Resale Royalty Right for Visual Artists

The Australian Government in 2007 made an election commitment to introduce a resale royalty right for visual artists. A resale royalty, also called a droit de suite, entitles an artist to receive a royalty payment from subsequent sales of his or her artwork. The government argued that Aboriginal artists in particular will benefit from this resale right.

A resale royalty for visual artists has been debated in Australia for many years, with varying levels of support. It currently exists in up to 50 other countries (estimates vary). The idea of a resale royalty for the benefit of Australia’s Indigenous artists was proposed by ATSIC in 1997 and endorsed in 1998 by the Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS).

Royalty schemes in other countries vary in content and coverage. Some countries have a flat royalty rate (France and Germany) while others have a sliding scale (Belgium). Some countries have thresholds before the rate takes effect (United Kingdom) while others impose the royalty on the increased value of the artwork (Italy and Brazil). Some schemes only cover living artists (UK) while others cover the estates of artists up to 70 years after their death (France) (Source: House of Representatives Committee Report 2009).

Draft legislation was introduced into Parliament in November 2008 to create a resale royalty right in Australia and to establish a statutory scheme to enforce the right and collect and distribute royalties. The legislation was passed by the House of Representatives on 8 September 2009, and is expected to be considered by the Senate early in 2010.

The proposed Australian scheme will have the following features:

• $1000 threshold
• 5% flat rate
• Single collection agency
• No upper limit
• Will not apply to the first resale or transfer of artwork following the introduction of the scheme
• Will not include private sales between individuals, nor organisations not in the business of dealing in works of art
• Right will continue until 70 years following the death of the artist
• Only works acquired or created after 1 July 2009 will trigger a resale royalty payment when resold through the secondary art market.

The resale royalty right will apply to the resale of all artworks acquired after the law comes into effect. Resales of existing artworks acquired after the right commences, including works by deceased artists, will be covered.

An example of the operation of the resale royalty has been given by the Commonwealth Arts Department:

In July 2009, after the legislation has come into effect, a gallery owner buys a canvas outright from an Indigenous art centre for $10,000. The gallery owner offers the work for sale at an exhibition in December 2009, and the canvas is sold for $16,000. A royalty payment to the artist of $800 (less administration costs) is triggered as the gallery owner acquired the work after introduction of the resale right.

Some of the important issues related to the resale royalty are discussed below.

Analysis of the draft legislation

The relevant House of Representatives Committee reported in February 2009 on the Bill establishing the resale royalty.

The Committee recommended that the Government should look further at Clause 11 which provides that the royalty will only come into force on the second and subsequent resales of art works. This has been the main point of contention about the right so far, apart from those who oppose the whole concept.

The Government has argued that Clause 11 is needed to ensure that the scheme does not operate retrospectively (and potentially encounter constitutional law difficulties). The Minister in announcing the scheme stated that it will operate only for future sales "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."

Critics of Clause 11 argue that by excluding existing artworks the start of the scheme the effect will be to greatly reduce the number of artists benefitting and the value of royalties paid under the scheme. They believe that this exclusion will deny the current generation of artists receiving any worthwhile royalties.

The scheme will include all resales involving art market professionals, public institutions or organisations, and all resales subsequent to the first transfer of ownership, regardless of whether the first transfer was made by sale, gift or any other means.

The flat royalty rate of 5% is widely supported by those in favour of the scheme. A flat rate simplifies the scheme and avoids the complicated calculations necessary if a sliding scale is used.

Which resales are subject to the royalty?

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.

Those who oppose the royalty scheme argue that if the scheme does go ahead, then 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 any, to most visual artists (Source: House of Representatives Committee Report 2009).

Without some legal documentation to show that the artwork has been transferred from one party to another, it will be very difficult for the collecting agency to determine whether a commercial resale after the commencement of the scheme will incur the royalty.

The Minister, the Hon Peter Garrett, commented when introducing the Bill:

"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."

In other countries where similar schemes have been introduced, the royalty has been payable on all resales at the date of commencement.

Who benefits from the royalty?

A number of critics have claimed that the scheme will only benefit the most successful artists and their estates and there is some auction sales data to support this view.

In order to prevent any unintended consequences arising from the ‘secondary’ resale of Indigenous artwork, the Committee recommended that Indigenous art centres which pay their artists up-front for their work should be exempt from payment of the resale royalty for artwork purchased and resold within 12 months.

The government relied on modelling that was based on an assumption that all works resell at least once in a 10 year period. NAVA says that the government did not test this assumption against actual sales data and that few resales occur even within a 10 year period.

The Arts Law Centre of Australia and Viscopy both maintain that the average turnover of artwork is closer to 20 years. Analysis of the last 10 years’ auction sales by Viscopy shows that, for 94% of works, the period between resales is more than a decade: of works sold by auction in 1998, only 6% had resold by 2008.

If turnover of artwork is closer to 20 years, then the exclusion of existing artwork (clause 11) at the commencement of the scheme will result in only minimal benefits to most artists.

Other benefits from the royalty scheme

John Oster of Desart commented in evidence to the inquiry that:

"There will be now be a database that will be able to track the flow of works through the market, we’ll be able to see who is buying what and what they are paying for it. It’s not going to solve every problem that exists but the fact that there is more information in the market is going to help.”

The existence of this information will not only strengthen the operation of the royalty but also will be valuable for the operation of the Indigenous Art Commercial Code of Conduct.

Response to the Report by the Government

The Australian Government responded to the report of the House of Representatives Committee in late May 2009. Some of the recommendations of the committee were accepted but not all.

Perhaps the most important was the recognition by the Government that it should seek further legal advice on the need to include clause 11 in the Bill and whether a compensation clause could overcome any constitutional concerns about the scheme applying to works already purchased.

Another important issue was the possible exemption of the first resale under certain circumstances. The Committee report had recommended that Indigenous art centres which pay their artists up-front for their work should be exempt from the payment of the resale royalty for artwork purchased and resold within 12 months. The Government did not accept this recommendation on the grounds of administrative complexity and the fact that the $1000 threshold would eliminate many resales from qualifying for a royalty payment under the scheme.

Conclusion

The resale royalty right appears to be well supported in principle on the grounds that it extends to visual artists the right to gain extended benefits in their work which already exist for other artists.

However, there are substantial practical issues about the way the scheme will be implemented, particularly the fact that it only applies prospectively (clause 11) which are likely to result in only limited benefits for most artists within the first decade of the scheme's operation.

Aboriginal artists in particular are not likely to gain much financial benefit, apart from a very small number of the most successful artists or their estates, and there is some concern about the commercial impact of the scheme on some community-owned art centres.

On the other hand, the requirement for better and more transparent recording of initial and subsequent sale prices will be useful in supporting the operation of the Aboriginal Art Code of Practice.