April 2009

Arts Law Update: Parliamentary Committee reports on Resale Royalty for Visual Artists Bill 2008

Summary

On February 20 2009, the House Standing Committee on Climate Change, Water, Environment and the Arts handed down its report on the Resale Royalty for Visual Artists Bill 2008. [1] The Bill is currently before the House of Representatives.

Under the proposed scheme, visual artists would receive a 5% royalty based on the sale price including GST each time their work is resold. In response to public submissions, the Committee expressed concerns that the new framework would only favour already successful artists and, (amongst other recommendations), advised that the Minister for the Environment, Water, Heritage and the Arts obtain further legal advice before proceeding with the Bill in its current form. [2] However, the Committee fails to deal with all issues with the proposed scheme, including the effect on the liquidity of the art market and the requirement that royalties still be paid even where a seller experiences a loss or does not profit from the resale price.

Background to the Inquiry

Legislative Background

The new legislation fulfilled the Rudd Government's election promise to institute a resale royalty scheme for visual artists. The legislation also brings Australian arts law in line with international standards. Currently, under the Berne Convention, (a major international copyright treaty), 54 countries have introduced resale royalty, or droit de suite, frameworks, which provide artists with the right to 'enjoy the inalienable right to an interest in any sale of the work subsequent to the first transfer by the author of the work'. [3]

Prior to the introduction of the Bill in November 2008, previous government-commissioned inquiries [4] and a report by the Australian Copyright Council [5] had strongly supported the implementation of a resale royalty scheme into Australian law, however the previous administration failed to act upon these recommendations.

The new scheme

Under the Bill, a resale royalty right is defined as the right to receive resale royalty on the commercial resale of an artwork. [6] The right cannot be transferred to anyone else, but passes to the artist's estate upon the artist's death, and survives 70 years following the artist's death. [7]

Key features of the new legislation:

  • Definition of artwork:
    • The right will apply to 'works of graphic or plastic art' [8] including pictures, collages, paintings, drawings, engravings, prints, lithographs, sculptures, tapestries, ceramics, glassware and photographs;
  • Types of transactions:
    • Commercial resales of works valued above $1000, which have been re-sold after the commencement of the legislation will require a royalty to be paid. The right does not apply to private art sales where there is no art market intermediary; [9]
  • Size of the royalty:
    • Artists will receive 5% of the resale price; no maximum royalty cap has been set; [10]
  • Liability to pay the royalty:
    • Whilst the seller is liable to pay the royalty, the seller's agent or the agent's buyer are also jointly liable; [11]
  • Collection of the royalty:
    • The Minister will appoint a sole collecting society to collect and distribute the royalties.

Key Committee Recommendations

The Committee outlined 10 key recommendations for the Government's consideration: [12]

  1. Amended definition of an 'artwork': The definition of an 'artwork' under cl 7 should be more carefully defined to include fine art textiles, fine art jewellery, artists books, carvings, multimedia, digital and video art;
  2. Redefinition of the types of commercial transactions involved in the resale of artwork: The Committee was of the opinion that cl 8(3)(d) of the Bill failed to encompass the full range of possible transactions, such as online dealings;
  3. Minister should seek further legal advice in relation to whether the enactment raises constitutional issues;
  4. Amendment of cl 15(2) of the Bill to allow the rules of Aboriginal customary law to protect beneficiaries in the event that an Indigenous visual artist does not make a will;
  5. Allow for the incorporation of the concept of communal ownership of artwork to provide better protections for Indigenous artists;
  6. To prevent unintended consequences arising from secondary resale of Indigenous artwork, Indigenous art centres that pay artists up-front for their work should be exempt from the payment of the resale royalty for artwork purchased and resold within 12 months;
  7. Inclusion of an opt-out clause: The Committee supported the inalienable nature of the resale royalty right, [13] but suggested that artists should have the opportunity to opt-out of the scheme;
  8. Inclusion of a 'best endeavours' test for collecting societies: under cl 22, organisations who have been selected by the Government to collect the resale royalties, must publish the details of all commercial resales of artwork on its website. The Committee expressed concerns that not all artists would have access to the internet, and recommended that collecting societies be required to use best endeavours to locate all holders of resale royalty rights;
  9. The Department of the Environment, Water, Heritage and the Arts should undertake a review of the current scheme within 3 to 5 years of its commencement;
  10. The Government should allocate funds to educate affected parties, particularly Indigenous artists to ease the implementation of the scheme.

