This article is part of an ongoing series on the Resale Rights for Visual Artists Act 2023.

One notable feature of the Act is that it is drafted to make it easy for art market participants involved in transactions not captured by the Act to voluntarily opt into the royalty scheme it creates if they want to, while making it very difficult for anyone involved in a transaction that is captured to opt out.

Some interesting issues potentially arise as a result.

Inalienable Rights

The Act specifically provides that resale right is inalienable while held by the artist; and cannot be waived, assigned, or charged, albeit that the artist can decline to receive a royalty payment. On top of this, any agreement to share or repay the resale royalty in a way not provided for in the Act is void.

The effect of this is that an artist can neither be compelled to give up their resale right or to do so voluntarily (albeit that they don’t have to accept the resulting payments). Nor can they use the right as a way to secure any debts or obligations (such as loans).

The rational for this is fundamentally paternalistic, and presumably reflects an underlying assumption on the part of Parliament that artists are more likely than not to be at a commercial disadvantage compared to other art market participants, so are at risk of being pressured into giving up their rights under the Act for inadequate consideration. That is obviously not going to be true in every case, but the Act errs on the side of caution in order to protect artists where it is true by making it impossible for a vulnerable artist to have a waiver or transfer of the royalty right imposed as a condition of sale (at the expense of also preventing artists who might be commercially astute and in a position of equal or greater bargaining power from transacting in respect of the royalty right as they see fit).

This policy position is not unique to New Zealand, and it’s incorporation in the Act aligns with the Berne Convention and the UK and European Union Free Trade agreements which New Zealand is party to.

Consequences

The consequences of the right being inalienable are not fully explored in the Act.

For instance, unlike copyright, which is not inalienable, the resale right presumably cannot be treated as relationship property in the case of an artist separating from their partner. Nor, presumably, can the right itself be used or sold to satisfy the debts of an artist in bankruptcy.

Further, although the royalty payments that results from the right are distinct from the right itself, the scheme of the Act leads to some interesting questions about the extent that artists might be able to be compelled to pay money from funds that result from royalty payments, given on the one hand that it might be thought there is nothing inherently special about such funds once paid to the artist; while on the other, that divesting such funds from the artist may, if taken to an extreme, have the effect of defeating the inalienability provisions of the Act. For example, would an agreement to say, satisfy a debt using particular royalty payments, be void due to the prohibition on agreements to share in a resale royalty?

It will be interesting to see how the courts approach such issues when they inevitably arise.

Declining Payments

A royalty payment can be declined by an eligible artist. If this occurs, the parties to the resale are still required to pay the royalty to the collection agency. However, the collection agency must then either pay the amount to a cultural fund, or, if no such fund exists, either repay the money to the person who paid it or (if that person cannot be found), use it to fund the activities of the collection agency under the Act.

Opting In to the Scheme

While the Act only applies by default to qualifying resales of visual art, the parties to a non-qualifying resale can still make a royalty payment to the artist if they wish.

There is no reason why this could not be done directly to the artist with no external involvement. However, the Act also provides for a voluntary payment of a royalty through the collection agency if certain conditions are agreed in writing between the parties to the sale, including:

• the percentage of the royalty (which could be more or less than the amount specified in regulations for a qualifying resale); and
• who will be responsible for providing information about the resale to the collection agency.

This may be useful if the parties wish to provide for a royalty but cannot contact the artist or their estate directly.

Pre-Existing Resale Royalty Obligations

As can be seen from the preceding point, the concept of a resale royalty for artworks is not something dependent on the Act, and there has been a long history of private arrangements providing for such rights entirely independently of this.

The Act does not however contain any transitional provisions addressing how such private arrangements might now be grandfathered into the present scheme. The problem is of course that such rights may not be consistent with the Act. For instance, the percentage of the royalty may differ from that set out in regulations, or there might be provisions requiring this to be paid in a particular way that does not sit well with the obligation in the Act requiring payment through the collection agency.

Such agreements are however likely to be rare when it comes to physical art, and one would expect a prudent approach would be self evident in most cases.

NFTs could however present a more difficult challenge. Commentators have already observed that while digital art is covered by the Act, there may be some grey areas when it comes to determining whether the sale of an NFT associated with a piece of digital art is captured or not. It is likely this will depend on the terms of the underlying contract, and that not all such sales will qualify.

However, where a the sale of a NFT is captured, problems will arise from NFT’s that provide for an automatic royalty payment to the artist. Not all NFT’s do so, but where they do this is likely to bypass the collection agency, and, on the face of things, constitute a breach of the Act. In terms of the primary purpose of the Act this is of course not really an issue (in that the interests of the artist are generally inherently protected by the smart contract in such circumstances, albeit that in theory the artist might have elected a lower royalty than what the Act provides for). But it might be thought that the secondary purposes of the Act are being prejudiced as bypassing the collection agency will have the effect of preventing it from “clipping the ticket” on such transactions, reducing the money that can be applied to any cultural fund created under the Act.

It will be interesting to see how this issue is addressed in practice.

The information on this website is general in nature and may not be up to date. It is not intended as legal advice for any specific situation or person and should not be relied on for that purpose. You should always seek up to date legal advice for your specific situation.

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