THE PITFALLS OF SELLING ART TO CONSUMERS – THREE SHORT STORIES
Off-Premises Sales: the Consumer Goes on an Excursion… At the Art Business Conference last September organised in London by Art Market Minds, a delegate asked whether a sale to a consumer concluded by a dealer in his gallery could constitute an ‘off-premises’ sale. The short answer is that it can. The question is significant because if a dealer sells ‘off-premises’ to a consumer, he is required by law (pursuant to the UK Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013) to provide detailed information to the consumer in advance of the sale, including information on the consumer’s right to cancel the sale within 14 days. Further, if the consumer elects to cancel the sale within the statutory period, the dealer must refund the consumer in full. By law, a dealer who concludes an off-premises contract with a consumer, yet fails to inform the consumer in advance that he has the right to cancel the sale, commits a criminal offence. The definition of an ‘off-premises’ contract covers several situations. The most common is where ‘a contract [is] concluded in the simultaneous presence of the trader and the consumer, in a place which not the business premises of the trader’. Another situation amounting to an ‘off-premises’ sale is where ‘a contract [is] concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer’ (our emphasis). What does that mean? The Regulations are silent on the meaning of ‘excursion’. The EU Directive from which the Regulations derive, is more explicit. First, it explains that the consumer requires additional protection in an ‘off-premises’ context because ‘the consumer may be under potential psychological pressure or may be confronted with an element of surprise, irrespective of whether or not the consumer has solicited the trader’s visit’. Secondly, it provides that ‘purchases made during an excursion organised by the trader during which the products acquired are promoted and offered for sale should be considered as off-premises contracts’. One must turn to the European Commission Guidance (DG Justice) on the EU Directive for more guidance on the meaning of ‘excursion’. The European Commission states that in contrast to the previous incarnation of the Directive, ‘off-premises’ contracts may be concluded ‘during an excursion organised by the trader irrespective of whether the contracts are concluded away from or on the trader’s business premises’ (the European Commission’s emphasis). The European Commission adds that the current Directive specifies that to qualify as an ‘off-premises’ sale, the sale may occur during excursions with the aim or effect of promoting and selling products to consumers. In other words, ‘it should not matter whether the consumer is informed beforehand about the intended sale of products during the excursion’ (the European Commission’s emphasis). An example of an excursion is where the art dealer makes arrangement with a travel company to attract a group of visiting art collectors to his gallery. This amounts to an excursion because it is a visit organised by the dealer with the aim or effect of promoting and selling goods to consumers. If during the visit, an art collector in the group purchased an artwork, the purchase would qualify as ‘off-premises’, with attendant obligations falling upon the art dealer. By contrast, if the art dealer did not make arrangements with the travel company to organise a visit but the travel company, of its own volition, arranged for the group of art collectors to stop by the gallery, a sale concluded during the visit would not qualify as an off-premises sale (but rather as an on-premises sale). Under the old and now repealed 1985 EU Directive on contracts negotiated away from business premises, the reference to ‘excursion’ was specifically qualified by the words ‘away from [the trader’s] business premises’. The definition of an ‘off-premises’ contract in the more recent EU Directive on Consumer Rights (2011/83) does not include that qualification. Accordingly, a sale to a consumer during an ‘excursion’ can now amount to an off-premises sale even if it occurs at the dealer’s premises. Distance Sales: the Art Dealer Caught in a Scheme… Since the adoption in 2000 of the UK Consumer Protection (Distance Selling) Regulations (implementing EU Consumer Directive 97/7/EC), consumers buying art from a trader ‘at a distance’ receive special protection. The UK trader is required to provide detailed information to the consumer in advance of the sale, including information on the consumer’s right to cancel and if the consumer elects to cancel the sale, the trader must refund the consumer in full. The UK Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 repeal and replace the 2000 Regulations. Under the new Regulations (introduced in June 2014 to implement the EU Consumer Rights Directive 2011/83), the consumer benefits from more protection. The trader must provide additional information to the consumer prior to the sale, and the cancellation period is extended from 7 to 14 days. Section 5 of the 2013 Regulations defines a distance contract as “a contract concluded between a trader and a consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded” (our emphasis). As aptly pointed out by the Law Society of England and Wales and the former Office of Fair Trading, there is simply not enough guidance on what constitutes an organised “scheme.” This lack of clarity is not new. In 1999, the Economic and Social Committee of the European Union opined on the old and now repealed EU Consumer Directive 97/7/EC, and said that a more precise definition of what is meant by an organized scheme should be provided. Unfortunately, the European Union has not taken heed of the Committee’s recommendation, as the new Directive remains just as elusive as the old when it comes to the meaning of an organised “scheme.” The Oxford Dictionary defines scheme as “a large-scale systematic plan or arrangement for attaining some particular object or putting a particular idea into effect.” Thus, a single isolated distance sale would not qualify as a scheme. In fact, the European Commission’s Guidance Document on the Directive provides that where a trader exceptionally concludes a contract with a consumer by email or telephone after being contacted by the consumer, such a contract should not be considered a distance contract. It seems that there must be a pattern on part of the trader of using distance communication to negotiate and conclude sale contracts with consumers. The more recent Consumer Rights Directive (2011/83) provides additional guidance on distance contracts: “The definition of distance contract should cover all cases where a contract is concluded between the trader and the consumer under an organised distance sales or service-provision scheme, with the exclusive use of one or more means of distance communication (such as mail order, Internet, telephone or fax) up to and including the time