debate on the Bill.
Reciprocity
2.61
The Minister, in his second reading speech, said:
Because the right is recognised in the Berne convention for
the protection of Literary and Artistic Works, it will be possible for Australia to establish arrangements with other countries which acknowledge the right to a
royalty for Australian artists whose work is sold in those countries.[42]
2.62
The International Confederation of Societies of Authors and Composers (CISAC)
claims that, because of the prospective nature of the proposed scheme that will
result in a limited application in the early years of the scheme, other
countries may not enter into a reciprocal arrangement with Australia:
…It is not difficult to envisage a view being formed of the
effect of clause 11 of the Bill not in reality providing such
protection, with the consequent effect of disentitling Australian artists to
the proceeds of schemes in place in Europe.[43]
2.63
It is not clear cut what view would be taken, as the Berne Convention is
open to interpretation and it will depend also on the willingness of countries
to enter into a reciprocal arrangement.
2.64
However, in evidence to the Committee, Mr Cottle, CISAC, and Ms Cave,
Viscopy, said there was a very high risk that the proposed Australian scheme
would not be viewed as a ‘fully functioning scheme’ according to the European
Commission’s interpretation within Schedule 2 of its reciprocity instrument
dealing with non-European nationals.[44] At present, clauses 11
and 23, dealing with treatment of existing artwork and the right to opt out of
the scheme, are at odds with EU schemes.
2.65
DEWHA advised the Committee that its advice indicated that the details
of the Australian proposed scheme would not be delved into by other countries
and, whilst acknowledging that the various schemes all have pluses and minuses,
the risk of non-reciprocity would be low.[45]
Treatment of Indigenous artwork
2.66
Many people have commented in recent years on the high prices being
fetched for Indigenous artwork which have benefited the buyers and art dealers
while the creators of this artwork and their communities are still living in
third world conditions:[46]
The sale of the late Clifford Possum Tjapaltjarri’s painting
for $2.4 million highlights the obscenity of the art market. Possum received
only $1200 for the picture in 1977, and neither he nor his family will get a
cent from the sale
…it is manifestly unfair that the very people—the artists—without
whose talent and effort works of art would never even exist should be excluded
from benefiting from the enormous profits being made in the secondary art
market. The remedy for this injustice is a resale royalty scheme[47]
2.67
Many argue that in order to ensure the benefits are spread as widely as
possible across the Indigenous arts community the removal of clause 11 and the
lowering of the threshold to $500 would greatly assist.[48]
2.68
Indigenous people represent only 2.6 per cent of the Australian
population but in 2007, art sales by Australian artists revealed that
24 per cent of these artists were Indigenous.[49]
2.69
Under the existing proposal, Indigenous artwork may be unintentionally treated
differently from other artwork. A number of small Indigenous arts centres pay
artists up front for their artwork and hence the next resale from the centre
will trigger the royalty payment. When this occurs, small art centres may
revise the initial payment to the artist simply because the ‘second’ resale
could only be a matter of weeks away after the ‘primary’ sale and these centres
will have to pay the royalty.[50]
2.70
Notwithstanding the possible early payment of a resale royalty, the Indigenous
artist may be worse off depending on whether they received a lower price
initially for their artwork, how much the art centre resells the piece for and
the administrative charge claimed by the collecting society.
2.71
DEWHA told the Committee that it believed that these arrangements,
whereby small Indigenous art centres buy directly from the artists, involve
purchases of artwork priced less than $1000 and hence would not be eligible for
a royalty payment on the next resale.[51] DEWHA told the Committee
that the bulk of art centres operate on a consignment basis. Therefore, the
royalty payment would not be imposed on the first sale from these centres.[52]
2.72
This unintended consequence could be overcome by introducing a special
‘resale exemption’ which excludes resales of artwork that occur within a specified
period after the ‘primary’ sale under certain conditions. According to the UK Resale Right Regulation 2006:
…where the seller previously acquired the work directly from
the artist less than three years before the sale, and the sale price does not
exceed €10,000; in other words, the regulations apply only to sales made three
or more years after the artist’s first studio sale or transfer of ownership,
and to all sales exceeding €10,000 even if they are made within the first three
years after the artist’s first studio sale or transfer of ownership.[53]
2.73
ACGA supports such a special resale exemption clause where small art
galleries pay Indigenous artists up front for their paintings.[54]
2.74
Under normal sales conditions, art centres/commercial galleries sell
artwork on commission and the artist will receive no payment until such time as
the ‘primary’ sale has been concluded. Under this scenario, the art centre
would have little incentive to discount the price because no royalty payment
would be made on this sale.
