Snapshot: buying and selling art in Hong Kong

Buying and selling

When does ownership of art, antiques and collectibles pass from seller to buyer?

Sellers and buyers in Hong Kong constitute two forms of market. The first is auctions, and the second is the over-the-counter commercial retail trade. The Sale of Goods Ordinance effectively provides that when a person who is not the owner and is not transferring under the authority or with the consent of the owner effects a transfer to a third-party buyer, the buyer acquires no better title than the transferring seller. This means that on those facts, the seller is not able to transfer any title, and the buyer does not acquire any title.

However, the Sale of Goods Ordinance preserves the good passing of title in market overt.

For a sale to qualify in market overt, there must be an open sale of goods in a shop or market in Hong Kong in the ordinary course of the business of that venue. Upon the sale being transacted by the buyer in good faith and without notice of any defect or want of title on the part of the seller, the good title to the goods passes to the buyer.

Separately, the Sale of Goods Ordinance provides that where the seller has a voidable title, but the title was not avoided at the time of the sale, the buyer in good faith and without notice of the seller’s title defect acquires a good title.

Does the law of your jurisdiction provide that the seller gives the buyer an implied warranty of title?

The Sale of Goods Ordinance has an implied warranty of title that the seller has the right to sell. This is coupled with an implied warranty of freedom of the goods from any charge or incumbrance not disclosed or made known to the buyer before the making of the sale contract.

A connected and directly sequential further implied warranty provides that the goods are free from any charge or incumbrance and that buyer will enjoy quiet possession of the goods, subject only to exceptional disturbance either by the owner or by any other person who may be entitled to the benefit of any charge or incumbrance, as was or will have been disclosed to or will have been known by the buyer.

Under a further implied warranty, none of the below can disturb the quiet possession of the goods by the buyer:

1. the seller in the case of his or her own goods or the goods of a third person where the seller is transferring title of a third person; and
2. anyone claiming through or under either of the options in item (1).

There is a further implied condition that where goods are sold by description, they must correspond to the description, and in a sale that also involves a sample, the bulk must correspond with the description, regardless of whether it also corresponds with the sample. The seller’s liability for sale by description is not avoided by the fact that they are selected by the buyer.

A final well advised inclusion in any substantial purchase and sale of contract for goods such as artwork is that any implied warranty can be negated or varied by express agreement, as well as by the course of dealings between the parties or by usage if the usage in the market binds both parties to the contract. An express condition or warranty cannot negate an implied condition or warranty under the Sale of Goods Ordinance unless the express warranty is inconsistent with the implied one.

Can the ownership of art, antiques or collectibles be registered? Can theft or loss of a work be recorded on a public register or database?

There is no register of ownership in Hong Kong of art, antiques or collectibles; however, loss can be reported to the Art Loss Register (ALR), which is incorporated in England with a registered address at Hatton Garden, London. The ALR has published terms and conditions that apply to any search. Its service conditions provide for search of the Register, for new registration of any theft or loss of an artwork or valuable item and the enlistment of the ALR to help in reuniting a lost artwork with its owner through the use of its database and its specialist recoveries team.

The best course for the seller is expressly to exclude the implied warranties under the Sale of Goods Ordinance from any transaction of sale of an art piece to the buyer.

The Ordinance clearly provides that any implied right, duty or liability can be negated or varied by express agreement or by course of dealings between the parties.

There are many ways in which an artwork can be “lost” which will not be reported to the ALR and so it stands effectively as one potentially useful but in no way an exclusive route of enquiry into art loss.

Does the law of your jurisdiction tend to prefer the victim of theft or the acquirer in good faith of stolen art?

The availability of market overt both enables and protects a good faith purchase by a buyer on the open market, regardless of whether the artwork is stolen, provided that the buyer has no notice of the theft and buys in good faith. Good faith is a matter of authentic belief.

If ownership in stolen art, antiques or collectibles does not vest in the acquirer in good faith, is the new acquirer protected from a claim by the victim of theft after a period of time?

The good faith belief of the acquirer of an artwork is a paramount constituent element and protection in market overt.

A claim by a third party must establish bad faith in the acquirer. The ability to do this is, however, subject to the statutory limitation under the Limitation Ordinance, which provides for a six-year period, during which the claimant will be able to make his or her claim. The six-year period runs from the date when the cause of action arose, which can be either the date of the actual sale transaction or the date upon which the claiming former owner discovers that the sale has been made. In both cases, the expiry of the six-year period is final.

Can ownership in art, antiques or collectibles vest in the acquirer in bad faith after a period of time?

No. Bad faith elements at the time of acquisition are a mandatory element at both the start and through any continuation to defeat ownership in the acquirer.

Must the professional seller of art, antiques or collectibles maintain a register of sales?

There is no obligation in Hong Kong for a professional seller of art, antiques or collectibles to maintain a register of sales. If a register is maintained, then it may be useful as rebuttable evidence in the context of historical fact of the transaction.

When does risk of loss or damage pass from seller to buyer if the contract is silent on the issue?

Under the Sale of Goods Ordinance, unless otherwise agreed, the risk of loss or damage to the goods passes from the seller to the buyer, but the goods remain at the seller’s risk until the property in the goods is transferred to the buyer. Once the property has been transferred to the buyer, the risk passes to the buyer, regardless of whether delivery is made.

