Under the hammer: can cultural institutions in crisis sell items from their collections to meet financial need?

In this article Laetitia Ransley looks at the issues involved when cultural organisations contemplate disposals.

The closing months of 2020 saw a series of news stories concerning eminent organisations and the sale of valuable works, in the face of financial difficulties caused by the COVID-19 pandemic. 

In September, a group of Royal Academicians proposed that the so-called Taddeo Tondo by Michelangelo be sold to alleviate the RA’s financial woes (and a proposed halving of its workforce). In October, the Royal Opera House decided to sell a portrait of its former director, Sir David Webster, by David Hockney, to fund its “strategy for recovery”. In November, the Royal College of Physicians made headlines with proposals to sell rare books from its collection in order to head off possible redundancies. Further afield, last month the founder of the Moco Museum in Amsterdam confirmed that a work by Banksy had been sold at auction in order to avoid laying off staff. While 2021 opens with brighter prospects in the form of mass vaccination, other holders of collections may find themselves facing similar choices in the coming year.

The stories throw into sharp relief a question that lies at the heart of our great cultural institutions but is rarely asked with the degree of urgency that has characterised the recent debate. At its most essential, it is this: what is a cultural organisation’s purpose, and how should it best fulfil it? Is the preservation of its collections in perpetuity paramount, or could it choose to do more with less? What other factors must be weighed in the balance when making such an assessment, and how should one go about making decisions which could have significant consequences for both the institution and its beneficiaries, now and in the future?

Though the challenges facing the sector today are in many ways unprecedented, these questions are not new in themselves: institutions have at various junctures been obliged to consider the nature and extent of their collections in the context of their purposes (indeed, the RA disposed of a Leonardo Cartoon in the 1960s, on the basis that its objects did not expressly contemplate the exhibition of Old Master pictures). In 2003, the National Museum Directors’ Conference (NMDC) published a landmark report, Too Much Stuff, which advocated “careful review and rationalisation of collections, leading in some cases to disposal, transfer or long-term loan”. More recently, a 2017 strategic review of the DCMS-sponsored museums concluded that legislative restrictions on disposal were being interpreted too strictly, and that it was “difficult to see how effective collections management can be truly effective and efficient, without some disposals.” 

It is, however, an area which is fraught with difficulties both legal and ethical, as well as being – in most cases – highly emotive. Recent commentary has likened deaccessioning and disposing of works to “flogging off” heritage assets, warning that it will be the public who lose out and the wealthy collectors who will benefit. On the other side of the debate, those advocating sale have likened museums to “bank vaults” and “mausoleums” who should be encouraged to put staff before “stuff”.

The focus of this article is on organisations with charitable status, and particularly those whose charitable purposes are concerned with culture in some form; it is, however, also relevant to learned and educational charities which hold collections of items for educational and conservation purposes.

What are we here for?

A cultural institution may be established to further a number of different but complementary purposes, and the charitable objects of many museums and galleries frequently identify objects which are concerned with the conservation and preservation of collections, alongside expressly educational objects. However, the Charity Commission’s published guidance on museums and galleries admits to the possibility of one without the other. It is therefore possible for a collection to have no particular intrinsic merit but for the method of its exhibition to provide an educational benefit, or for the collection to be of such intrinsic merit that its display alone is deemed capable of developing visitors’ powers of insight, perception and appreciation.

Ultimately, how a cultural institution chooses to further its particular purposes is for its trustees to determine; all trustees must however be satisfied that the manner in which the organisation does so is for the public benefit. The public benefit provided by cultural charities was recently considered in a case concerning eligibility for rates relief.[1] While the case hinged on the requirement for expert evidence as to whether the works on display satisfied a criterion of merit[2], it also served as a timely reminder that there is no presumption that a particular charitable purpose satisfies the public benefit requirement: whether an organisation is in fact operating for the public benefit remains an open question, and one that should be kept under regular review. Following a number of high-profile cases which considered the question of public benefit, the Charity Commission issued statutory guidance on the topic to which charity trustees must have regard when exercising powers or duties to which it is relevant.[3]

The assessment of public benefit is not always straightforward. Front and centre in assessing public benefit must be the interests of a charity’s beneficiaries, being the general public (or the section of it) which the organisation serves: for these purposes, while staff may be instrumental in delivering public benefit, they are not (in that capacity at least) beneficiaries themselves. “Public benefit” is not always (or entirely) synonymous with public engagement: preserving unique collections for the benefit of current and future generations may be the most appropriate way of delivering public benefit, for example where a collection is a reference collection, even if a substantial proportion of it is in practice rarely accessed by the public. In some cases, however, the rising costs associated with storing and conservation might prompt trustees to consider whether a degree of rationalisation and refocusing might not also be an effective way of discharging their duties.

