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35. DUTY OF CARE TO THE PUBLIC

Introduction

Collecting institutions are natural repositories of traps, dangers and hazards and every organisation that opens it doors to the public has a duty to take reasonable steps to ensure that those premises are safe for its visitors. The institution is at risk from the time that a visitor enters the grounds of the institution to the time that he or she leaves.

Humans are notoriously clumsy, forgetful, unobservant, inconsiderate, wilful, and bad at reading warning signs. For their part, museums, galleries and libraries make ideal sites for accidents and it is a difficult task to balance the safety of the public against the accessibility of the collection.[1] After all, the institution that poses the least threat to the public is the one that is locked and barred. To allow the public to enter any premises is to accept that a certain degree of risk will be involved. The law accepts this, and does not impose absolute liability on those who control public premises. Rather, the tests of liability focus on “reasonableness” and “foreseeability”. Some of these risks are the usual and general risks borne by all occupiers – not just collecting institutions. For example:

Safety of access to and use of the facility: From the time that a member of the public enters the grounds, to the time he or she leaves, the institution has a duty of care for that person.[2] This duty is owed to persons whether they are using the paths, gardens, stairs, corridors or lavatories, wandering in the bookshop, dining in the restaurant, or looking at an exhibition. To all of these people, the occupier has a duty to use reasonable care to prevent injury or damage from unusual dangers of which it knows or ought to know: the loose carpet, the open trap door, or the extension flex that lies across the corridor. The odds are always against the popular venue: the greater the volume of visitors, the greater the risk of accident. Other risks are more peculiar to collecting institutions. For example:

Nature of the exhibit: A history museum that exhibits a collection of swords, spears or other sharp objects knows that it must do so in a way that will not endanger either its staff or its public. Similarly, a maritime museum knows that pontoons and gangplanks are inherently unstable and that visitors may injure themselves if they stumble or fall.

Access to the exhibit: Some exhibits can cause severe injuries. Most commonly such incidents concern sculpture, installations and other accessible objects situated in public spaces. (After all, two-dimensional works are only likely to be a danger if the means by which they are suspended have been negligently attached.) Exhibition material may cause injury by its design, manufacture, constituent material, method of presentation, or simply position.

Characteristics of the visitor: When the institution opens its doors to the public, it must anticipate that its visitors will have all of the characteristics of the community that it services. What may be obvious to an adult may be an unusual danger to a child. What might be obvious to a normally sighted person may be a hazard to the visually impaired.

Interaction with the exhibit: Where the exhibition contains elements that encourage physical interaction (including interactive displays), the range of potential dangers is far greater. Many of these can cause considerable damage and injury if they are negligently supervised, designed, manufactured or maintained.

Fitness of merchandising for purpose: In merchandising, sometimes the problem lies not with the object itself but with the way that it might be used. For example if a ceramic vase is low-fired there should be explanation provided to users that it is not designed to hold water. If poisonous dyes and glazes have been used on a plate it is essential that the museum’s shop warn likely users of the danger. The museum, gallery or library shop has a duty of care to its customers and, accordingly, must inform itself of any dangers inherent in its stock and should provide appropriate warnings to it customers. This need not be done in a manner that will scare off buyers. It is often best done by describing the uses for the object and providing instructions for care. In other words, instead of being threatening, the relevant information is incorporated in the marketing of the product.

Hazards associated with public programs: Some public programs introduce the public to the back rooms of the institution. From time to time this may expose them to dangerous goods, hazardous chemical and biological materials, mechanical dangers, weapons and ammunition. The duty owed to these people is high because they are not expert: a comparison with the liability of teachers to schoolchildren is apposite.

Occupier v. Owner

It is important to note that it is usually the occupier of the premises, and rarely the owner, that owes the duty towards visitors. The law generally takes the approach that the owner has little day-to-day control over or knowledge of the condition of the building.

This can be particularly significant where the collection is owned and administered by a different legal entity from the owner of the premises. For example, a museum owned by a trust may be situated in premises owned by the local council. If a visitor were to fall down the steps or trip over a projector cord, one would ask: “Given the cause of the accident, who had a duty of care to the injured person? Who was negligent?” In this case it would be clear that the trust, not the local council, owed the duty of care. It may be otherwise if the injury was caused by the dilapidated condition of the steps into the building. That may well be an owner liability.[3]

liability to visitors

We can all agree that a collecting institution owes a ‘duty of care’ towards its public, but what does this mean in practice?

In the past, the law divided visitors into a number of categories and allocated a different standard of care to each category. So the occupier owed the highest duty to those who were classed as ‘contractual entrants’ and the lowest duty was owed to trespassers.[4] Now, while these categories continue to influence the development of the law, the distinctions have been eroded.[5] For too long, many worthy plaintiffs have lost their cases because of formulary distinctions with their roots in legal history rather than the requirements of justice in contemporary society.

For years, judges have laboured to articulate definitions and formulae to describe the concepts of ‘fault’, ‘duty’ and ‘reasonable care’. Each new judicial attempt falls under the swords of the judges that follow.[6]

Generally, the special rules of occupiers’ liability have been subsumed into the general law of negligence.[7] In other words, the courts are increasingly prepared to impose a duty on occupiers “to take reasonable care appropriate to the circumstances of the individual case.[8] In doing so they are applying the words of Lord Atkin:

‘You must take reasonable care to avoid acts and omissions which you can reasonably foresee would be likely to injure your neighbour. Who then, in law, is my neighbour? The answer seems to be, persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected.’[9]

Generally, the courts will look at a number of factors in deciding whether a duty is owed and whether that duty has been breached. In Avenhouse v Hornsby Shire Council, the Court of Appeal said that,

the courts make decisions by first asking the question ‘is the relationship between the plaintiff and the defendant in the instant case so close that a duty arose?’ and then answering ‘yes’ or ‘no’ in light of the court’s own experience-based judgment.’

In some jurisdictions[10], these factors have been summed up in legislation. One example is in Victoria where the Wrongs Act 1958, s. 14B (as amended by the Occupiers’ Liability Act 1983) states:

(3) An occupier of premises owes a duty to take such care as in all the circumstances of the case is reasonable to see that any person on the premises will not be injured or damaged by reason of the state of the premises or of things done or omitted to be done in relation to the state of the premises

(4)   . . . in determining whether the duty of care . . . has been discharged consideration will be given to –

(a)  the gravity and likelihood of the probable injury;

(b)   the circumstances of the entry onto the premises;

(c)  the nature of the premises;

(d)   the knowledge which the occupier has or ought to have of the likelihood of persons or property being on the premises;

(e)   the age of the person entering the premises;

(f)    the ability of the person entering the premises to appreciate the danger;

(g)  the burden on the occupier of eliminating the danger or protecting the person entering the premises from the danger as compared to the risk of the danger to the person. [11]

Such statutes provide a useful risk management checklist. They provide factors that are relevant to working out whether you owe a duty of care to any person or class of persons and whether the institution fulfilled that duty of care. For example, assume that an art gallery wishes to install a kinetic sculpture and allow viewers to look closely at the work or even touch it. There is no doubt that the gallery owes a duty of care to those viewers. So what must it do to fulfil that duty of care? It could rope-off the exhibit but that would likely detract from the artistic or curatorial purpose. The gallery might chose to place warning signs stating that viewers who touch the artwork do so at their own risk. It might even order constant supervision of the artwork. Nevertheless, even if this were done, a court might still say that the gallery did not take all reasonable steps to protect patrons and might hold the gallery liable if a patron were injured. The court would look at the factors outlined above to determine if the museum had taken all reasonable steps to prevent injury and to alert patrons sufficiently to the dangers involved.

It is a constant balance of curatorial purpose and reasonable risk management. There is no one answer. As soon as members of the public are allowed into the institution’s premises, each of their actions can be seen as an opportunity to injure themselves, another person, or collection material. Stairs are not a means of accessing the floor above: they are a hazard for falling down. A casement in the middle of a room is not a means of allowing the public close inspection of an exhibition item: it is an obstruction and a hazard to anyone who doesn’t see it because other exhibits distract them. The polished floor … well, need I go on? It is important that the institution can be seen to have taken reasonable steps to protect its visitors but that reasonableness will always be judged in retrospect – after harm has happened.

The court will infer that the collecting institution has a duty to make the premises as safe as reasonable care and skill can make them. Certainly, it will be expected to use reasonable care to prevent any unusual danger of which it knows or ought to know. For example, if construction work is being carried out or a broken pipe has caused the floor to become wet and slippery, it is reasonable to expect that the administration would fence off the dangerous area and provide warnings of the danger to the public. That is easy, but in practice, for example where there are third parties involved in the decision-making, the risk management decisions can be more difficult: say, where one of the exhibition objects is a sharp-edged sculpture and the artist insists that it must not be roped-off. How is that risk, the duty of care, to be managed? Can the artist be persuaded to change his mind? Can the issue be solved by the placement of the piece in a position that will minimise the likelihood that visitors will bump into it? Can the exhibition designer find some other solution? Will the work have to be withdrawn from the show?

What Duty of Care Is owed To Trespassers?

A trespasser is a person who comes onto property without permission, or stays on the property when requested by the occupier to leave. It may be a person who enters the premises unlawfully, who stays in the building after closing time, or who enters parts of the building without proper authority. In legal terms, even a lost child wandering off into parts of a building or opening doors into parts of the premises that are supposed only to be for staff, is a “trespasser”. Occupiers owe a duty of care to trespassers but, as may be expected, that duty will not always be as high as with other categories of visitor.

Prior to the development of a common duty of care, the courts established a guideline of “common humanity” to guide the duty of occupiers towards trespassers. After 1987, the duty to trespassers was subsumed within the general category of care, with attention paid to the circumstances of the entry and the ability of the occupier to foresee and prevent injury to trespassers.[12]

This is always a question of fact and will vary in each case. It is clear that the security officer who protects the premises with a blunderbuss connected to a trip wire is exceeding the duty of “common humanity” but less extreme examples are often difficult to judge. For example, if a person scales the wall of the museum with the intent to burgle, and in the process, falls into an improperly fenced and lit manhole, the courts may well say that the museum had no duty of care to that person. However if that person was a child, and there was some history of children scaling the wall at night, the courts may well say that the museum owed a duty of care to that child. After all, because of the previous incidents, the likelihood of the present incident is more foreseeable.