Implications for Artists

Under the new legislative scheme, visual artists will finally be able to financially benefit from both the resale of their works. However, it should be noted that the resale royalty right will only apply to art resales that occur after the commencement of the statute and private art sales between individuals are not covered under the scheme.

Should the Committee's recommendations be implemented:

  • Indigenous artists will receive greater protections which take into consideration the unique nature aboriginal customary laws, including communal ownership of artwork; and
  • A broader range of artists, including those in the fine textiles and jewellery sector would benefit from the right.

Further Issues and Concerns

The Committee's Report fails to address the potential impact of the royalty on the liquidity of the art market and the issue that the royalty must still be paid in situations where the seller experiences a loss or does not make a profit from the resale. Furthermore, should the committee's recommendation that artists be given the option to 'opt out' be adopted, this could have serious consequences for the whole scheme.

The imposition of a royalty on the resale of art will have a negative effect on galleries and auction houses who act as agents in the secondary art market. Ultimately, it is the seller who will bear the burden of the royalty. This could potentially discourage investors from entering the art market from fear of having to pay a royalty upon resale, on top of capital gains tax. This will decrease sales by commercial resellers who are largely galleries and auction houses.

Furthermore, the Bill provides that a royalty is to be paid on all commercial resales, including where the sale is made at a loss. This further penalises art investors, as under the proposed scheme they would still be liable to pay 5% of the resale price, having already suffered a loss. Such a payment does not support one of the key purposes of the Bill, to ensure artists benefit from increase in value of their artwork. Other countries, including Italy, have implemented royalty schemes based on the net increase in price (the capital gains). [14]

Should the committee's proposal that artists be given the option to 'opt out' be adopted, galleries and auction houses may refuse to deal with artists on any basis, who do not 'opt out' of the royalty scheme. As artists require the support of galleries in order to establish a presence in the primary art market and would be likely to 'opt out', preventing them from receiving royalties under the scheme.

Stephens Lawyers & Consultants represent both leading artists and galleries and are supporters of the Australian arts community.

Our lawyers advise in relation to copyright issues effecting artists and media organisation and assist with the preparation and negotiation of licence agreements; Art lease and loan agreements; commissioning of artwork agreements and related agreements.

For further information contact:

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© Stephens Lawyers & Consultants April 2009. Researched and written by Colette Downie, edited by Katarina Klaric.


[1] Full text of the Committee Report available at: http://www.aph.gov.au/house/committee/ccwea/resaleroyalty/report.htm

Full text of the Bill available at:

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4010%22 .

[2] House of Representative Standing Committee on Climate Change, Water, Environment and the Arts, Resale Royalty for Visual Artists Bill 2008, February 2009, vi.

[3]BerneConventionfor the Protection of Literary and Artists Works, Article 14ter .

[4] The 2002 Report of the Contemporary Visual Arts and Craft Inquiry (Myer report) and a discussion paper by the Department of Communications, Information Technology and the Arts (2004).

[5] In 1989 the Australian Copyright Council, in its report Droit de Suite: the Art Resale Royalty and its Implications, recommended that the Copyright Act 1968 be amended to include a resale royalty right.

[6]Resale Royalty for Visual Artists Bill 2008, cl 6.

[7]Resale Royalty for Visual Artists Bill 2008, cl 12.

[8]Resale Royalty for Visual Artists Bill 2008, cl 7 .

[9]Resale Royalty for Visual Artists Bill 2008, cl 8(2).

[10]Resale Royalty for Visual Artists Bill 2008, cl 10.

[11]Resale Royalty for Visual Artists Bill 2008, cl 20.

[12] House of Representative Standing Committee on Climate Change, Water, Environment and the Arts, Resale Royalty for Visual Artists Bill 2008, February 2009, p 41 -44.

[13]Resale Royalty for Visual Artists Bill 2008 cl 33.

[14] House of Representative Standing Committee on Climate Change, Water, Environment and the Arts, Resale Royalty for Visual Artists Bill 2008, February 2009, ii.

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