2.75
Another potential difficulty relating to Indigenous artwork is that many
Indigenous artists give different paintings the same name and therefore it may
be very difficult to ascertain which painting, if any, is eligible for a
royalty payment under the proposed scheme.[55] If all resales were
included in the proposed scheme this difficulty would not arise.
2.76
Identification of artwork for the purpose of receiving a royalty may
pose some problems for artwork that has not been signed but these issues are
more likely to be resolved over time with the use of electronic identification
tags or similar.
2.77
A more critical issue surrounds the succession in title, particularly
from the point of view of Indigenous artists. Clause 15(2) covers normal tests
with respect to the rules of intestate succession. However, according to the
Arts Law Centre:
Under the intestacy laws, which vary from state to state, in
most cases the order in which estates of an Aboriginal artist is distributed is
not in accordance with Aboriginal customary law or probable wishes of the
Aboriginal person who had passed away.[56]
2.78
Others have suggested the Bill should recognise the scope for communal
ownership of Indigenous artwork in the same way that clause 12 recognises
single and joint ownership of artwork.[57]
2.79
Given that the Bill proposes to extend the right for 70 years after the
death of an artist, John Oster, Executive Officer, Desart, says there is a lot
at stake with respect to the succession of an artist’s rights and intellectual
property after death:
…there isn’t a lot of understanding amongst artists about the
need for wills, what they involve at whitefella law and there are a whole lot
of perceptions about who owns the painting, who owns the cultural values behind
the painting or work of art and therefore who should be the beneficiary for
that.[58]
2.80
The Arts Law Council of Australia has been doing a lot of work in recent
years with Indigenous artists in the Kimberley and Northern Territory to assist
them with the preparation of wills and provision of other educational services:
Since Arts Law’s specialised Indigenous service, Artists in Black,
commenced in 2004, Arts Law has provided direct legal services to 1,097
Indigenous artists and arts organisations throughout Australia, represented
clients through casework services either directly or in partnership with
private law firms in 50 matters and has run educational workshops, seminars and
forums attended by 3,085 indigenous people.
…Arts Law has drafted over 300 wills for Indigenous artists.
For a large number of these, the artists expressed their desire to share their estate
widely, for example, it was common for artists to have long lists of
beneficiaries and to wish to share their estate with their siblings, children,
grandchildren, nephews and nieces and children adopted under customary law.[59]
2.81
A ‘community body’, as contained in clause 3, is defined as:
…a body (whether incorporated or unincorporated) established
by a community for the purpose of supporting or promoting the welfare or
cultural values of the community.
2.82
This would enable Indigenous artists to spread their estate widely and
according to Aboriginal customary law, but this could only be achieved if a
will has been made to that effect or the intestate laws recognised this broad
principle concerning communal sharing of estates.
Royalty rate
2.83
The flat rate of five per cent has been widely supported by those in
favour of the scheme. It simplifies the scheme and would not involve
complicated calculations as experienced in the current EC sliding scale scheme.
2.84
In the event that the Bill proceeds, Sotheby’s requested that the rate be
set at three per cent and there be a cap of $12,500.[60]
2.85
The Australian Commercial Galleries Association requested that the rate
be a sliding scale similar to the EU scheme.[61]
Who pays and will it impact on the primary art market?
2.86
While the government believes that the scheme will have minimal impact
on the Australian art market, any new impost in a market is likely to cause
some behavioural changes between those directly involved in that market.