“Common humanity” is a very variable guideline, but the courts are very willing to find that that duty of care exists when children are involved. In the case of children, the courts do not find in their favour merely because of sentimentality. The fact is that many things that act as warnings for adults act as a lure for children.

Children

The courts have been very willing to find that the duty of care exists when children are injured. As noted, this is not merely because of sentimentality. The fact is that many things that act as warnings for adults act as a lure for children, and the sorts of notices and measures taken to guard against risks to adults may not be effective ways of discharging a duty of care to a child. Each case has to be taken on its individual facts.

Because the law in this area tends to favour children who have been injured, it is essential that the administrators of all collecting organisations take them into account when designing and implementing warnings and other preventive measures. Barricades that may impede the progress of a car, merely act as monkey bars for children. Large dark holes are things to be explored and large signs, things that are either incomprehensible or to be ignored. Where the collection is designed to be “hands on”, the administration must be sure that such exhibits are suitably supervised. Furthermore, on/off switches should be well out of the reach of children (and preferably disguised as well). Where possible, there should also be safety mechanisms installed so that in the event of an accident, the machinery or other display can be immediately shut down so as to prevent further injury.

Signs should be large enough to attract the attention of both adults and children. They should also take into account their differing readerships and use symbols, where appropriate, so that people who cannot read English (whether children or foreigners) can appreciate their important message.

Liability For ADVISORY Services

From time to time, members of the public seek the advice of museum staff on a range of subjects including the identification of an object, whether it is genuine or fake, how best it should be restored and so on. This advice can have serious legal consequences and it is important that every museum have a clear set of procedures for such occasions so that both the museum and the staff are protected.

The Legal Principles Relating To Advice

In 1963 the English case of Hedley Byrne and Co. Ltd. v. Heller and Partners Ltd.[13], held that “a negligent, though honest, misrepresentation, spoken or written, may give rise to an action for damages for financial loss caused thereby…”. The law imposes “…a duty of care when a person seeking information from a party possessed of special skill trusts him to exercise due care, and that party knew or ought to have known that reliance was being placed on his skill and judgement.”

Lawyer readers will be familiar with the development of this proposition through the Australian cases of Mutual Life and Citizens’ Assurance Co. Limited v. Evatt[14] and L. Shaddock and Assoc. v. Parramatta City Council[15] and many others. This is not the place to provide a detailed analysis of these cases, but their ramifications for the organisation and its staff, are clear: errors made in the furnishing of their opinion and advice can be very expensive indeed.

For example, unless the museum makes an express disclaimer of liability or gets a signed waiver, museum personnel should not give any valuations or estimates of value, nor opinions as to the reputations or relative merits of various private dealers, for these are outside their role and may prove costly for both the individual and the museum. If in doubt as to whether or not to give an opinion, the museum employee should not hesitate to decline.

WAIVERS & Disclaimers

We live in a litigious world and, win or lose, all legal disputes are expensive. Irrespective of whether you are in the right or the wrong, litigation eats up money, time, focus and morale.

Even though you make enormous efforts to ensure that your interaction with the public meets the highest standards of professionalism, one day, some time, someone will go “oops”. This is the everyday risk of running an organisation that promotes interaction with the general pubic. It’s no different from being a rock music or a sports promoter: to be successful you have to attract crowds but every person who comes through the door is a potential plaintiff.

For example, every organisation that allows its staff to give any advice to the public should have very clear guidelines for the giving of such advice, including the use of a disclaimer that should be used or a waiver that should be obtained in every case.

What are they?

Waivers and disclaimers are common and effective risk management techniques for limiting your exposure to legal actions. Whilst it is understood that no reputable professional would fail to take all reasonable steps to ensure that the information conveyed is correct, and that no such person would give negligent advice merely because of the protection afforded by the disclaimer, it is important to protect both the organisation and everyone who participates in it.[16]

One may contract out of any liability for losses resulting from all sorts of liabilities. These are contracts (or terms in larger contracts) that permit the organisation, its staff and its directors to limit their liability in the event that a member of negligence causes loss, injury or damage.

Both waivers and disclaimers are contractual in nature but they arise in different circumstances and have a quite distinct dynamic.

What’s the difference?

The difference between a waiver and a disclaimer is really one of perspective, or point of view.

Waivers[17] are agreements by which party A agrees that it will not sue party B if party A suffers damage or loss as a result of party B’s negligence. In short, the person granting a waiver is saying, “I have a right, but I agree that I will not enforce it against you.”

With a disclaimer, it is party B that says to party A that if A wants to participate in a certain activity, party B will not be responsible for any damage of loss that A may suffer as a result of their participation.

In short, in a waiver party A says, “I won’t sue you” whereas with a disclaimer, it is party B that says, “You are not allowed to sue me.”

Form

Although a ‘disclaimer’ tends to be more generic and less formal than a waiver, both are contractual and both have similar intentions and results.

For example, rather than being a document, a disclaimer might take the form of a warning on a sign at the entrance (or on the ticket) stating:

Except to the extent required by law, the museum and such of its officers, employees, agents or other persons who have been involved in providing the information and advice furnished to you do not accept any responsibility for any inaccuracies which may be contained in that information and advice.

Such a clause is the minimum. Most lawyers would like to add more.

The courts tend to ‘read down’ waivers and disclaimers. Where there is room to do so tend to interpret them in favour the party who suffers loss rather than the negligent party relying on a waiver for protection. To avoid this, prudence demands careful drafting.

There are many situations in which a waiver or a disclaimer makes good commercial sense. For example where a service or program offered to the public by the organisation involves being responsible for material belonging to members of the public (albeit only temporarily), it is sensible to also include a disclaimer relating to the safety of that material:

Whilst all possible care is taken of material submitted, and except to the extent required by law (including under the Australian Consumer Law), neither the museum nor its officers, employees or agents shall be liable for any damage to or loss of such items whilst they are in the possession of the museum.

Characteristics

If you are responsible for getting waivers signed, you should develop procedures that are likely to reduce the risk that the waiver will be either read-down or declared ineffective:

  • Make sure that waivers and disclaimers are clear and unambiguous.
  • Avoid legalese but make sure that they have been checked by a qualified lawyer – not a bush lawyer – and that they’ve been drafted for your organisation and situation (and not merely copied from another organisation that may have different needs, or that may be using wording that is no longer as effective as it might be).
  • It is often prudent to include the organisation, its staff, officers, contractors, volunteers and directors in the waiver.
  • As unappealing as it may be, specify as many of the obvious and foreseeable risks as possible – the more general the exclusion of liability the more likely it is to be ‘read down’.
  • Specifically exclude liability for negligence. The courts have often held that even where the exclusion seems to be in the most general of terms, they will not exclude liability for negligence unless it is specifically mentioned.
  • Ensure that those to sign the waiver are given a copy in advance, at a convenient time[18], have a reasonable opportunity to read it, and that they are likely to understand it.[19]
  • Don’t arrange the signing to take place in highly informal situations (such as where alcohol is being served). It doesn’t have to be signed in an office or somewhere carpeted and varnished: You just want to avoid the suggestion that the person signing away their rights understood the importance of what they were doing.
  • Don’t allow changes to the document without formal approval of the organisation. Even small changes can have large legal effects.
  • Where possible, have the signing done in front of you or some other witness.
  • Remember that the courts will be particularly loathe to exclude liability towards children and that if you ask children to waive their rights, it is advisable to get a parent to sign on behalf of the child.[20]

Even after all this, remember that one can never be certain of the effectiveness of a waiver or disclaimer until it has been tested in court. It is a form of risk minimisation but it is not a guaranteed release from all liability.

ENDNOTES


[1] Some collecting institutions have greater problems than others in this regard. For example, a maritime museum faces considerable difficulties in ensuring that the public is safe when accessing wharves, gangways and vessels.

[2] As discussed later in this chapter, a collecting institution will also owe duties of care to its employees and staff, and may also owe a duty of care to a trespasser (whether he or she is “innocent” – such as a straying or lost child – or someone with malevolent intent).

[3] In such a case, the plaintiff may well sue both the owner and the occupier so as to make sure that it succeeds against at least one of them.

[4] The five categories were: contractual; invitees; licensees; entrants as of right; and trespassers. These distinctions are now merely historical.

[5] There remains a distinction between contractual and non-contractual entrants: a visitor who enters premises under a contract, for example a paying visitor to an exhibition, may be owed an even higher duty of care by the occupier of the premises. See Fleming at 511.

[6] See Kirby J’s judgment in Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; 211 CLR 540.

[7] The case that established that the class of entrant no longer determined the existence and extent of the duty of care was Australian Safeways Stores Pty Ltd v Zaluzna (1986-1987) 162 CLR 479, but see also Hackinshaw v. Shaw (1984) 56 A.L.R. 417; and Papantonakis v. Australian Telecommunications Commission (1985) 156 C.L.R. 7

[8] See Fleming at 503 and Graham Barclay Oysters Pty Ltd v Ryan, supra fn 6.

[9] Donoghue v. Stevenson [1932] A.C. 562 at 580.

[10] including England, New Zealand and several Australian states: Occupiers’ Liability Act 1985 (WA); Wrongs Act Amendment Act 1987 (SA).

[11] See also the Occupiers’ Liability Act 1985 (WA), s 5; and the Wrongs Act 1936 (SA), s 17C. The wording of these provisions is essentially the same as the Victorian provision.

[12] See also the checklists provided by the Statutes. The WA statute excludes trespassers from protection if they have entered the premises with the intent to commit an offence punishable by imprisonment.

[13] (1964) A.C. 465

[14] (1970) 122 C.L.R. 628

[15] (1979) 1 N.S.W.L.R. 556

[16] e.g. its staff, officers, contractors, volunteers and directors.

[17] Waivers are also known as ‘waiver of liability agreements’.

[18] i.e. a time when they are not preoccupied with other things.

[19] If it is likely that the person waiving their rights might not sufficiently understand the language, it is essential to the waiver’s effectiveness (and thus the effectiveness of your risk management strategy) to ensure that you can prove that the effect of the document was understood and that the consent or agreement was real.

