Most art galleries participate in art fairs throughout the year. Many of those fairs are international, such as Art Basel Switzerland or the Hong International Art Fair. International art fairs are an excellent way to position your gallery in front of an international audience and capture a new clientele. They are also an incredibly costly endeavor, considering exhibition costs, shipping costs, airfare, and accommodations can amount to a daunting figure. Even working to put on a show at another international gallery can be costly, and all too often things don’t go as planned.
We all know that the contract is critical when risking money and reputation on an event that is being controlled by someone else. It’s the contract that lays out the rules for the relationship between the parties. If there is a dispute, the court looks to the contract to decide who is correct, not what is fair. So a poorly written contract could be costly.
One section of a contract that should be carefully considered is the forum selection clause, sometimes known as choice of law. This seemingly unimportant clause determines which country is the forum for the lawsuit. Common sense might say that the aggrieved party would choose, but remember that the defendant is not guilty of any wrongdoing until the aggrieved party proves they have; innocent until proven guilty. if forum selection is not delineated by the contract, default rules will be used, which vary among countries. Therefore, if a U.S. Gallery were to have a dispute with an Art Fair in Hong Kong, they might find that any lawsuit will be held in Hong Kong. The U.S. gallery will have to hire international law attorneys that understand the laws of Hong Kong, who in turn will have to hire local counsel in Hong Kong. In some cases, the gallery owners may have to fly to Hong Kong for depositions or other legal matters. Those costs may be too high to warrant a lawsuit, whereas if the forum was in the U.S. it would be less costly and easier. Any forum selection clause within the contract will override the default rules. However, under contract law, the contracting parties can agree on the rules for forum selection forum, which will override the default rules. But forum selection is sometimes overlooked by non-lawyers, so it’s easy to slip up.
For some of the larger art fairs, especially those that are hard to get into, there is probably not much that can be done. Those shows have all the power. If a gallery doesn’t like the contract terms, the only recourse is to not sign. The fair will have plenty of other galleries who will agree to the terms. However, for smaller art fairs that may still be trying to gain traction, or when entering contracts with other galleries, the forum selection can often be negotiated before signing.
Consider the following common example of an all too common occurrence. Your gallery, “Gallery X” is invited to participate in the Amazingly Cool Art Fair (ACAF), a freshly-minted fair in Taiwan. The ACAF’s rep contacts your gallery, to let you know about the fair, telling you all these wonderful things about how great it is going to be, and how much they want your gallery to participate. You hesitate due to the expense of the booth space and the costs of sending work overseas. As an enticement, ACAF tells you that they have major ties to the renowned “Biggest Art Fair in Taiwan” (BAFT), and would draw on their crowd of attendees and also place some of BAFT’s best galleries at the show, which will help draw large crowds. They also tell you about their marketing campaign, which will ensure good attendance. Gallery X, judging by the caliber and clientele of the participating galleries, reasoned that with the promised crowd, they fair wold be very profitable. ACAF continually assured Gallery X that the fair would draw large crowds with money to burn, so Gallery X decided to exhibit its more experienced artists rather than its mid-career artists.
Once at ACAF, Gallery X quickly realized that attendance was low. At first, this was merely a disappointment, but later, Gallery X discovered that not only did the ACAF representative lie about the relationship with BAFT, but ACAF never did any marketing at all, relying purely on word of mouth. Gallery X felt that ACAF had completely misrepresented itself in order to surreptitiously gain the gallery’s business. Gallery X wishes to recover its losses by filing a lawsuit against ACAF only to find that any lawsuit would be held in Taiwan. With the potentially high-costs, Gallery X was forced to accept their losses and move on.
What could Gallery X have done in order to protect itself? How can gallerists mediate these kinds of issues with art fairs going forward?
International contracts and choice of law: The basics
First, any contract you receive, the forum selection clause, will likely favor the one who wrote the contract. Many attorneys will try to get this advantage for their clients. There isn’t much harm. If the recipient doesn’t like the clause, more even-handed terms will be negotiated. But if the recipient overlooks the clause, then that is an advantage. That’s why it’s imperative to cover all the bases when entering into a contractual relationship especially one in another country – litigation is expensive enough without having to add the additional costs of litigating abroad. If the contract is silent as to forum selection, then there’s usually a ton of litigation that goes into deciding where the parties will litigate. That makes the costs of litigating even higher.
When it comes to forum selection clauses, there are several important things to consider. A savvy gallerist, who takes the time to properly acquaint themselves with forum selection clauses, can probably insist on these important protections without having to hire an attorney. Familiarizing yourself with these tips will ensure you have the upper hand when negotiating a contract with an international art fair.
Use Forceful Language
Read the forum selection clause carefully. A forum selection clause is only mandatory if it specifically states that the forum selected by the contract is mandatory, rather than optional. So, the clause states that the parties “may” bring a lawsuit in a particular place, then it would not automatically call for litigation in that forum. Whether you are writing or negotiating, make sure that the clause uses mandatory language, stating that the parties “shall” or “will” dispute in Gallery X’s desired forum. Otherwise, the clause may be considered too vague, resulting in the court falling back on default rules, which will add to the litigation costs.
Define the Scope
Having a forum selection clause in your contract does not necessarily guarantee that every dispute you have with your counterparty will be decided in that forum. Sometimes, the clause can limit the types of disputes that can be argued in the selected forum. For example, Gallery X will likely pursue a fraud claim, which means they aren’t challenging the contract itself. A forum selection clause that applies to disputes “concerning this contract” would probably not be enforceable on a fraud claim. To ensure that any and all disputes are argued in the forum of choice, make sure to include language that states that any and all disputes arising out of, in connection with, or relating to this contract be litigated in the court of choice.
Establish Ties to Your Selected Forum
When you’re negotiating a forum selection clause, it’s important to be sure that the court you’ve selected has the jurisdiction to hear your claim. Although forum selection clauses are generally enforced, some courts will decline to enforce such a clause if the parties in the contract have no connection to the forum, i.e. they sell nothing in that state. Courts also may decline to enforce forum selection clauses when the application of the clause may result in unfairness or the forum selection clause might violate public policy. It’s quite common for parties to agree on a forum but when a lawsuit is filed, the opposing side argues for a forum change, citing the fact that you don’t have any connection to that forum. Any attorney will understand these issues quite clearly, but if you are entering into a contract without legal counsel, then it’s important to research the selected forum and ensure you have a presence there. For example, Gallery X could justify choosing to litigate in a New York court if their gallery is based in New York, but not necessarily if their gallery were based in Oklahoma.
Choice of Law versus Choice of Forum
It is important to remember that choosing where the dispute will be decided is not the same as choosing what law will govern the dispute. In some instances, it might be more favorable for you to choose the laws of one country but agree to litigate in another, to ease the burden of extensive travel for litigation. For example, perhaps Gallery X would have liked to negotiate that Taiwanese law applies to the dispute if Taiwanese law set a lower burden of proof for fraud, yet keep the lawsuit in New York. Keep in mind that this may not always be possible but don’t be surprised if you are able to negotiate only “choice of law” or “choice of forum” but not both. If the opposing party insists on using the laws of their country, it may be because it allows them to use their current lawyers without having to find lawyers that understand another country’s law. But it also may be because the law in that country favors them, and not you, in a dispute. So watch out.
In general, whether considering forum selection or any other clause in a contract, always think about why the person who drafted the contract made the choices that they did. Most often, those choices will be to their clients benefit so be careful to find out why so you can ensure that your claim will be decided in a way that benefits you.
Have you had any problems with forum selection, art fair or international contracts? If so let us know. If you have any questions or other comments, leave them in the comments section below.