2.87
Clause 20 states that the seller, agents and buyers are jointly and
severally liable to pay the royalty on the commercial resale of an artwork.
However, depending on the supply and demand conditions, the actual costs may be
borne by one particular party:
In the long term, the actual burden or incidence depends upon
the difference between the elasticity (or price responsiveness) of demand of
purchasers in the secondary art market, and the elasticity of supply of artists
in the primary market. Depending on the relevant elasticities, the economic
incidence may be passed ‘back’ to the artist (reflected in a lower price and/or
quantity of art in the primary market) or ‘forward’ to the purchaser (reflected
in a higher price and/or lower quantity in the secondary market).[62]
2.88
Viscopy, in evidence to the Committee stated that:
The common approach taken by most member states [EU] is to
provide for joint and several liability, as proposed under the draft bill. This
is very sensible approach because, in practice, the managing agent can collect
the royalties directly from the dealers and auctioneers rather than try to
collect from private individuals. Dealers and auctioneers are then free to
decide whether they wish to pass the cost of the royalty on to either of their
customers – the seller and/or buyer. In the vast majority of case – well over
90 per cent – the cost is passed on to the buyer.[63]
…That works very well in practice.
2.89
The proposed resale royalty scheme is similar to other operating schemes
in that the liability to pay the royalty is ‘joint and several liability on the
seller, the agent of the seller and the buyer’. The Arts Law Centre of
Australia believes that the UK experience suggested that the buyer was more
likely to pay the royalty. Therefore, if this was repeated in Australia, clause
11 would have minimal impact.[64]
2.90
DEWHA, in its submission, commented that the liability to pay provision
is consistent with the EU Directive:
As the seller is always one of the liable parties, this model
is also consistent with the EU Directive, which argues that the seller should
bear the burden of responsibility as they earn the greatest financial benefit
from the resale. The EU directive does, however, allow member states to choose
how to impose liability.[65]
2.91
This approach appears to assume a rising market but that may not always
be the case. Further, if DEWHA has modelled the Bill on the EU Directive then
there may be scope for the government to impose liability on the seller and
thus avoid the need to have clause 11 (see Appendix D).
2.92
The Committee did not receive any hard empirical data that may have shed
some light on the type of behaviour of buyers and sellers in the Australian art
market. The Myer Report similarly concluded that:
On balance, it can probably be concluded that, ‘given the
state of the empirical evidence in hand, intelligent, well meaning persons,
equally well informed about economic theory, may well disagree about the
efficiency of the artists’ resale rights’.[66]
2.93
Myer looked at the wealth distribution and impact effects of a royalty
scheme on the Australian art market. He concluded:
Nevertheless, the fact that the majority of resale royalties
would be distributed to more successful artists, or their heirs, does not
undermine the stated object of resale royalties in the Australian context: to
allow creators to benefit economically from the appreciation of their works of
art.[67]
2.94
The Myer report went on to say that the impact of a resale royalty on
the market is difficult to predict due to lack of data. However:
…the Inquiry finds that the measure (royalty) will not necessarily
have a detrimental effect upon the Australian market for contemporary visual art
and craft.[68]
2.95
In its submission, Viscopy cited a report by the Design and Artists
Copyright Society (DACS) in the UK which commented that:
The notion that the Resale Right has an impact on the price
of art simply does not stand up to scrutiny when the behaviour and attitude of
art buyers is examined. Our evidence shows that art is relatively
price-inelastic; it can be more desirable the more expensive it becomes and it
is acknowledged as a reliable, low risk and high performing investment.[69]
2.96
Another report found that:
The UK Government bitterly fought the introduction of the droit
de suite scheme, arguing that the levy would cost up to 5000 industry jobs
and would divert trade to the US and Switzerland to avoid it.[70]
2.97
Of course, this did not occur because the global economy was booming and
the UK art market grew strongly. The UK scheme was to extend this right to deceased
artists by 2010 (70 years). However, the UK Government wrote to the European
Commission in late 2008 indicating that, due to changed economic circumstances,
they would invoke Article 8(3) of the EU Directive and delay the extending of
the scheme to deceased artists until 2012.