What’s stopping us? Legal obstacles

Viewed from a legal perspective, a proposal to sell a work raises a host of questions. Some relate to the institution itself and its powers to deal with items forming part of its collections. Many of the national institutions have no general power to deaccession items and can only do so in certain limited cases – for example, where there is duplication within the collection, or the work is damaged beyond repair.

Then there are questions which relate to the item itself. How is it held? Is it owned by the institution outright, or is it subject to additional trusts, express or implied, which restrict how the trustees may deal with it? Is it actually owned by the institution at all, or is it on long-term loan (or, worse, is there disagreement as to which is the case and little evidence either way)? Lack of certainty on these questions can be costly: in 2014, Northampton Museums Service’s belated discovery that the ancient Egyptian statue known as Sekhemka, the subject of a controversial sale, had been loaned rather than gifted to it, resulted in 45 per cent of the sale proceeds passing back to the original (private) owner.

Might there be tax implications to consider, for example where a work was acquired by way of Acceptance in Lieu or via the Cultural Gifts Scheme? Other, more unusual issues can arise: in 2015, the High Court considered whether the Henry Moore statue known as “Old Flo” was a fixture (and as such the property of one local authority) or a fitting (and as such the property of another).

It has been suggested that unwritten, implied (yet binding) trusts can arise in relation to gifts to museums for general exhibition, and that such trusts must be validly varied before an item can be sold[4]: issues may also arise where an item has been purchased with the proceeds of a public appeal. In some cases, a gift may be conditional on the institution keeping the object in question on display, with a gift-over to another institution in the event of breach. If purchased with grant funding, a disposal may breach the grant terms and trigger prohibitive repayment obligations and reputational damage. 

The Charity Commission or the courts may be able to assist with reinterpreting or removing certain trust restrictions by order or scheme, but will usually need to be satisfied that no other options are available; an approach to the regulator may also invite greater scrutiny of the trustees’ decision-making and governance practices. Where an organisation is governed by statute, the assistance of Parliament, possibly in the form of secondary legislation[5], may be required.

Questions may also arise as to the purposes for which the proceeds of any disposal can be used. From an ethical perspective, the prevailing view is that the purposes for which the proceeds of sale of works may be applied should be closely connected to the improvement and management of collections (and principally to the acquisition of other works).[8] Legally, care should be taken to ensure that – assuming that it is what the organisation intends – the removal of any potentially unhelpful restrictions applies to both the work and the proceeds of disposal.

Who decides?

Responsibility for the strategic direction of an organisation sits with its trustees, but often they may find that they are one part of a more extensive constellation of de facto decision-makers. 

Trustees may require the assistance of regulators to effect a disposal. As noted above, where a charity is governed by an Act of Parliament, Parliamentary authority (and, crucially, the support of the relevant Department in promoting any proposed legislation) may need to be exercised in order to confer powers that cannot be read into a governing Act. Similarly, the Charity Commission and the courts may have a role to play if judicial authority is required to dispose of “functional” property, or to make an ex gratia payment. Other principal regulators are also likely to have views and may need to be consulted under the terms of an organisation’s funding agreement.

Beyond the mechanics of disposal, there are the more intangible questions, such as the potential effect on donor confidence if assets are sold which may have been purchased with donated funds. Perhaps uniquely in the ROH’s case, the work in question was reportedly purchased with the proceeds of a staff whip-round, perhaps making it apt that it be sold to protect the jobs of those employees’ successors; however, many institutions may fear the “cooling effect” of such a move, and that donors may be reluctant to fund the acquisition of works which might in future be treated in a similar way.[6]

What about other stakeholders? Typically, consultation will be needed with the institution’s members and beneficiaries, particularly if the assistance of the Charity Commission is to be sought. If there is an identifiable donor, should they or their family be consulted, and what weight should be given to their views? Sector bodies such as the Museums Association will expect to be consulted, as will public and private funders. An actual or perceived failure to consult sufficiently widely may give rise to public campaigns opposing a sale; for public bodies, there is the additional risk of requests under the Freedom of Information Act 2000, interrogating the trustees’ decision-making process. Where it appears that the trustees may have acted outside of their powers, or there are serious flaws in their decision-making, this could ultimately result in an application for judicial review of a decision.