at which the contract is concluded. That definition should also cover situations where the consumer visits the business premises merely for the purpose of gathering information about the goods or services and subsequently negotiates and concludes the contract at a distance. By contrast, a contract which is negotiated at the business premises of the trader and finally concluded by means of distance communication should not be considered a distance contract. Neither should a contract initiated by means of distance communication, but finally concluded at the business premises of the trader be considered a distance contract. Similarly, the concept of distance contract should not include reservations made by a consumer through a means of distance communications to request the provision of a service from a professional, such as in the case of a consumer phoning to request an appointment with a hairdresser. The notion of an organised distance sales or service-provision scheme should include those schemes offered by a third party other than the trader but used by the trader, such as an online platform. It should not, however, cover cases where websites merely offer information on the trader, his goods and/or services and his contact details.” The emphasis is squarely on the negotiation and conclusion of the contract. To determine whether a contract is a distance contract, it is important to examine how the negotiations between the parties occurred and how the contract was concluded. For example, where a collector and an art dealer negotiate and agree the price face-to-face, then agree the rest of the contract on the telephone or by email, such a contract would not qualify as a distance contract because a significant element of the contract (i.e. the price) was not negotiated ‘with the exclusive use of one or more means of distance communication’ (see the definition of a distance contract above). By contrast, if the collector visits the dealer’s gallery simply to inspect the artwork, and later negotiates and agrees the contract (including the price) by telephone and email, the contract would qualify as a distance contract. Turning to the issue of whether or not the contract is negotiated and agreed through a ‘scheme’, distance sales now catch contracts negotiated and concluded remotely on any online platform. The old Directive provided that the organised distance sales scheme should be ‘run by the supplier’. These words are not found in the 2011 Directive which makes it clear that an online platform run by a third party (e.g. eBay or 1stDibs) qualifies as a scheme, as does the dealer’s own platform. If instead of facilitating transactions through your website, you simply use it as a virtual ‘shop window’, the Directive suggests that your website does not qualify as a ‘scheme’ (see above). Does this mean that if you routinely negotiate and conclude contracts with consumers by means of distance communications after the consumer has visited your shop-window type website, those contracts do not qualify as distance contracts? That is unlikely. The fact that you have a process in place to conclude consumer sales at a distance is likely to amount to a ‘scheme’. In the absence of further guidance on the meaning of ‘organised distance sales or service-provision scheme’, inevitably there is a grey area. The contract may or may not qualify as a distance contract, depending on the circumstances in which it was negotiated and concluded. In the event of a dispute with a consumer, the Courts will be inclined to protect the consumer. In doubt, it is safer to assume that contracts made with consumers at a distance qualify as distance contracts, unless you negotiate and conclude contracts with consumers at a distance only occasionally, or either the negotiation of the contract or its conclusion occurs face-to-face. Off-Premises and Distance Contracts: the Consumer Cancels the Sale and Returns a Damaged Artwork…. Under the UK Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, consumers have the right to cancel distance and off-premises contracts (with a dealer selling stock or selling for another dealer) during the statutory cancellation period without giving any reason, and without incurring any liability, except in limited circumstances (e.g. there is an exemption for property offered for sale in live auctions). Where the consumer exercises his/her right to cancel the sale of an artwork within the statutory period, the dealer must reimburse the consumer any sum received from the consumer for the artwork. The Regulations do not permit the dealer to deduct from that sum any depreciation resulting from the consumer’s handling of the artwork during the cancellation period, unless the depreciation went beyond what is necessary to establish the nature, characteristics and functioning of goods (i.e., beyond what would be reasonably necessary to inspect the goods in a shop). In other words, the consumer is liable only if the depreciation in value went beyond the depreciation caused by a reasonable inspection of the artwork. Where the right to cancel applies, the Regulations place the responsibility of informing the consumer of this right squarely on the dealer. If the dealer fails to inform the consumer of his/her right to cancel, the Regulations extend the cancellation period by twelve months. In other words, the consumer has a total of one year from the end of the initial 14-day period to cancel the sale and obtain a refund. Further, if the artwork has been damaged during that period, the dealer is not permitted to claim the depreciation in value of the artwork, even if damage to the artwork went beyond that caused by a reasonable inspection of the artwork. Unfortunately, the Regulations are silent on what a dealer, having failed to inform the consumer of his/her right to cancel, may legitimately claim from a consumer who, say 10 months after delivery, exercises his/her right to cancel the sale and returns a severely damaged artwork. In principle, the dealer must reimburse the consumer in full, and the Courts are unlikely to show sympathy to the dealer who has failed to comply with the Regulations. Unless the consumer’s behaviour resulting in damage to the artwork shocks the conscience of the court, a very high bar to meet, the dealer may well be left without a remedy against the consumer. Insurers faced with a claim by the dealer for his loss may not be especially willing to provide an indemnity if they deem that the dealer brought the loss upon himself by failing to comply with his obligation to inform the consumer of his/her right to cancel. Given the commercial risks associated with a failure to provide the statutory information to consumers prior to distance and off-premises sales, especially information on the right to cancel, professional sellers are encouraged to review how they conduct their business with a view to aligning their practices with the requirements of the Regulations.
Pierre Valentin and Azmina Jasani