2.98
An independent study of the impact of the Artists Resale Right (ARR) scheme
on the UK market concluded:
Since the introduction of the ARR in the UK there has been an unprecedented boom in the global market for contemporary art. This has
enabled the UK to maintain its competitive position until now, in spite of the
levy, although the US contemporary art market has fared even better. The
extension of the royalty to the work of deceased artists will greatly increase
the risk that the UK will be bypassed in the valuable market for 20th
century art. It should be noted that the UK’s main rivals in the global art
market have not so far introduced ARR, so the risk that sales will be diverted
away from the UK will increase, particularly if the unusually strong market
were to weaken.[71]
2.99
Anecdotal evidence would suggest that when an economy is booming art
prices will also rise and that people will not be overly worried about the
price for a particular work of art (price inelastic). It is at times like this that
many people will have a great deal more discretionary income from which to
purchase various forms of artwork. However, when the economy is slowing people are
more likely to have less discretionary income and price may become more of an
issue with respect to the purchase of artwork (price elastic). A case could
also be made that people may re-evaluate their investment portfolios when there
is an economic downturn and this may result in artwork becoming a more
desirable asset compared to shares or property.
2.100
Without further empirical data, it is difficult for the Committee to say
whether artwork is price elastic or inelastic, whether the buyer or seller will
end up paying the royalty or whether the cost of royalty scheme is likely to be
borne by artists in the primary market.
Who benefits?
2.101
A number of people have claimed that the scheme will only benefit the
very successful artists and their estates.[72] Also it is claimed that
the scheme is a bit of a lottery in that the bigger winners will be artists
whose artwork is turned over at a faster rate.[73]
2.102
It has also been suggested that for many artists their artwork is
unlikely to be resold and hence they would never benefit from either a
retrospective or prospective scheme.
2.103
Viscopy, in their evaluation of the proposed scheme, claim that if the
scheme had applied to sales from 1998 to 2007, only 845 artists would have
benefited and shared in a total royalty payment of $4.6 million.[74]
However, if the royalty applied to all resales, the number of beneficiaries
would rise substantially with 2,456 artists sharing in $35.4 million.[75]
2.104
The actual amount of royalty collected and the likely number of
beneficiaries will very much depend on the state of the Australian art market.
It is estimated that art sales in Australia fell from a high of $175.6 million
in 2007 to only $114.7 million in 2008.[76] Therefore, it will be
very hard to predict what level of royalty payment is likely to be achieved on
a year to year basis and assessments of past sales will at best only provide
some indication of likely royalty payments in the future.
Collecting society—role and responsibility
2.105
The decision to opt for one collecting society is premised on the size
of the Australian art market, the objective of keeping fees as low as possible
and likely efficiency gains to be achieved by one operator:
Evidence from successful collecting societies in Europe suggests the costs of administrating resale royalty systems range from 9-20 per cent
of revenue raised.[77]
2.106
Access Economics in its report to DEWHA suggested an even wider range of
costs:
DCITA (2004) stated that administration costs can range from
10%to 40% in Europe (where such schemes operate), with high administration
costs rendering such schemes impractical (as is apparently the case in Italy). McAndrew and Dallas-Conte (2002) estimate that administrative costs vary between
10% and 30% depending on market size (economies of scale) and the state of
organisation of the collecting society.[78]
2.107
In 2002, Viscopy, in evidence to the Myer Inquiry, stated that it could
administer a resale royalty scheme for around 10 per cent.[79]
However, another witness stated that if one looks at the recent history in
relation to other copyright services, a far higher amount is more likely to be
charged by the collecting society.[80]
2.108
Evidence from auction houses have claimed that, while the scheme
provides for an adequate administration fee to be charged by the collecting
society to undertake the collection and distribution of royalties obtained from
the resale of artwork, art market professionals will have to absorb or pass on
the costs associated in complying with the scheme:
Adding to the cost and complexity of the auction house
transactions will reduce turnover, reduce the exposure of artists to the wider
market and direct transactions of high value work towards private, hidden
deals. This will be detrimental to the viability of the auction house and
detrimental to artists who greatly benefit from the exposure that auction sales
provide.[81]
…There appears to be no calculation of the costs to the
businesses to which this will apply. These have been described by your
‘independent advisers’ as minimal. This is incorrect. Prior to its introduction
in the UK in 2006, similar advice was that each transaction would cost businesses
‘as little as 40p ea’. A review of the scheme conducted in 2008, showed that
the real averaged cost per transaction excluding set up was £23 per transaction;
including set up was £53 per transaction—or approximately AUD $60 & $120. The advice is skewed to sell the concept and is neither balanced nor
realistic.[82]
2.109
Auction houses and art market professionals have claimed that they will
incur costs in order to comply with the scheme. However, it is unclear how much
these costs will be and whether or not they will be able to pass this on to the
buyer or seller.[83] As with any new scheme,
the costs are likely to be higher at the beginning but to fall over time once
the scheme is fully functioning and everyone becomes familiar with their
respective roles and obligations.
