Law Commission’s report on the Bills of Sale Acts: A missed opportunity to stimulate the UK art-secured lending market?

JurisdictionSouth Africa
Published date16 August 2019
Pages15-30
Date16 August 2019
AuthorNigel Boardman
Citation(2017) 3(2) JCCL&P 15
15
LAW COMMISSION’S REPORT ON
THE BILLS OF SALE ACTS: A MISSED
OPPORTUNITY TO STIMULATE
THE UK ART–SECURED LENDING
MARKET?
NIGEL BOARDMAN
Partner, Slaughter and May, London
EMILY RAFTOS
Associate, Slaughter and May, London
ABSTRACT
Notwithstanding the fact that the UK art market accounted for 21
per cent of the global art market in 2015 (with US$13.5 billion out of
US$63.8 billion) and employed more than 40 000 people (as well as
supporting 100 000 jobs through ancillary services, such as art fairs
and auction sales), recent research suggests that the UK art–secured
lending market is lagging behind similar lending markets of other
countries, particularly that of the US. This paper investigates whether
the England and Wales Law Reform Commission’s Report on the Bills
of Sale Acts was a missed opportunity to stimulate the UK art–secured
lending market.
I INTRODUCTION
The United Kingdom art market is an important part of the global art
market with the UK accounting for 21 percent of the international
art market in 2015 (with US$13.5 billion out of US$63.8 billion)1
and employing more than 40 000 people (as well as supporting
100 000 jobs through ancillary services, such as art fairs and auction
sales).2 However, recent research by Deloitte suggests that the UK
art–secured lending market is lagging behind similar markets in
1 Anthony Brown ‘The UK art market can soar after Brexit’ The Telegraph 20
September 2016 available at http://www.telegraph.co.uk/news/2016/09/20/the-uk-
art-market-can-soar-after-brexit/, accessed on 20 March 2018.
2 ‘UK art market shrinks by 9% in annual TEFAF report’ Artlyst 10 March 2016
available at http://www.artlyst.com/news/uk-art-market-shrinks-by-9-in-annual-tefaf-
report/., accessed on 20 March 2018.
(2017) 3(2) JCCL&P 15
© Juta and Company (Pty) Ltd
16 (2017) 3 (2) JOURNAL OF CORPORATE AND COMMERCIAL LAW & PRACTICE
other countries, particularly that of the United States of America.3
For example, Deloitte writes that ‘the US has been leading the global
development for art-secured lending for some years’4 and that the
US art–secured lending market ‘continues to dwarf other markets’.5
Deloitte estimates the size of the overall US art–secured lending
market at US$15 billion to US$19 billion (measured by value of
loans outstanding)6 and suggests that the US art–secured lending
market grew by 15 to 20 per cent annually in the five years to 2016
(measured by value of loans outstanding).7 Deloitte suggests that the
dominance of the US art–secured lending market is attributable to the
‘favourable legal environment provided by the Uniform Commercial
Code … which essentially allows the art collector to keep possession
of the artworks while the loan is still outstanding’,8 arguing that
‘Europe needs to develop a similar regime to the US in order to grow
the art-secured lending business’.9
These comments draw attention to the main dilemma facing
legislators in the art–secured lending space — that is, how to craft
legislation that provides sufficient protection to lenders, while
making art–secured loans sufficiently attractive to borrowers. Broadly,
a lender may take two types of security over personal property
such as art: possessory security, which requires the lender to take
possession of the property; and non–possessory security, which does
not require the lender to take possession of the property. Possessory
security offers the strongest protection from the perspective of the
lender. This is because the borrower is prevented from dishonestly
dealing with the property to the extent that he or she cannot transfer
the property to a third–party purchaser, because the lender has
possession of the property.
However, possessory security is inherently unattractive for most
individuals who wish to borrow money and secure their borrowings
over art that they own — the primary reason why individuals own
art is to enjoy looking at it.
Non–possessory security offers weaker protection from the
perspective of the lender. This is because the borrower is not prevented
from dishonestly dealing with the property — the borrower can
transfer the property to a third–party purchaser, because the borrower
3 Deloitte Art & Finance Report 2016 available at https://www2.deloitte.com/
content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-en-
artandfinancereport-21042016.pdf, accessed on 20 March 2018 at 18.
4 Ibid note 1 at 22.
5 Ibid at 82.
6 Ibid at 18.
7 Ibid at 82.
8 Ibid at 22.
9 Ibid.
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