Otherwise, the standard provision in auction house sales is for the catalogue conditions of sale to state clearly that the risk in the goods being purchased at the auction passes on the fall of the auctioneer’s hammer.

Must the buyer conduct due diligence enquiries? Are there non-compulsory enquiries that the buyer typically carries out?

There is no obligation on the buyer of an artwork to conduct a due diligence enquiry. However, in the context of a large, high-value artwork, it is not unusual for the buyer to make due diligence enquiries of the seller, although the seller is under no legal obligation to answer.

If the seller answers and the answer is fraudulent, this may give rise to a cause of action by the buyer; however, it may not of itself necessarily avoid the purchase and sale transaction.

Must the seller conduct due diligence enquiries?

Regardless of the context or channel of the market, the seller has no obligation to conduct due diligence enquiries relating to the buyer.

In the terms of a high-value transaction, there is always a possibility that it may involve money laundering, which may be an offence under the Organized and Serious Crimes Ordinance (OSCO). OSCO restricts the dealing in proceeds of an indictable offence and requires a mandatory report to be made to the government authority in respect of any suspicious property that may represent those proceeds.

Under Schedule 1, Part 1 of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance:

money laundering (洗錢) means an act intended to have the effect of making any property—

1. that is the proceeds obtained from the commission of an indictable offence under the laws of Hong Kong, or of any conduct which if it had occurred in Hong Kong would constitute an indictable offence under the laws of Hong Kong; or
2. that in whole or in part, directly or indirectly, represents such proceeds,

 

not to appear to be or so represent such proceeds;

Whether there are one or more persons handling funds or monies that are obtained from the commission of an indictable offence is a matter of fact.

Does the law provide that the seller gives the buyer implied warranties other than an implied warranty of title?

The law implies the following:

• the seller has the right to sell the goods and, in the case of an agreement to sell, he or she will have the right to sell the goods at the time when the property will pass;
• the goods are free and will, until the passing of property, remain free from any charge or incumbrance not disclosed or known to the buyer before the contract is made; and
• the buyer will enjoy quiet possession of the goods, subject only to possible disturbance by the owner or other person entitled to the benefit of any charge or incumbrance that is disclosed or known.

Other than this, the Sale of Goods Ordinance implies the following in contracts for sale of goods:

• the goods must correspond with the given description, and if the sale is by sample in addition to the description, the bulk of the goods that corresponds to the sample will not satisfy the former if the goods do not also correspond with the description given;
• the goods supplied under the contract are of merchantable quality, but there is no such condition:
  • where defects in the goods have been specifically drawn to the buyer’s attention before the contract is made;
  • in respect of defects discovered by a buyer during an examination completed before the contract was made; or
  • in respect of defects that would have been apparent on reasonable examination of the sample where the contract is a contract for sale by sample;
• if the buyer expressly or impliedly makes known to the seller any particular purpose for which the goods are being bought, the sale carries an implied condition by the seller that the goods supplied are reasonably fit for the particular purpose, except where the circumstances show that the buyer does not rely upon or that it is unreasonable for him or her to rely upon the seller’s skill or judgment; and
• a contract for sale by sample carries an implied condition that the bulk must correspond with the sample in quality, the buyer must have a reasonable opportunity to compare the bulk with the sample, and the goods must be free from any defect rendering them unmerchantable that is not apparent on reasonable examination of the sample.

However, it is expressly provided in the Sale of Goods Ordinance that any right, duty or liability that arises under the contract of sale of goods by implication of law may be negated or varied by express agreement, as well as by the course of dealings between the parties or by usage if the usage in the market binds both parties to the contract.

The buyer must consider requiring that either some or all implied conditions and warranties under the Sale of Goods Ordinance be excluded. It is further provided that any express condition or warranty that is inconsistent with a condition or warranty implied by the Sale of Goods Ordinance does not negate that implied condition or warranty.

If the buyer discovers that the art, antique or collectible is a forgery, what claims and remedies does the buyer have?

The passing off as genuine of a fake, forged or non-authentic artwork is a fraudulent act under the Crimes Ordinance. The offence is committed where a person makes a false instrument, such as where a document is created by the person with the intention that the maker – or any third party – will be able to use the document to induce another person to accept it as genuine, where the acceptance will inspire the other person to do or not to do some act that will prejudice that other person him or herself or a third party. Conviction of this offence carries a maximum sentence of 14 years’ imprisonment.

The Crimes Ordinance also establishes the offence of counterfeiting, although this offence is expressly restricted to apply only in the case of currency notes or coins that resemble the genuine article and are reasonably capable of being passed off as the genuine article. Whether currency notes or coins can fall within the definition of ‘artwork’ is very often a matter of belief; however, if it can be established, then the above-mentioned offence may have been committed and may result in a sentence of 14 years’ imprisonment on conviction.

Can a seller successfully void the sale of an artwork of uncertain attribution subsequently proved to be an autograph work by a famous master by proving mistake or error?

The seller of an artwork attributing at the time of sale an uncertain authorship to the artwork, and in the absence of a provision reserving the rights of the seller, in the event of subsequent discovery with proof of authenticity will have no available action against the buyer in respect of the sale, provided that the original attribution was made in good faith.

To be voidable by the doctrine of mistake, any such action by the seller must be immediate upon discovery; otherwise, the doctrine of laches and delay in action by the seller will prejudice the seller’s right to void the sale.

Law stated date

Give the date on which the information above is accurate.

1 March 2021.