2.110
The Arts Law Centre of Australia[84] and Viscopy[85]
are concerned that administration costs may be high in the first few decades of
the scheme if only a few resales qualify for a royalty, but a lot of time and
effort is still expended trying to sort out what is in and what is out of the
scheme.
2.111
If costs are to be kept low from the commencement of the scheme, the
Arts Law Centre believes that the government may need to contribute millions of
dollars until the scheme covers all resales.[86]
2.112
Deutscher and Hackett claim that a virtual resale royalty already exists
in the form of the copyright fees charged by Viscopy to reproduce artwork in
catalogues that are produced prior to an auction or major art sale.[87]
If this charge remains then according to Deutscher and Hackett, the
introduction of a royalty scheme will in effect mean a ‘double’ royalty.
2.113
ACGA believe that international experience has resulted in fees as high
as 20–25 per cent and this is why they prefer the scheme to be entirely
government funded so as to maximise the amount of royalty paid to the artist.[88]
The Australian Copyright Council suggested a figure of around 15 per cent would
be likely if all resales were included but a higher figure may result under the
proposed ‘prospective’ scheme.[89]
2.114
Another issue regarding the role of the collecting society concerns privacy
- in particular, what the collecting society must publish on their website
following a commercial resale of artwork. It is not clear under clause 22 what
level of information will be published.[90] If privacy is not
maintained then some people may be reluctant to undertake to purchase or sell
their artwork commercially.
2.115
This matter would need to be clarified before the scheme commences so as
to avoid any unintended consequences.
2.116
Clause 31 deals with the issue of unclaimed royalties. ACGA believes
that there may be little incentive for the collecting society to find the
holder(s) of the resale royalty right and that this clause should be
strengthened to specify exactly what steps are to be taken to locate such
holders (eg place notices in public newspapers).[91]
2.117
In light of some of the concerns raised above, a review of the scheme
may be appropriate after three to five years.
Inalienability of the right
2.118
Clause 33 provides a safeguard for artists from being pressured to
giving up their right to obtain a royalty on the resale of their artwork.
2.119
However, unlike musicians and authors, visual artists will be
represented by one collecting society and they will not be free to negotiate
and sell the rights to their work.[92]
2.120
The succession test (clause 15), allows the artist to transfer this
right to a charitable institution that works for the benefit of the community, rather
than for profit. The clear intention of the royalty right is that it is not to
be traded as a normal commodity or held by a commercial entity. Rather the
artist can pass on the resale royalty right to their natural heirs or to
not-for-profit organisations.
2.121
The Myer Report[93] recommended that a
royalty scheme be introduced (recommendation 5) but it did so on the proviso that
the scheme should give the artists the right to participate in or opt out of
the scheme.