[20] Or have both the child and a parent sign. In some jurisdictions the parent has to state that they believe that the contract is to the benefit of the child.

34. DUTY OF CARE TO LENDERS

Bailment: The basis of legal liability

Unless you understand the legal obligations inherent in taking possession of property owned by a third party, you can’t implement a serious risk management approach to loans. Collecting institutions take possession of third party material in many different circumstances and for many different reasons. The legal duties assumed by the borrower of an item for an exhibition is different from those owed to a collector who brings an item to a museum for identification, or to the commercial gallery that leaves a painting with a public gallery on approval. Each of these examples is a loan but each brings with it a different level of legal responsibility.

What is a loan?

Museum professionals are comfortable with the concept of “a loan” but when told that a loan is actually “a bailment” they develop a sense of unease.

Although we may think that we can get through life perfectly adequately without understanding the meaning of ‘bailment’, it is not by chance that bailment is one of the truly ancient areas of the Law. Given the importance of personal property in the fabric of human relationships, it is hardly surprising that, early humans developed rules that protected the rights of ownership when chattels were entrusted to the possession of third parties. This evolved from mere social expectations into a series of rules; it reflected a move from mere etiquette to a legal and enforceable relationship.

This move, from a system of indistinct and idiosyncratic social obligations to a system of enforceable rules, reflected the social and economic importance of chattels to humans. That importance, together with the development of increasingly sophisticated transport, communication and trading systems, required the development of a legal system that allowed personal property to be physically parted from its owner without threatening the owner’s rights. If it were true that ‘Possession is 99% of the Law’ it would be impossible to have a domestic or international trading system; we could not even leave our clothes at dry cleaners nor send our television out for repair. It would also be impossible for those seeking to mount an exhibition to borrow material from third parties. In short, bailment may not sound interesting but it is one of the essential oils that facilitate modern life. It is also the legal basis of all exhibition loans.

The term ‘bailment’ comes from the French, bailier, to deliver. The bailor is the party who owns the material and delivers it into the possession of the bailee. The bailee is the party that receives the material.

Types of bailment

There are many different types of bailment and each type carries its own rights and obligations. Generally, they fall into three groups: those bailments that are principally for the benefit of the bailor, those that are principally for the benefit of the bailee and those where the benefit is mutual. Where the bailment is principally for the benefit the bailor the courts generally impose a slightly lighter burden of care on the bailee. In such cases the courts will usually require that the breach of care by the bailee must have involved ‘gross negligence’ rather than ‘mere negligence’. In contrast, where the bailment largely benefits the bailee[1], the court imposes a reasonably high duty in the care upon the bailee.[2]

The law further makes distinctions between (i) bailment for reward, (ii) gratuitous bailment, and involuntary bailment.

These distinctions are important because collecting institutions take possession of third party material in many different circumstances and for many different reasons. The legal duties assumed by the borrower of a work for an exhibition would be different from those owed to a collector who brings an item to a museum for identification or the commercial gallery that leaves a painting with a gallery on approval.

  1. 1.  Bailment for reward

A bailment for reward arises where goods are taken into custody in return for valuable and mutual consideration. The usual instance of this is where you hand over goods for service or repair.[3] The bailment is for the mutual benefit of the parties. Where the bailment is for reward, the bailee is under a duty to deal with the goods with the due care and diligence which a careful person would exercise over their own chattels in similar circumstances.[4] Of course this is the very duty of care that is so commonly reflected in loan-in agreements.

  1. 2.  Gratuitous bailment

A gratuitous bailment is one where just one party benefits. Usually a gratuitous bailee has permission to possess goods without payment or consideration but must return them to the bailor on demand. The duty of care owed by a gratuitous bailee is of a lower standard than required of a bailee for reward.

If you lend a painting to your neighbour, that loan is almost certainly a gratuitous bailment. The neighbour’s duty of care is low and the loan can be recalled at any time. Similarly, a loan from one institution to another (without fee) is very likely a gratuitous bailment for the lending institution receives no payment or consideration for the loan. It is for this reason that institutions have loan agreements that stipulate a higher duty of care and include definite loan periods.

  1. 3.  Involuntary bailment

This occurs where the goods are found[5] or left[6] without payment. This may occur where an object brought to a museum for identification is left uncollected. This bailment gives rise to the lowest standard of care of all. All the bailee must do is abstain from reckless or wilful damage[7] There is much case law discussing the limits and application of those terms but is clear from those cases that the courts take into account what is reasonable and proper in all the circumstances. As the NSW Law Reform Commission noted:

The scope of the duty of the involuntary bailee to abstain from wilfully damaging the goods varies widely according to the circumstances of the bailment. There is some authority for the proposition that there can be no legitimate complaint against a bailee who acts in a manner which is considered ‘reasonable and proper’ in all the circumstances,[8] including the destruction of the goods if they have become a nuisance. [9] Similarly, a bailee who acts with the object of either returning the goods or mitigating responsibility for them (whether by delivering them to the police or a bank, or by returning an unsolicited letter to the post office) incurs no liability to their owner.

However, the precise duties of an involuntary bailee, and the nature of the safeguards to be taken in disposing of the goods, remain ill-defined and unsatisfactory due to the wide variety of goods and circumstances in which the involuntary bailee can acquire possession.

Logically the whole concept of involuntary bailment is a contradiction in terms. The term “bailment” implies both possession of another person’s goods and agreement to or acceptance of such possession. Involuntary bailment does not require a voluntary election by the bailee to hold the goods. It has been argued[10] that without this voluntary element there may not be a true relationship of bailor and bailee.

These problems are of particular importance in the present inquiry for they form the only part of the common law relating to unclaimed goods not superseded by the Disposal of Uncollected Goods Act. Involuntary bailees are thus the only bailees left without an effective remedy.

The joy of contract

Whilst the complexities of bailment will bring a smile to the lips of many lawyers, the wise collection manager will be one whose first question is not, ‘What are the rights and responsibilities of bailees and bailors?’ The much better question is, ‘What can I do so that I never have to think about the complexities of the law of bailment?’

The answer is remarkably simple. If the bailee and the bailor enter an agreement, the terms of that contract supersede the Common Law rules. Where the express terms of a contract impose a particular duty of care and level of responsibility, those are the obligations that prevail. However, if the contract is silent as to such matters, or is ambiguous, one must again revert to the complexities of the Common Law or statute.

Chapter 16 focuses on the contractual aspects of bailment contracts. Of course in collecting institutions we call them loan agreements.

Legal responsibility under the loan agreement

One of the most important functions of the loan agreement is to define the standard of care that the borrower must fulfil. This creates a basic and natural tussle in that the lender will wish to impose high levels of legal responsibility on the borrower and the borrower, restricted by the extent and conditions of its insurance cover, will want to limit that liability.

In art museums it is very common that the borrower promises the lender that it will take the same degree of care of the item as it give to items of a similar quality and nature in its own collection.[11]

This clause imposes liability on the Exhibitor (the borrower) for the security of the work at all time from the time that the work is on its premises and in its possession. It includes specific promises that the borrower will abide by the security, staffing, environmental, conservational and handling requirements spelled out in detail in the Exhibits to the agreement.[12]

Note that the lender’s liability does not extend to transport: It is not ‘nail to nail’ liability.[13] The standard set is the rather self-satisfied standard: ‘at a minimum as they care for and secure works of art of the same or similar nature of their own, or on loan from others’. Even institutions of the first rank have had embarrassing experiences in the care and security of their own collection material and it is reasonable for lenders to insist that this watering down of liability be removed from the agreement. After all, the fact that institution A is prepared to accept a certain level of care towards its own collection material should not give institution B any particular succour. In the event of damage, loss or theft of the loan material, the owner should not have the legal obligation:

  • to prove the standard of care usually given by the borrower to similar material in its own collections; and
  • to prove that the standard of care given to the lender’s material was below the borrower’s usual standards.

Both of these things are very arduous (and expensive) matters of proof and most lenders do not want to have to jump such legal hurdles before they can get to the real issues of liability. On the other hand, museums that include such phrases in their loan-in documentation are inadvertently exposing themselves to embarrassment and expense: In the event that a borrowed work is damaged or destroyed, unless the claim is settled to the satisfaction of the owner and its insurance company, any legal proceedings will result in an unfortunate public washing and airing of dirty linen as lawyers for the plaintiff obtain evidence of all the defendant’s embarrassing blemishes of collection management. In an age in which sponsorship and donations are so important to the balance sheet of collecting institutions, none can afford to be the subject of such adverse criticism.

As a final observation, none of the museums that promise to look after inward loans with the ‘same standard as of care given to similar material in its own collection’ apply this standard when lending works to others. It is perhaps understandable that owners insist on a high standard of care whilst borrowers wish to work to a (lower) more flexible standard, but borrowers might find that there is a lot less negotiation (and thus time, cost and delay) if their loan-in contracts reflected the same standards of care as their loan-out agreements.

ENDNOTES


[1] For example where an exhibition organiser accepts an inward loan for the purpose of the show, it bears the duty of due care.

[2] The mere fact of possession does not automatically give rise to a bailment. Generally, a conscious and willing assumption of possession of the goods is required before bailment can exist: N E Palmer, Bailment (Law Book Co, 1979) at 1 and note 1 at 30.

[3] The consideration would be mutual where, say, one party gets paid for the service and the other gets the promise that the goods will be repaired.

[4] Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 per Holt CJ at 916; 111.

[5] Which may be relevant where material is acquired through field trips.

[6] For example, where an anonymous person leaves a valuable book outside the door of the library. Perhaps the most common example is where possession arises from ‘inertia selling’ – e.g. Readers Digest.

[7] N E Palmer, Bailment, (Law Book Co, 1979) at Note 1 at 383; see also Elvin & Powell Ltd v Plummer Roddis Ltd (1933) 50 TLR 158.

[8] Hiort v Bott (1874) LR 9 Ex 86 at 91, per Cleasby B.

[9] Winfield and Jolowicz, Torts (12th ed, Sweet & Maxwell, 1984) at 481.

[10] Note 1 at 379. The approach of the English courts at least has been to deny that the involuntary recipient of goods is a bailee; see Lethbridge v Phillips (1819) 2 Stark 478. Australian authority is limited in this area, but see Alice Erh-Soon Tay, ‘The Essence of a Bailment: Contract Agreement or Possession?’ (1966) 5 Sydney LR 239, especially 248–57.

