The legal reality of virtual art sales

Online art sales are being billed as a fastgrowing section of the art market with commentators reporting that the online art market grew by an estimated 24% last year to $3.27 billion, fuelled by strong growth among a number of online art platforms.

But where the sale moves from a traditional auction house to the virtual one there are a number of additional considerations arising under consumer and distance selling laws which online sellers need to be alert to.

The most significant area of legislation impacting this area is The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. The Regulations apply to all "distance contracts" and "off-premises" contracts with consumers, except for certain specific exemptions (such as gambling, banking or credit services), and so are key for online businesses. They set out the information which must be provided to consumers before a contract for the sale of goods can be said to be binding with the consumer as well as any mandatory cancellation rights.

Under the hammer

The usual principle at auction is that once the hammer falls you are bound to buy the item you bid on and any cancelation rights arising out of consumer law do not apply. However, this is not the case for most online auctions due the fact that there is no possibility for the consumer to attend the sale in person.

The important point to note here is that the cancellation right is not applicable where the sale can be said to fall within the definition of a public auction.

A public auction is defined as a method of sale where:

• goods or services are offered by a trader to consumers through a transparent, competitive bidding procedure run by an auctioneer
• the consumers attend or are given the possibility to attend in person
• the successful bidder is bound to purchase the goods or services.

The difficulty, of course, for online auctions is that by their very nature purchasers will not usually attend the auction in person (unless run as an add-on to a physical auction). This means that the cancellation right would apply.

Stand or deliver - expectations

In those cases where there is no public auction, the buyer must be given a cooling–off period during which they can cancel the sale contract of the lot up to 14 days after they or a person they authorise (other than the carrier) take physical possession of it. The cancellation could be for any reason and there would be no liability incurred for doing so.

There are some welcome exceptions here, for example, the seller has no obligation to refund premium delivery charges if the consumer chose a more than standard delivery method.

A couple of other points to watch out for include the fact that the Regulations also provide a long list of the information that must be provided to the consumer on or before delivery, including details of cancellation rights and returns and a mandatory cancellation form which the consumer may use to cancel the contract.

In summary

The mandatory cancellation right clearly presents challenges for auctioneers and is highly disruptive to the traditional business model.

As the online presence from galleries and auctioneers increases this may cause some to consider alternative methods by which they can adapt to the online environment.

This may include the option to 'buy now', a move towards a fixed price strategy, or attempting to circumvent the Regulations by allowing purchasers to theoretically attend an auction space in person. This could perhaps be achieved with some form of 'live-streaming', but how this will play out in practice is yet to be seen.

This article was written by Christina Fleming, Associate.

For more information, please contact Christina on +44 (0)20 7427 1022 or at christina.fleming@crsblaw.com.