2.122
Notwithstanding clause 33, which expressly states that the resale right
is absolutely inalienable, artists can exercise their right to say ‘no’ to the
collecting society to collect the resale royalty or enforce the resale royalty right
on behalf of the holder(s) of the right (clause 23 (1)).
2.123
According to Mr Walker:
This is a good solution to the riddle of a ‘right’ to
which you cannot say ‘no’. It equally protects young and vulnerable artists
from being forced into a general waiving of possible future rights and protects
older artists from being forced into automatic support of the management of the
scheme.[94]
2.124
Clause 23(1) also appears to give artists the right to collect the
royalty themselves or come to some other arrangement with the auction house or
art market professional. A number of submissions have commented that this is
far from clear in the way the Bill is drafted:
…the draft bill does not appear to implement it in a clear
and unambiguous fashion. Because there is no such clear provision, section
23(1) serves to raise the question about whether the royalty could be collected
directly by an artist.[95]
2.125
If the above is the stated intention of clause 23(1) then the Committee
would suggest that it be redrafted so as to remove any ambiguity.
2.126
In evidence, DEWHA stated:
There is certainly a potential for people to opt out. Again,
it is about striking a balance. Not having an opt-out provision is quite
draconian. To force people to go down a single route is quite draconian.
…There were certainly a number of people and particular
artists we consulted who were very keen to see an opt-out provision. I guess
the ultimate test will be how efficient the collecting society is, because I
would have thought the No.1 reason that artists would be locked out would be a
very high administrative fee. They might think they could do better by
collecting it themselves. So if you have an efficient and effective collecting
society then that would be easy and convenient for artists.[96]
2.127
If artists did collect the royalty themselves, the collecting society
would still be required to publish details of commercial resales of artwork on
their website (clause 22) and monitor upcoming auction and other sales.
The collecting society for a resale royalty is required to
collect and publicise information in relation to upcoming auctions and sales
where they believe resales will attract a royalty payment
…These activities are required to be carried out in respect
of all resales that attract a resale royalty payment. In the event that
artists, or other resale right holders, decide they do not want to obtain their
royalty through the collecting society, the collecting society will have borne
the administrative costs of collecting and publicising information on their
behalf without being able to recoup administrative costs. This means that those
artists or resale royalty holders who choose to have their rights administered
by the collecting society will bear the costs which are applicable to all
resale royalty holders.[97]
2.128
At the moment, clause 23 (1), clause 33 and clause 35 are sending
conflicting messages. The inalienable right (clause 33) seems to be supported
by all parties. However, the opt-out options (clause 23(1)) seem to be at odds
with the desire to establish one collecting society (clause 35).
2.129
If individual artists elect to collect the royalty themselves or if they
negotiate with other art market professionals to collect it on their behalf,
the legislation, as currently drafted, is silent on the powers that the artist
or their appointed agent will have with respect to the right to demand
information and the power to collect the royalty. If they expect the collecting
society to exercise their powers to achieve a satisfactory outcome, then it
would seem unfair not to expect the collecting society to charge a fee for this
part of the service.
2.130
While DEWHA has maintained that it is a question of balance, the
Committee believes that there are too many options at present and if a number
of artists exercise their rights in a variety of ways, the scheme could become
an administrative nightmare. On the face of it, it would appear very difficult
for individual artists or their appointed agents to collect their royalties if
they do not have similar powers to the collecting society. If lack of choice is
the issue then the appointment of more than one collecting society may be
desirable. Alternatively, if the size of the Australian art market warrants
only one collecting society, artists who elect to receive the royalty will have
to use that agency. However, artists could still retain the right to opt out of
receiving the royalty on a case by case basis or on an ongoing basis.
Penalties
2.131
As with most schemes which require the cooperation of various
individuals and agencies, penalties can be imposed for non-compliance or
supplying false information. Clauses 28 and 29 set maximum charges for failure
to comply.
2.132
If difficulties arise with interpretations regarding ‘artwork’,
‘commercial resales’ and ‘art market professionals’ then it would not be
unreasonable to expect that penalties would be imposed until such time as these
matters are clarified.
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