[11] For example see clause 4, Exhibition Agreement, Museum of Fine Arts, Boston:

The Exhibitor will be responsible for the security of the Works at all time while on the Exhibitor’s premises, including during storage, unloading/loading, unpacking/repacking, installation/deinstallation and exhibition, and must take all appropriate and prudent measure to protect the Works and keep them secure while in their possession, at a minimum as they care for and secure works of art of the same or similar nature of their own, or on loan from others, including without limitation precautionary measures against risks of fire, theft, accidents, disasters, ultraviolet and visible light, incorrect relative humidity and temperature, environmental overcrowding in the galleries, and the dangers resulting there from. Specifically, the Exhibitor agrees to abide by the security, staffing and environmental conditions specified in Exhibit B or any special requirements for Works in the Exhibition that MFA may stipulate in writing in Exhibit C or at a later date. In addition, the Exhibitor agrees to comply with any special security, handling, care, or other requirements of Private Collector(s) which MFA will provide as soon as available. No off-site storage of any Work is allowed without advance written permission of MFA.

Several Australian art museums, such as the AGNSW, use similar clauses.

[12] Such administrative and technical matters are often best handled in schedules or annexures so that they do not make the body of the contract too impenetrable. The contract should make the principles of liability very clear: they will rarely change from borrower to borrower. The details, however, will often vary and this is best done in a Schedule so that the body of the contract does not get constantly amended.

[13] In this agreement the transport of the work is undertaken by the owner institution and therefore the lender’s liability only lasts from the time the work is delivered to the time the owner picks it up from the borrower’s premises.

32. CONSULTANCY AND RESEARCH

This chapter looks at issues that can arise when collecting organisations offer their expertise as consultants. This is not unusual as, after all, the staff of a collecting organisation is an embodiment of extraordinary knowledge and expertise. This, when combined with access to the holdings and services of their institution, can make for a formidable resource – one that can be valuable to outside organisations.[1]

Collecting institutions vary in their capacity and attitude to consultancy work. Generally, such work is only available to the large establishments for it takes a certain heft to attract, administer, supervise and fulfil such contracts. It is hard enough for smaller organisations to deliver their core responsibilities without looking outside to undertake work. That said, there could be good reasons for the large organisations to undertake consultancies: the most obvious of these is the money that can earned (and applied to other costs within the institution); They may also be good for branding and reputation when the project involves prestigious partners or projects; they can be useful for staff morale and staff development; and they can be seen as one of the gateways by which corporations, government and the wider community can access the expertise of the institution.

Can you do it?

Before you undertake outside consultancies and research you must ask: ‘Is the organisation legally entitled to undertake the work?’ This is answered by looking first at the document by which the institution was established – the constitution or statute (as the case may be).

The statute or constitution

Reading the organisation’s constitution or statute must be undertaken strictly. The fact that the opportunity is ethically, professionally or financially attractive is irrelevant when determining whether the organisation is legally entitled to undertake the work.

Some institutions are established with clear statements of function and power. For example the statue establishing the Australian Museum clearly anticipates that professional consultancies are to be a part of the function of the organisation[2] and such work is an important part of its function and business plan.[3]

On the other hand, let’s say that the Australian War memorial was asked to provide consultancy services to the government of Malaysia that wanted to establish a war memorial museum to honour Malaysian military history. On review of the functions[4] and the powers[5] of the museum set out in the Australian War Memorial Act 1980 (Cth) you would see that they are not wide enough to include this task. They are really restricted to Australian wartime history.

In contrast, if the Australian National Maritime Museum received a request from Malaysia to consult on the establishment of a maritime museum, its functions and powers are sufficiently wide to permit it to undertake the work and earn a consultancy fee.[6]

Board Decision

Assuming that the organisation’s key document permits the consultancy, it is prudent to obtain the authority of the governing body. The decision that the organisation is going to undertake outside consultancies is of strategic importance and one that should not be undertaken without formal authority. Usually, if the board decides that such work is appropriate, it will delegate to the chief executive both the power to authorise particular projects and the responsibility for oversight of the work. Customarily, this would be done through the strategic planning process whereby consultancy work is included in the business plan; the plan is approved by the board, and then implemented by management. If a consultancy opportunity arises where such consultancies are not part of the business plan, the CEO should take it to the board for decision.

Freelance work

Given that this chapter is principally about consultancies and third-party research undertaken by the institution, it is perhaps an aside to include some thoughts on the separate and more contentious decision as to whether the staff of an institution should be allowed to do outside consulting work – work that is not, formally, a project of the institution. Some institutions permit this; most do not. It is a policy decision, not a legal one. Nevertheless, it is extremely important that the institution have a clearly articulated, written policy on this. The board of the organisation must make a policy decision as to whether or not such freelance work will be permitted at all – and if it is, under what conditions. That policy will be articulated in the organisation’s code of conduct and, in turn, reflected in the conditions of employment.

The reason for this intervention is that, notwithstanding the employee’s personal reputation for excellence, part of the attraction for the client is the reputation of their employer: they are inextricably attached.

For each organisation there are principally three issues:

(i)             Will the contracted services involve the use of the organisation’s resources?

(ii)            Will the freelance work affect the employee’s ability to do the work for which they are employed?

(iii)           How will risk be handled?

If the consultant expects to use the organisation’s resources or if the project might the employee’s day-to-day responsibilities, then the project should probably be formally undertaken by the institution rather than as a piece of freelance work. As to risk, the danger for the employer is that if there is controversy over the results of the consultancy, the organisation will inevitably be drawn into the conflict even though it has had no part in the work and has received no remuneration from it.

If such consultancies are to be allowed it is prudent to, at least, require that the employee disclose all requests for such work to the chief executive and have each consultancy approved. Moreover, it should be required that the consultancy agreement is clear that the consultancy is undertaken in a private capacity and not as an employee of the institution.

Should You Do It?

Assuming the organisation is empowered to undertake the consultancy or research, the question remains, ‘Should you?’

This is really a risk-management issue rather than a legal one. Assuming that the work is compatible with the existing, primary priorities of the organisation and is consistent with its branding, reputation and values, the question comes down to competence. And this is where potentially expensive legal liabilities arise.

It is well established by decided cases that where you hold yourself out as having expertise, you must not be negligent in your performance of the task. You have a duty of care to your client. You must do the work with skill, care and diligence. If you don’t, a client who suffers loss as a result of reliance on your advice is entitled to sue. This will inevitably involve the institution in an enormous expenditure of time and money and is a threat to personal and institutional reputation (as well, it comes at extraordinary personal emotional cost.)

Many jurisdictions have legislation aimed at limiting liability for professional negligence.[7] These statutes are similarly worded. For example s 50 of the Civil Liability Act 2002 (NSW) states:

Standard of care for professionals

(1)    A person practising a profession (“a professional”) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice.

(2)    However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational.

(3)    The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.

(4)    Peer professional opinion does not have to be universally accepted to be considered widely accepted.

While this may seem like good news, it is not the ‘get out of jail’ card that it first appears to be. The provision is only a defence. The plaintiff has to establish that the professional was negligent and, if negligence is established, the defendant can raise the statutory defence that the professional’s actions accorded with ‘peer professional opinion as competent advice’. It is the defendant who has the burden of proof. The effect of this is that, even if the defence is eventually established, both the person who gave the advice and their employer[8] have to go through the horrors of a full trial – something that leaves few reputations (or bank accounts) intact.

Accordingly, it is in the interest of the collecting institution that permits (or encourages) its staff to undertake outside consultancies, to manage the risk.

Setting up the consultancy

No one should undertake expert consultancy work without two basic tools: standard contractual terms and insurance.

Standard terms

Most professional consultants have a standard contract[9] that clearly sets out the terms by which they undertake the work. A lawyer expert in such things should draft these terms. It is a specialised area and certainly not the sort of thing that an amateur should attempt to put together by cutting and pasting documents retrieved from the Internet. The area is full of liability issues and it requires particular care and knowledge to navigate and minimise the dangers.

When the draft of this document is ready, it should also be shown to the insurer. This is important so that the insurer can add its experience and expertise to the mix and so that it cannot later say that the contract invalidated the cover in some way.

That said, when the party commissioning the consultancy is a company or government, it will usually be the commissioner that draws up the contract and lays down the rules. These must be read carefully and negotiated. Sometimes, the terms presented by a commissioner over-reach. Sometimes, the terms have just been lifted from an earlier consultancy and their author has not given any real thought to the differences between the jobs. Too often, they are just signed with a wistful shrug. The terms must be clear, unambiguous, fair and achievable.

Insurance

Most prudent commissioners will insist that the consultant maintains an adequate level of insurance for professional negligence. In any event, it is essential to the management of risk. Yes, it costs money – but think of it like salary or rent – it is a basic overhead expense. If you can’t afford the insurance, you can’t afford to do the work.

Doing the work

When it comes to actually undertaking the assignment, the case of Reiffel v ACN 075 839 226 Ltd [10] provides independent experts with some insights into the limits of risk and some safeguards that would be prudent to consider.

The case suggests that, to minimise exposure to risk, an expert consultant should:

(i)              be careful to clarify the terms of its brief;

(ii)            qualify any opinion where necessary; and

(iii)           review all opinions given in the context of the advice sought as a whole, keeping in mind what type of impression is likely to be created in the mind of a reasonable person who is likely to read and rely on the document.

To show that reasonable care and diligence has been taken, it is essential that the expert keeps full, well-organized files to show the path of the enquiry and the research undertaken.

The decision also left no doubt that courts will give no or little effect to any carefully crafted qualifications or formulations in the consultant’s report[11] such as, ‘On the basis of our review and subject to the comments in this report, nothing has come to our attention…’. If the reader of the report is misled as to the true state of play, such weasel words are not likely to provide protection. [12]

The court also held that independent experts impliedly promise that they will exercise a reasonable degree of professional care and diligence. They do not, generally speaking, warrant the correctness of their opinion. In other words, they must not be negligent in the way that they come to their conclusions and there must be a reasonable basis for any statement made, but they don’t have to get it right. This may come as a surprise to the commissioner who pays good money for the advice – but infallibility costs more!

