An extract from The Art Law Review, 1st Edition

Art transactions

i Auction sales

The Sale of Goods Ordinance provides for auction sale. In the case of a sale by auction each lot is prima facie deemed to be the subject of a separate contract of sale and the sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his or her bid.

To avoid the rigging of auction sale results, where a sale by auction is not notified to be subject to a right to bid on behalf of the seller, it is not lawful for the seller to bid himself or herself or to employ any person to bid at such sale or for the auctioneer knowingly to take any bid from the seller or any such person.

Any sale contravening this rule may be treated as fraudulent by the buyer.

However, a sale by auction may be notified to be subject to a reserve or upset price and a right to bid may also be reserved expressly by or on behalf of the seller.

Finally, where a right to bid is expressly reserved, but not otherwise, the seller, or any one person on his or her behalf, may bid at the auction.

Note, however, that sales by auction are through a middleman who is the auctioneer and his or her role is made abundantly clear in extensive auction conditions that traditionally exclude the implied warranties under the Sale of Goods Ordinance.

Although auction sales and their results of major Chinese works of art in overseas territories such as France have been the result of very substantial misrepresentation or disagreement, there is no recent similar case in Hong Kong.

ii Private sales

In another well-known case finalised in 2019, an established Hong Kong collector of Chinese porcelain had been persuaded by a fraudulent conspiracy to invest in gold in the Hong Kong unofficial board of the London gold market with repeated reports of substantial losses that the collector was only able to finance through the sale of valuable pieces from his Chinese porcelain collection. In the High Court action brought by the collector against the alleged fraudsters, the Court was persuaded to prohibit any dealing by any of the alleged fraudsters with any of the items in the collector's collection and the case continues.

It is not unknown for buyers from China bidding successfully for works of art at Hong Kong auctions and failing to pay, but whether this is through principle, change of mind or impecuniosity is not always clear. This usually leads to legal action in Hong Kong by the auction house pursuant to its conditions of sale.

The main difficulty arising out of such occurrences is that the mainland Chinese buyer usually has a residential address in China and not in Hong Kong and there are enormous complexities that arise when a legal action is commenced in Hong Kong with a defendant whose entire locus is in China, commencing with a difficulty of arranging service of the proceedings and continuing thereafter into the fair and appropriate service of interlocutory stages of the action and eventually realising on the amount of any successful judgment.

iii Art loans

In tandem with the healthy growth of consuming public interest in the visual arts in Hong Kong, a very healthy programme of art lending has developed in both the public and private sectors.

Public sector

Hong Kong museums are in regular contact with major overseas museums for loan exhibitions. The British Museum and the Victoria and Albert Museum in London have both lent stunning works of special exhibition art from their collections for exhibit in Hong Kong museums. Major Chinese and US museums have also made substantial loans to Hong Kong museums for public exhibitions.

An exhibition of major works by the famous Renaissance artist Sandro Botticelli and his contemporaries, on loan from the Uffizi Gallery in Florence, is running at the Hong Kong Museum of Art from November 2020 to February 2021.

Private loans

Hong Kong museums are fortunate in being able to draw upon local private collections, principally of Chinese art and archaeology, for very effective catalogued display in public and university museums.

iv Art theft

Surprisingly, given the enormous market value of works of art traded, collected and housed in Hong Kong, from authentic Chinese works of art from many millennia ago to non-Chinese art works in many different media, art theft is not common in Hong Kong. Most collectors and others concerned in the trade have excellent photographic records of the assets.

However, in September 2020, a theft of massive pecuniary value was committed by a small group. Among the principal targets stolen by the thieves were a large calligraphy scroll written personally by Chairman Mao Tse-Tung, whose calligraphy is extremely famous, and a number of exceedingly rare 1960s-issue Chinese Cultural Revolution postage stamps.

v Cross-border transactions

The principal international cross-border restriction on 'illicit import, export and transfer of ownership of cultural property' is provided for in the UNESCO 1970 Convention as an international treaty signed on 14 November 1970. It came into effect on 24 April 1972 and was ratified by China on 25 September 1989.

The accession to this Convention by China – as in every other country and territory to which it has been extended – sets a date prior to which any trade in a cultural object is prohibited. The Convention does not apply to any trade after 1970 and what it has given rise to is a fascinating body of practice relating to the provenance or licit origin of the first marketing of a work of art.

China has subsequently published a report on the 1970 Convention declaring that in its new Law of the People's Republic of China on the Protection of Cultural Relics, amended in 2002, the definition of 'cultural property' is broader in scope than the definition in the 1970 Convention because it is expanded to include not only movable objects but also sites and monuments. That report was the first in a series setting out the extensive framework and ramifications of China's activities in the entire cultural property field.

However, China has not extended the 1970 Convention to Hong Kong. Effectively, therefore, and given that Hong Kong has been an integral part of the People's Republic of China since the 1997 handover from the United Kingdom to the PRC, the common law system of Hong Kong continues as a separate system from the civil law system in China and the law of China does not extend to or apply in Hong Kong.

The result of this is, and has for many years been, an active traffic in cultural objects from China in the Hong Kong markets although the position taken by major auction houses in Hong Kong is that they will not sell any objects that are considered by them to have been exported from China after the 1970 Convention.

vi Tax considerations in the Hong Kong jurisdiction

There is no applicable Hong Kong taxation legislation related to cultural objects acquired in Hong Kong or internationally and brought into Hong Kong after such acquisition.

vii Art finance

Art loans are available through internet offers from both reputable overseas financing houses and financing houses in Hong Kong. Generally, the making of such loans and the transactional history of performing the loans is not a matter of public view and it is fair to say that the Hong Kong courts do not have a frequent history of adjudicating issues arising out of art loans.