The ethical debate

While this article focuses on legal aspects of disposal, there is also the nuanced ethical overlay which is encapsulated in the Museums Association’s Code of Ethics. The Code cautions against “financially motivated disposal” in all but very exceptional cases, on the grounds that it “risks damaging public confidence in museums and the principle that collections should not primarily be seen as financially negotiable assets”. Under the most recent iteration of the Code, such a disposal is usually only acceptable where it is considered that:

• it will significantly improve the long-term public benefit derived from the remaining collection;
• it is not to generate short-term revenue (eg to meet a budget deficit);
• it is a last resort after other sources of funding have been thoroughly explored;
• extensive prior consultation with sector bodies has been undertaken;
• the item under consideration lies outside the museum’s established core collection as defined in the collections development policy.

Failing to comply with standards such as the Code may result in disciplinary action, loss of membership and potentially also loss of Arts Council accreditation – the sale of Sekhemka also resulted in ACE withdrawing accredited status. This may in turn have implications for future applications to larger funding bodies, who will usually require applicants to have relevant accreditations and memberships in place.

The Code is of course part of a much broader ethical debate which involves collecting institutions around the world, and which has been pursued to very different conclusions. In the US, the Baltimore Museum of Art (BMA) has interpreted its duty to its beneficiaries to pursue a controversial programme of what has been dubbed “progressive deaccessioning”[7], whereby high value works by older artists are sold to fund the purchase of works by newer artists who are under-represented in their collections. Towards the end of last year, however, a proposal to expand the scope of this programme to fund increases in staff salaries and pursue a broader “social justice mission” [See for example: https://www.apollo-magazine.com/deaccessioning-and-diversity-us-museums/ ] met with considerable opposition from the American art world and the BMA was obliged to pause a further proposed sale.

Where next?

It is apparent that decisions of the kind now facing many cultural institutions are far from straightforward, and deaccessioning remains a highly sensitive and legally complex area.

It may be that there are ways of making assets work harder that stop short of disposal – for example, more extensive loaning or licensing of works in order to generate revenue. It has also been suggested that aspects of the Code such as the prohibition on mortgaging collections might be revisited in order to allow some of their value to be used to secure funding[8] – though mortgaging collections would of course raise its own complex set of legal and ethical considerations. Equally, there may be methods of disposing of items that enable institutions to continue to use them in furthering their purposes: both the ROH and the Moco museum have secured the right to continue displaying the works in question despite their sale.

Many are hoping for better things from 2021, though it seems likely that a substantial degree of uncertainty will continue to be a feature of our lives for some time. In the face of that uncertainty, institutions and those charged with running them are likely to wish to understand the full range of options available to them in determining how best to deliver their purposes, and as part of that to consider the place of disposal in the management of their collections and organisation.

If you require further information about anything covered in this briefing, please contact Laetitia Ransley or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2021

Footnotes:

[1] R (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court; Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin).

[2] Following Westminster Bank Ltd. v Pinion [1965] 1 Ch 85.

[3] Under section 17(5) Charities Act 2011.

[4] This view was for example endorsed by the Cottesloe Report in relation to public museums (The Report of the Committee of Enquiry into the Sale of Works of Art by Public Bodies 1964).

[5] Under the Legislative and Regulatory Reform Act 2006.

[6] New York State law enshrines this in legislation (Consolidated Laws, Education, 233-AA, para 5).

[7] Again, New York State law requires museums to inform donors of their deaccession policies and procedures prior to acquiring items by way of gift (Consolidated Laws, Education, 233-AA, paras 3-4).

[8] However, leading sector bodies were critical of this suggestion in comments on museums’ ability to access the Coronavirus Business Loan Scheme (Joint Response to the DCMS Committee Call for Evidence on the Impact of Covid 19 – 6th May 2020).