ENDNOTES


[1] AusHeritage enables Australian collecting organisations and individuals to undertake consultancies overseas: http://www.ausheritage.org.au.

[2] Australian Museum Trust Act 1975 (NSW) s.8

[4] s.5

[5] s.6

[6] See Australian National Maritime Museum Act 1990 (Cth, s.6(f) provides that the Museum’s functions include:” (f) to develop sponsorship, marketing and other commercial activities relating to the Museum’s functions, and its powers include the right “to raise money for the purposes of the Museum by appropriate means, having regard to the proper performance of the functions of the Museum: s.7(t)

[7] NSW: Civil Liability Act 2002, s 50; Qld: Civil Liability Act 2003, s 22; SA: Civil Liability Act 1936, s 41; Tas: Civil Liability Act 2002, s 22; Vic: Wrongs Act 1958, s 59. In WA the Civil Liability Act 2002, s 5PB is restricted to health professionals; the ACT and NT have no such provisions.

[8] Generally, the organisation will be vicariously liable for the negligence of its employees.

[9] By that I mean a contract that they have specifically drafted for all their consultancy work – not a contract that is standard for all consultants.

[10] (2003) 45 ACSR 67

[11] Often referred to as ‘negative assurance wording’.

[12] For those wanting to know more about the various levels of assurance, see: ‘Effectively communicating moderate levels of assurance’, Hasan, Roebuck. Simnett (2002), aaahq.org/audit/midyear/03midyear/papers/Modassurance.pdf

15. LOANS FOR EXHIBITION

Panel of Experts:
Mr Michael Crayford
Assistant Director, Collections and Exhibitions, Australian National Maritime Museum
Mr Gary Dufour
Chief Curator & Deputy Director, Art Gallery of Western Australia
Professor Graham Durant
Director, Questacon National Science and Technology Centre
Ms Genevieve Fahey
Manager, Scienceworks Museum
Ms Carol Henry
CEO, Art Exhibitions Australia
Ms Susan Sedgwick
Manager, Exhibitions & Publication, Historic Houses Trust of New South Wales

15.1           Introduction

One of the features of the modern collecting institutions is that they use a considerable amount of borrowed material in their exhibitions and even to augment collection displays. Exhibitions are no longer largely developed from the in-house collection. They involve more material sourced from public and other institutions. They are less static; they change more often and there are more of them. Similarly, displays of the institution’s own collection are sometimes augmented by loans: After all, few collections are so comprehensive that they would not benefit from the addition of some choice material held in other collections.

Accordingly, the loan-in agreement has become an essential part of exhibition development and implementation. In particular, given the complexity of managing loans, the loan agreement is the key risk management tool that drives all of the mechanisms associated with administration of the loan process.

All museums develop standard loan agreement forms. The two most common documents are (a) the loan-in agreement, whereby the museum borrow material from a third party for the purposes of exhibition, and (b) the loan-out agreement, whereby the museum lends an item from its collection so that another institution may exhibit it.

Many Australian institutions still use antiquated loan forms. Others rightly see the review of such documentation as a part of the core risk management strategy of the organisation.

Given the value of the subject matter of the agreement, it is essential that the contract be simple to understand and that it carefully and precisely articulate the parties’ intentions. It should play a positive role between the parties: It should act as an outward manifestation of trust and provide an effective and equitable machinery to prevent or resolve disputes.

Different museums have different needs. What works for a federal institution may not be appropriate for a small community museum. Nevertheless small institutions should carefully consider the models developed by the larger ones. This use of precedents should not be unquestioning: like so many other things, contracts do not necessarily get better with age. Thus, many cultural institutions in Australia, which have adopted old American models, do themselves little benefit.

This chapter provides model loan-in agreements, model loan-out agreements and a checklist of issues to discussed and determined when entering such agreements.

15.2           Documentation

An organisation that mounts an exhibition using third party material is likely to enter loan agreements with a range of owners – private owners, dealers, and other institutions. Inherent in this is a tension: ‘whose documents will we use?’

Whose document will we use?

There is a natural inclination of an owner to insist that the borrower use the owner’s documentation: The owner can be confident in its own documentation. The borrower, which has to administer all of the agreements, will prefer to use its own so that all the agreements are reasonably consistent. Many private owners who are lending a particularly valuable item may insist on using a contract drawn up by their own lawyers. These will usually be considerably more comprehensive and less free of wriggle room than the loan agreements between collegiate institutions. Sometimes it comes down to size and muscle: The bigger institution insists on having the right of way.

There is no right answer and no standard protocol. One answer is definitely wrong: During the course of research for this book it became apparent that some institutional owners and lenders had adopted the practice of signing two contracts – one from the lender and one from the borrower! A moment’s thought will show that this is the worst of all compromises. If there is any issue with the loan, there will be conflicting agreements with conflicting obligations, conflicting duties and conflicting procedures: In all, a fabulous result for the lawyers who get the subsequent brief but a terrible career-move for those who put their institution into such a position.

If the loan sought were agreeable to the lender in principle, the appropriate first step would be for the borrower to supply a copy of the intended documentation for the lender’s approval. The lender then reviews the draft and considers what, if any, changes it requires. At this stage, the lender, particularly when it is larger than the borrower, may decide that the borrower’s documentation is inadequate and rather than go to the trouble of extensive negotiation, might insist on the use of its own loan document.

Irrespective of the source of the loan documentation and notwithstanding that the practical detail of the contents will be the subject of considerable negotiation, each loan agreement will have similar general characteristics.

Clarity and simplicity

Ambiguity is an enemy of contract. One of the great (and underestimated) skills of good contract drafting is the ability to state the agreed terms in language that is unambiguous. Clear and simple English is essential – but simplicity is deceptive. It must not be attained at the cost of vagueness or uncertainty.

Nor is legalese your friend. It can be bad enough when used by experts but it is an ugly sight when non-lawyers try to articulate the terms of a contract in unfamiliar and non-expert legal language. Use simple, ordinary language avoiding words or phrases that might have another sense or meaning and check punctuation meticulously to ensure that it reflects the intended meaning.

Duties owed to lenders

The obligations of the borrower to the owner are discussed in Chapter 34.

15.3 Risk Management

The risks inherent in the loan relationship are many and varied: if there is a problem in handling a loan, the fallout may be legal; it may be financial; it may be political and it may damage the institution’s reputation. It will always be costly in administrative time and resources and is often fatal to the relationship of trust between the borrower and the lender.

The contract as risk management tool

The loan agreement is not just a legal document that evidences the loan: it is the document in which the collected wisdom and experience of the parties is brought together so that foreseeable problems can be averted. Of course there is always risk in the loan relationship and no contract can eliminate that reality but the loan agreement is a key risk management tool: it can play a positive role in the relationship between the parties, cementing trust, preventing misunderstanding and providing agreed procedures for the administration of the loan.

One of the most important functions of the loan agreement is to anticipate problems that could arise during the loan period and present a framework by which those difficulties can be settled. Thus, both the owner and the borrower use the loan agreement to:

  • identify the risks that attend the loan;
  • articulate how the loan will be administered;
  • implement a mechanism that best avoids the most likely risks; and
  • prescribe an agreed protocol in the event of calamity.

These risks affect borrower and the lender (although not always to the same degree). The advantage is in identifying the risks and, together, agreeing how those risks will be met.[1]

Private lenders versus institutional lenders

Private owners are more risk conscious and averse than those of earlier times. Perhaps it is because a private lender has fewer pieces of exhibition quality and thus has a greater personal financial and emotional investment in the loan, but they tend to examine the loan-in agreement very closely and often retain their lawyers to do so. They can be more assertive than institutional lenders and are increasingly prepared to seek recourse to the law.[2]

Increasingly, high-net-worth private owners are less flexible than institutional lenders when lending their very valuable material: institutions, because they are in the business of making and receiving loans, are very familiar with the processes and are aware that long term relationships are often the best guarantee of solving a loan problem: A little give and take sometimes eases both parties through the rough passages of the loan. For private lenders who are familiar with commercial transactions, it is understandable that the negotiation of a valuable loan requires a level of attention and risk management similar to that they apply to their other commercial affairs.

Restrictions accompanying the loan

Some loans have quite onerous accompanying conditions that are not directly related to the loan. For example, a private owner may agree to lend provided that access to the objects be restricted, that information provided to the public about the objects be limited, that photography be prohibited. These kinds of restrictions tend to be more commonplace with private lenders rather than institutional lenders.

Before accepting such co-lateral restrictions it is important that they be given very careful consideration. It is important that the borrower not by unduly restricted in its use of the material – not just for exhibition but also use in its associated functions such as its public programs and research activities. There is a natural balance in this regard: for example, where the loan is particularly valuable or fragile it may be entirely reasonable to restrict secondary activities and thus minimise the risks associated with such uses.

Conditions imposed by the lender may be impracticable or expensive to implement, supervise and enforce but if they are not enforced, the lender will be in breach of the loan agreement. When such a breach occurs, the worst consequence is not simply that the lender may demand its loan to be returned forthwith. Less obvious, but potentially more damaging, is that the insurance policy protecting the loan may be invalidated and that the trust relationship with the lender will be destroyed.

Value of the loan

Whenever material is lent for exhibition, it is subject to heightened risk of damage, theft or loss. The more valuable the item is, the greater the financial risk.

High value is something that institutions are familiar with. Indeed they are often complacent. Having a middle aged and unfit person in a uniform sitting on a chair supervising a couple of rooms of paintings, is not really providing security that befits the value of the works. The answer may be that the security is geared to the degree of risk rather than the market value of the material being guarded. Indeed it may be so: perhaps the greatest danger is not from the professional thief but rather the small boy with jam on his fingers. If this is the case, it may be that the institution makes the decision to leave theft risks predominantly to the care of electronic guardians and damage risks predominantly to human supervision.

Another strategy for managing the risk of damage, loss or theft to high value exhibition material is to use exhibition design to control the degree and nature of access that the public is likely to have to the item. It is often easier said than done. In museums where the visitors expect a high degree of interactivity with the exhibition material, establishing boundaries for those expectations is a challenge. For this reason, the exhibition designer is one of the key risk management tools by which some of the loan risks can be managed.

Clear document trails

Tracking and managing documentation is one of the primary roles of the loans registrar. Improved forms of communications, such as fax and email has certainly made this process faster. But they can be a double-edged sword. On the one hand, we can communicate with people more quickly, ideal during busy periods. However, the problem of establishing a clear document trail that shows ‘who’ made ‘what’ decision ‘when’ is more problematic, especially when using email. The issue of security and email – ensuring that sender/recipient are authentic – is one that we have not yet had to address, but it certainly looms. Overall, we have had to strike a balance between an outcome focussed approach and administrative perfection.[3]

This exemplifies the strain between torrential developments in communication technology and the demands of risk management. The establishment of clear document trails is fundamental to the establishment of safe loans procedures and, in this task, easier and faster communication technology does not, without modification of established administrative procedures, enhance safety and prudence of the process.

Multi-skilled teams

Few outsiders realise how many skills have to be integrated into the team that mounts an exhibition. Because it is so much a part of everyday life, it is almost taken for granted within exhibiting institutions – but it should not be. The team that delivers an exhibition is at the heart of the institution’s risk management strategy. Every skill added to the team brings with it a greater degree of safety for the loan item, its owner and its borrower. This is already recognised in many institutions:

As well as clarifying our agreement with the lender, we also altered the way we treat the loans internally. The exhibition designer now plays a more important role in our approval process for inward loans. Loan proposals for exhibition must be submitted to design staff, conservation, curatorial and registration, and finally approved by the Director of the museum.[4]

15.4  A checklist for loan agreements

Many issues arising in exhibition loan agreements are relevant to both the borrower and the lender. During the negotiation process, each party needs answers to the same basic questions:

Parties

Who is lending the object? This is not always as easy as it seems. The piece may be the property of another institution, an individual, a company, a family trust or a gallery or other agent that is acting on behalf of the owner. The borrower must assure itself that the entity offering the loan has the power to do so and has the power to sign the loan documentation.

Subject

What is the subject of the loan? The object should be fully described in the loan document. Careful registration procedures usually see to this.

Purpose

What is the purpose of the loan? The loan may be for a very limited purpose such as for research or display in a particular exhibition or is it simply a general loan. Is it to be static or will it be able to tour?

Period

How long will the borrower have control of the object? It is surprising how many large institutions neglect to include this question on their standard loan form. This simple piece of information is important to both parties.

So-called ‘permanent loans’ should usually be avoided. ‘By definition, a loan is a temporary arrangement of finite duration, subject to renewal.’[5] There is no such thing as a permanent loan; it is still subject to withdrawal at virtually any time, either by the original lender, or that person’s heirs. Several collecting institutions have chosen not to collect material because they already have strong holdings in that area on permanent loan. However, perhaps years later, when the owners decide to take back their material the institution is left with an unfortunate gap that is often difficult and expensive to fill. Moreover, resources spent on such material are better spent on items owned by the borrower and not subject to reclamation.

For these reasons, most collecting institutions discourage long-term loans. Those that are accepted should always be subject to a loan agreement that stipulates that:

  • the loan will be reviewed every three or so years[6]; and
  • that it is the lender’s responsibility to advise the borrower of any change of address or ownership;
  • that the lender will give the borrower a reasonably long and specified period of notice before requiring return of the material;
  • that the borrower can terminate the loan on a reasonably short and specified period of notice; and
  • that if the material is not collected within a certain period after the expiration of that notice, the borrower may dispose of it as it sees fit and may apply the proceeds of that disposal (if any), as it sees fit.

Unless otherwise specified, most loan agreements should be very particular as to the owner’s right to withdraw from or terminate the loan. Where the item is lent for an exhibition the document must be very clear that the owner may not withdraw from the loan until the end of the exhibition period. The exception is a situation where the owner reasonably believes that the loan item is endangered in some way – whether as a result of treatment by the borrower, threat from war or terror, or other such reason.

Fees

Are any fees payable to the lender? Some museums charge a fee to loan their collection objects. This becomes almost in the nature of a rental fee.

In art museums there is a widespread custom that that living artists are paid a modest fee for the exhibition of their work. Although this fee is small, some museums refuse to pay it on the basis that by exhibiting the work they are already rewarding the artist. Others, who would see this as a somewhat paternalistic attitude, argue that they are unable to afford the additional cost. In any event, the rationale is budgetary. Accordingly, museum can take different views of this issue depending on the financing of the exhibition: When a show has corporate sponsors, it may be easier to include artist fees in the budget of the show.

Expenses

What are the expenses associated with the loan? What are they and who will pay them? These must be fully itemised. Nothing should be assumed.

Delivery

What are the collection or delivery arrangements? When? Where? How? Who pays?

Return

What are the arrangements for the return of the object? When? Where? How? Who pays?

Maintenance and conservation

It is clearly of concern to any owner that the subject of the loan will be treated with care. Are there any special requirements?

Although common in old-fashioned agreements, it is totally inadequate to promise a lender that the museum will ‘exercise the same care in respect of loans as it does in the safekeeping of comparable property of its own’.

Where conservation is an issue, these matters must be discussed at length (and then captured in the agreement). If the work is constructed of non-durable materials, or if change or decay is in any way the essence of the work, the museum should not be obliged (and perhaps not be permitted) to attempt to prevent any deterioration or make good any damage which is attributable to that characteristic.

Storage

How will the loan material be stored? Where? Are there any unusual features in the medium/materials that demand a particular method of storage?

Presentation

Is the object to be presented in a particular way? Is it framed or mounted? May Perspex be substituted for glass? Are there special requirements for installation?

Restoration

Does the object need restoration or conservation? If so may such work be carried out? If so, in what circumstances? By whom? Subject to what conditions?

Insurance

Will the museum insure the object for the period of the loan? What are the details of that cover? What is the insurance value of the object? Is it ‘wall to wall’ insurance or does it exclude transport? Does it cover loss, theft, damage and destruction? Are there any important exceptions of which the lender should be aware? Museums must remember that insurance policies are only contracts and, as such, are negotiable. The terms of the policy must be read with pedantic care before entering the agreement. Those that do not satisfy the museum’s needs must be renegotiated.

Where the material is to be covered by government indemnity, care must be taken to ensure that the exact terms of the indemnity are understood by both parties.[7]

Copyright

Is the object subject to copyright? If it is, who is the copyright owner? This may be important if the museum intends reproducing the work, say, in an exhibition catalogue. Care must be taken with this information for many persons filling in the loan agreement will not have the faintest idea of the laws of copyright. Many will wrongly assume that as owners of the material they are automatically owners of the copyright in it. As is explained in a later chapter, this assumption is usually wrong. Relying on such erroneous assertions can cost the museum considerable amounts of inconvenience and money.

Merchandising

Some owners are prepared to permit the loan to be used for merchandising. Others will permit it provided that they share in the merchandising income and have some degree of control over the process. Still others will not permit merchandising under any circumstances. This is applicable irrespective of whether the object is in copyright or whether the lender is the copyright owner. These conditions are contractual not statutory. They have force because they are a contractual condition of the loan.

Attribution

Does the lender wish to be attributed or remain anonymous? If attribution is required, what wording is appropriate? Many collectors are most careful about being identified for security reasons.

Calamity

Important loans are often, indeed usually, accompanied by extensive schedules as to what should happen in the event of calamity. It is absolutely standard practice that loans over a certain value be accompanied by such requirements. When the loan suffers a calamity there needs to be a pre-agreed protocol so that each party knows exactly what is going to be done in such event. The lender has an obvious reason to insist that this is rigorously drafted because it is the lender’s property that is at risk. Similarly, the borrower must be absolutely sure that it can comply with such expectations and obligations before entering the loan agreement. Should a calamity occur, it is essential that the borrower know exactly what to do, what it is permitted to do and how and when it must communicate with the owner. Conversely, the owner should be completely secure in the belief that the borrower knows and understands its obligation both in the way that it will treat the damaged or endangered property and in the manner and standard of its communication with you.

15.5 The ‘scary cupboard’: the disposal of old and uncollected loans[8]

Introduction

Every collecting institution has what some registrars colourfully refer to as the ‘scary cupboard’. This is the notional place in which are kept expired or unlimited duration loans that have been left unclaimed by lenders who cannot be located by the museum.[9] It also may have material found in the collection for which no documentation exists and also material that has documentation but which is perhaps ambiguous or partly missing.[10]

Such items may have little continuing value to the collection but nevertheless incur storage and maintenance costs and staff time and material resources. They create a dilemma as whether conservation resources should be committed to material that is not the property of the museum. The use to which even the useful material can be put is limited as the institution’s right to exhibit, loan out, publish or otherwise use the material may be severely limited by its netherworld status.

In major institutions, to deal with the problem of the scary cupboard it is important to treat the process as a special project to which specific resources are allocated. Otherwise, there are always more pressing things demanding the attention of the registrar. The process is not rocket science but it requires care and time. First, you must undertake an inventory of the collection and reconcile the inventory with the available documentation. This will reveal inventory material for which the documentation is in some way inadequate. It will also reveal missing inventory material – items that cannot be found notwithstanding that there is documentation that establishes or suggests that the material should still be in the possession of the institution. Then the institution must undertake reasonable good faith enquiries to try and track down the owners.[11]

With each item, it is important that the institution makes a decision as to what it wants to achieve. Any negotiation as to the future of the item should always be strategically directed so that the registrar (or other person undertaking the negotiation) is sure as to the desired result.

If the owner can be found then negotiations will be undertaken to determine whether the material will be returned to the owner, whether another loan agreement will be entered, or whether loan will be transformed into an acquisition.

If the owner cannot be found then the institution must look to the legal mechanisms available to it, to achieve its desired end.

Irrespective of the type of bailment, a bailee has very limited rights to dispose of goods. As a general rule, disposal is one of the rights that accompany ownership. Unless there is a contract or statute that provides otherwise, the right of a borrower is limited to giving the item back to its legal owner.

There are generally four available mechanisms for dealing with uncollected loans:

  • common law
  • uncollected goods legislation
  • specific institutional legislation
  • contract

As we will see, the first of these is almost irrelevant to collecting institutions, the second is applicable to all Australian collections, the third is relevant to some of the statutory institutions (in particular the state and federal ones) and the fourth is relevant to all.

Common law

The limited common law rights of disposal were summarised by the NSW Law Reform Commission[12] as follows:

2.15 In some, very limited, circumstances a bailee may be relieved from liability for disposing of goods without authority. The principle of agency of necessity excuses the bailee from liability when there is an actual commercial necessity to dispose of the goods. Traditionally, the defence is confined to:

(a)   those who accept bills of exchange to be honoured by the drawer, that is, the bailee who is entitled to be reimbursed by the person for whom the payment is made; and

(b)   masters of ships in foreign ports, unable to obtain immediate instructions from the owners of the ship or cargo and in need of money for unforeseen expenses.[13]

The defence developed to cover carriers by land, but is still limited to cases of emergency or real business necessity,[14] is for example, where the goods are perishable and it is impracticable to obtain instructions from the owner.[15] The principle also applies where goods are deteriorating or otherwise losing value, but only if the loss is serious enough to constitute an emergency.

2.16 The courts have been reluctant to extend the classes of agents of necessity. This is well illustrated by the decision in Sachs v Miklos.[16] In that case gratuitous bailees sold Items of furniture that they had stored for three years after several attempts to reach the bailor by letter and telephone had failed. The Court of Kings Bench found the bailees guilty of conversion, and refused to accept that they had acted as agents of necessity, stating that the sale was made for the convenient running of their business (a boarding house), and not in response to any real emergency. In the course of his judgment Lord Goddard CJ said: ‘in peace-time such a course would probably have landed them in no real liability for if the market value of the furniture had been obtained and had remained constant they would have had an adequate sum to hand to the plaintiff’.[17]

2.17 It is not hard to see why the courts have been reluctant to widen the defence of agency of necessity. The defence developed as part of the specialised law of common carriers, to facilitate the smooth carriage or shipment of goods, and to deal with the unforeseen circumstances which can occur during the performance of such contracts. In cases there is rarely, if ever, any suggestion that the goods will remain uncollected by the owner. It is the intervention of factors beyond the control of the carrier and owner, such as delays, strikes and unforeseen expenses which gives rise to the agency. The concept is, therefore, of limited value when dealing with uncollected goods. By contrast, the possibility that the goods will never be claimed is the major concern of the bailee in possession of uncollected goods.

Abandonment

2.18 It is sometimes suggested that an involuntary bailee can argue that the bailor has abandoned all title and interest in the goods, thus permitting the bailee to dispose of the goods at will. While the common law recognises abandonment, the concept is of very limited application. In order to rely on it the bailee must prove that the true owner has intentionally abandoned the goods.[18] Mere accidental or negligent loss of goods does not amount to abandonment. The concept has very little application to the problem of uncollected goods, since in most cases it would be difficult or impossible to prove the requisite intent in the bailors at the time the goods left their possession. Uncollected goods are, by their very nature, merely uncollected; they are not abandoned as that term is legally defined.

So – generally, in collecting institutions, we can forget about the Common Law: True necessity is very rare[19] and strictly interpreted; and proving the requisite intention of abandonment is almost impossible[20]. Accordingly, we must focus on the legislation.

Statutory right to dispose

Disposal of uncollected goods legislation

All States and Territories confer a right to dispose of uncollected goods by statute. These are general legislative powers;[21] they can be used by shoe repairers and collecting institutions alike. They are only useful if the institution has ensured that its procedures comply with the conditions laid down in the statute. This is a matter of law – not commonsense. The detailed requirements differ from jurisdiction to jurisdiction; so, each collecting institution should ensure that its procedures are compliant.

In general, the various Acts provide two mechanisms:

(i)              disposal by court order, where disposal can occur after the bailee obtains a court order permitting the action; and

(ii)            disposal after notice, where the disposal can take place after notice has been given to the owner.

Disposal by court order

A bailee can apply to the Local Court for an order authorising the bailee to dispose of goods.[22] This application must be served on the bailor, the owner of the goods and on each person claiming to have an interest in the goods.[23] You do not have to give notice if you:

(a)            are unaware of the fact that the person has or claims an interest in the goods; or

(b)            cannot trace or communicate with the person.[24]

The court order will specify:[25]

(a)            the goods to which it relates;

(b)            the manner in which disposal of the goods is authorised;

(c)            the date on or after which the goods may be disposed of under the order;

(d)            the amount of the relevant charges due to the bailee in respect of the goods.

Once the order is obtained the bailee can sell the goods.

Disposal after notice to bailor

There is a mechanism that permits a bailee to dispose of uncollected goods after giving notice to the bailee. The rules (and the degree of difficulty) vary according to the value of the goods.

For example in NSW goods are divided into four categories: those up to $100 in value; those between $100 and $500 in value; and those between $500 and $5000; and those above $5000. The bailee’s obligations increase in proportion to the value of the material.

Goods of up to $100 in value[26]

A bailee may dispose of uncollected goods whose value is less than $100 if the bailor:

(a)            has been given oral or written notice of the bailee’s intention to dispose of the goods, and

(b)            has been given at least 28 days, from the date when notice was given, within which to collect the goods.

Uncollected goods may be disposed of under this section in such manner as the bailee considers appropriate.

Goods of between $100 and $500 in value[27]

A bailee may dispose of uncollected goods whose value is less than $500 (but not less than $100), if the bailor, the owner of the goods and each person having or claiming an interest in the goods:

(a)             have been given written notice of the bailee’s intention to dispose of the goods, and

(b)             have been given at least 3 months, from the date when notice was given, within which to collect the goods.

(c)             Uncollected goods may not be disposed of under this section otherwise than by way of public auction or by private sale for a fair value.

Goods of between $500 and $5,000 in value [28]

A bailee may dispose of uncollected goods whose value is less than $5000 (but not less than $500), if the bailor, the owner of the goods and each person having or claiming an interest in the goods:

(a)             have been given written notice of the bailee’s intention to dispose of the goods; and

(b)             have been given at least six months, from the date when notice was given, within which to collect the goods; and

(c)             if a copy of the notice has, at least twenty-eight days before the goods are disposed of, been published in a daily newspaper circulating generally throughout New South Wales.

Uncollected goods may not be disposed of under this section otherwise than by way of public auction.

Notice obligations

The notice must comply with the requirements spelled out in the Act. For example:[29]

Notice under this Part must include:

(a)                the bailee’s name, and

(b)                a description of the goods, and

(c)                an address where the goods may be collected, and

(d)                a statement of the relevant charges due to the bailee in respect of the goods, and

(e)                a statement to the effect that, on or after a specified date, the goods will be disposed of unless they are first collected and the relevant charges are paid, and

(f)                 if applicable, a statement to the effect that the person will retain, out of the proceeds of sale of the goods, an amount not exceeding the relevant charges.

Service of the notice can be achieved either by personal service (where the person can be contacted) or by means of a letter addressed to the person and left at, or sent by post to, the person’s last known address.[30]

The untraceable or unresponsive bailor

If you cannot trace or communicate with the bailor:

(i)                  provided that the goods are less than $5000 and you have made bona fide efforts to find and contact the person, you will be relieved of the need to give notice; but

(ii)                 if the goods are valued at over $5000, you must get a court order.[31]

Perishable goods

Sometimes nature intervenes and requires that rotting or infected material be destroyed or thrown out. The legislation reflects this reality:[32]

(1) Nothing in this Part prevents a bailee from disposing of perishable uncollected goods (that is, goods that have perished or are in imminent danger of perishing) if the bailor and the owner of the goods:

(a)                have been given oral or written notice of the bailee’s intention to dispose of the goods, and

(b)                have been given a reasonable opportunity, having regard to the nature and condition of the goods, to collect the   goods.

(2) Goods may be disposed of under this section in such manner as the bailee considers appropriate.

This leaves unanswered the most obvious question: What happens where we can’t find the owner or the owner is unresponsive?

Requirements after the disposal

The money received from the sale, less any authorised charges, gets paid to the bailor or, if the bailor is unidentifiable or not found, according to the legislation dealing with uncollected money.[33]

The record-keeping obligations are considerable but reasonable:[34]

(1)     Within 7 days after disposing of goods in accordance with this Part, a bailee must prepare a record of the following particulars:

(a)                a description of the goods disposed of,

(b)                the date on which the goods were disposed of,

(c)                the manner in which the goods were disposed of,

(d)                in the case of goods that have been sold:

(i)          the name and address of the person to whom they were sold, and

(ii)         the amount of the proceeds of the sale, and

(iii)        the amount retained by the bailee to cover the relevant charges due to the bailee in respect of the goods,

(e)                in the case of goods sold by public auction – the name, and the address of the principal place of business, of the auctioneer by whom the goods were sold.

(2)     A record prepared under this section must be kept by the bailee for at least 6 years from the date on which the goods were disposed of and must be made available by the bailee, on request, for inspection by the bailor or by any other person claiming an interest in the goods.

Statutory institutions

Collecting institutions that are established by statute should ensure that their founding statute permits them to dispose of this sort of material after certain precautions have been followed. Such individual provisions can give institutions powers of disposal that are better suited to collecting institutions rather than the provisions that are provided for general bailees.

There are many institutions that do not have their own statutory mechanism that provides for the disposal of uncollected goods. Most of them would be well advised to seek such a mechanism.

One institution that does enjoy its own statutory mechanism is the National Gallery. By way of example, s 11 of the National Gallery Act 1975, is set out below. As you will notice, its procedures are tailored to the needs of the institution while still respecting the rights of owners. The Gallery’s mechanism is far more appropriate, quicker and cheaper than the procedures provided under general legislation for disposal of uncollected goods. Further, having the mechanism in the statute means that it does not have to be spelled out in each loan agreement that it enters.

NATIONAL GALLERY ACT 1975 – Section 11

Disposal of property left with Gallery

(1)      Where:

(a)      the Council wishes to apply this section to any property (including a work of art) that is not the property of the Gallery but has been submitted to the Gallery with a view to its acceptance by the Gallery or for any other purpose;

(b)      the property has remained in the possession or custody of the Gallery for a period of not less than 1 year after its submission to the Gallery;

(c)      in a case to which subsection (2) applies:

(i)       the Council has complied with the requirements of that subsection; and

(ii)      the period specified in the notice under that subsection or, if such notices were sent to more than 1 person, the period specified in the notice last sent, has expired; and

(d)      the property is not the subject of a claim lodged with the Gallery by the person who submitted the property to the Gallery or by any other person who has an interest in the property;

this section applies in relation to that property.

(2)      Where the Gallery has a record of the name and address of a person who has an interest in property referred to in paragraph (1)(a) or of the person who submitted that property to the Gallery, the Council shall send by pre-paid registered post to that person or to each of those persons, addressed to him or her at the relevant address, a notice informing him or her that, after the expiration of 3 months from the date of the notice, the Council intends, unless the person who submitted the property to the Gallery or any other person who has an interest in the property lodges with the Gallery a claim with respect to the property, to deal with the property under this section.

(3)      The Council may, in respect of property in relation to which this section applies, cause a notice, in accordance with subsection (4), relating to the property to be published twice, with an interval of at least 7 days between the dates of the publications, in such daily newspapers as will ensure its publication in every State and internal Territory.

(4)      A notice under subsection (3) shall sufficiently identify the property to which it relates and shall state that, at the expiration of 3 months from the date of publication of the notice, the Council intends to deal with the property under this section unless, before that time, the person who submitted the property to the Gallery or any other person who has an interest in the property has lodged with the Gallery a claim with respect to the property.

(5)      Where:

(a)      the period of 3 months specified in a notice under subsection (3) that has been published for the second time has expired; and

(b)      the property to which the notice relates has not ceased to be property in relation to which this section applies;

the Council may:

(c)      if the property is a work of art and the Council wishes to acquire it for the national collection – request the Minister to approve its acquisition for the national collection; or

(d)      in any other case – request the Minister to approve its disposal in accordance with this section.

(6)      Before approving of the acquisition of a work of art in accordance with a request under paragraph (5)(c), the Minister shall obtain a valuation of the work of art from an independent expert.

(7)      Where a work of art the subject of a request under paragraph (5)(c) has not ceased to be property in relation to which this section applies, the Minister may, by notice published in the Gazette, approve the acquisition of the work of art for the national collection.

(8)      Upon the publication in the Gazette of a notice under subsection (7), the work of art to which the notice applies is, by force of this subsection:

(a)      vested in the Commonwealth; and

(b)      freed and discharged from all interests, trusts, restrictions, obligations, contracts, licences and charges;

to the intent that the legal estate in the work of art and all rights and powers incident to that legal estate are vested in the Commonwealth.

(9)      The Minister shall, on behalf of the Commonwealth, transfer to the Gallery for inclusion in the national collection a work of art referred to in subsection (8).

(10)    Where property the subject of a request under paragraph (5)(d) has not ceased to be property in relation to which this section applies, the Minister may approve the disposal of the property and advise the Council accordingly.

(11)    Where the Minister has advised the Council of his or her approval of the disposal of property and the property has not ceased to be property in relation to which this section applies, the Gallery may:

(a)      cause the property to be sold by public auction; or

(b)      if the Council determines that the property is valueless or that for some other reason it is not practicable to sell the property by public auction – cause the property to be disposed of otherwise than by sale or to be destroyed.

(12)    For the purposes of a sale or other disposal of goods under subsection (11), the Gallery shall be deemed to be the absolute owner of the property.

(13)    The interest of every person in a work of art to which a notice published under subsection (7) relates is, on the date of acquisition of that work of art, converted into a right to compensation against the Commonwealth.

(14)    Parts VII and IX of the Lands Acquisition Act 1989 apply in relation to a right to compensation referred to in subsection (13) as if:

(a)      that right were an entitlement to compensation under section 52 of that Act;

(b)      a reference in those Parts to an interest in land were a reference to the legal estate in the work of art to which that right relates; and

(c)      a reference in those Parts to the Minister were a reference to the Minister administering this Act.

(15)    Where a person satisfies the Council that he or she had an interest in property immediately before the property was sold by virtue of subsection (11), the Gallery shall pay to the person such amount as it considers appropriate having regard to the interest that person had in the property but not exceeding the amount by which the amount of the proceeds of the sale exceeded the amount of any expenses incurred by the Gallery in connexion with the storage and sale of the property.

(16)    No action, other than an action under the Lands Acquisition Act 1989 as applied by subsection (14), lies against any person by reason of any act or thing done in accordance with this section.

Contractual right to dispose

Institutional borrowers know what a problem uncollected loans can be. They also know that this problem commonly arises because lenders change their names, sell their interests, go out of existence, have a fire or change their addresses, during the loan period. Given the expense and inconvenience of the problem caused by such things it makes sense that the agreement, as a matter of course, should contain provisions that anticipate such foreseeable problems.

The failure to collect material at the end of the bailment period is a clearly foreseeable problem in many institutions. Because this is so, any bailee of third party property would be well advised to include a mechanism in its agreements to deal with uncollected property without having to comply with the vagaries of legislation.[35]  In particular, the bailee should Include mechanisms that

  • put an obligation on the lender keep in regular contact with the borrower;
  • that require the lender to formally advise the borrower if certain events occur; and
  • permit disposal after certain procedures have been fulfilled or attempted.

In such a situation, the museum acquires its disposal right by means of the contract. Its powers are limited to those granted in the document.[36]

However, where there is no contract, or the contract is silent on the issue of what happens to uncollected material at the end of the loan period, the borrower must look to legislative solutions.

Special legislation for collecting institutions?

There is no legislation in Australasia that provides a general mechanism by which all collecting institutions can deal with their scary cupboard. Perhaps this is because the large institutions generally have a mechanism in their individual statute – but this provides no succour to those museums that are not so endowed.

In the USA, the Registrars Committee of the Mid-Atlantic Association of Museums in 1995 decided that museums needed special legislation.[37]

The purpose of this draft legislation was to:

  • Encourage both museums and their lenders to use due diligence in monitoring loans;
  • Allocate fairly, responsibilities between lenders and borrowers; and
  • Resolve expeditiously the issue of title of unclaimed loans left in the custody of museums.

It set out a number of obligations for both the lender and the borrower:

For new loans, the museum was obliged to make and retain written records of the loan including the lender information, a description of the property, the beginning and end date of the loan. It had to provide the lender with a signed receipt or loan agreement.

For old loans, the museum was obliged to update its records if the lender informed it of changes in contact information or ownership of the property and had to inform the lender whenever renewing or updating information about the loan.

As for the lender, it was obliged to notify the borrower of any change in address or of a change in ownership. Usefully, it stipulated that the successor of a lender is responsible for establishing ownership, thus relieving the museum of the burden of proof.

As for the mechanism that it provided for converting old loans, as would be expected, the museum was required to make a good faith search for, and attempt to contact, the lender. As in Australia, the mechanism provided for actual notice and deemed notice (by publication). It set out timelines and what the museum had to establish in order to acquire full ownership of the property.[38]

ENDNOTES


[1] For example, see discussion later in this chapter: The ‘scary cupboard’: the disposal of old and uncollected loans.

[2] ‘The Evolution of Loans Practice: Development of Procedures and Documentation at the Powerhouse’, Penny Huisman, Powerhouse Museum (Newsletter of the Australian Registrars Committee, June 2000, 4.)

[3] Ibid 4–5.

[4] Ibid 4.

[5] John E. Simmons, ‘Things Great and Small’, Collections Management Policies, p. 73, American Association of Museums.

[6] This forces both parties to regularly review the status of the loan and helps to maintain current details of owner and their address.

[7] Insurance is more fully discussed in Chapter 39: Insurance and indemnification.

[8] For discussion of the issues concerning the disposal of material that has been accessioned to the collection (i.e. material owned by the institution), see Chapter 9: Disposal.

[9] Ildiko DeAngelis, ‘Old Loans’, 2005.

[10] These may include gifts, purchases, loans, commissions, and exhibition props.

[11] These efforts must be documented, as it is the bailee who must be able to prove that the efforts made to find the owner were reasonable.

[12] Report 54: ‘Disposal of Uncollected Goods’, 1988, see full Report at <http://www.lawlink.nsw.gov.au/lrc.nsf/pages/R54TOC>.

[13] Hawtayne v Bourne (1841) 7 M & W 595, 600, 151 ER 905, 907; Bowstead on Agency (14th ed, Sweet & Maxwell, 1976) 63–4.

[14] Note 1 at 684, Sims & Co v Midland Railway [1913] 1 KB 103.

[15] Or in some similar category, such as livestock, which must be tended, fed and watered. See Sachs v Miklos [1948] 2 KB 23, per Lord Goddard, CJ at 35.

[16] [1948] 2 KB 23, followed in Munro v Willmott [1948] 2 AII ER 983; and see also Jebara v Ottoman [1927] 2 KB 254 at 270 per Scrutton LJ.

[17] Ibid 35.

[18] See Halsbury’s Laws of England (4th ed, Butterworths, 1973) Vol 2 at para 1510.

[19] Although there may be situations in which a loan item starts to decompose or leak and so becomes hazardous.

[20] Mere accidental or negligent behaviour is insufficient.

[21] See Uncollected Goods Act 1996 (ACT); Uncollected Goods Act 1996 (NSW); Uncollected Goods Act 2004 (NT); Disposal of Uncollected Goods Act 1967 (Qld); Disposal of Uncollected Goods Act 1966 (NSW); Disposal of Uncollected Goods Act 1970 (WA); Disposal of Uncollected Goods Act 1961 (Vic); Disposal of Uncollected Goods Act 1968 (Tas).

[22] Uncollected Goods Act 1996 (NSW), s 8.

[23] Ibid, s 8(1).

[24] Ibid, s 8(3).

[25] Ibid, s 9(3).

[26] Uncollected Goods Act 1996 (NSW), s 20.

[27] Ibid, s 21.

[28] Ibid, s 22.

[29] Ibid, s 26.

[30] Ibid, s 27.

[31] Ibid, s 25.

[32] Ibid, s 24.

[33] For example in NSW under the Unclaimed Money Act 1995 the money would be paid to the Chief Commissioner of State Revenue. Each jurisdiction has its own equivalent legislation.

[34] Ibid, s 30.

[35] Where there is an agreement, the terms of the contract take precedence over any legislation. For example, s 6(i) of the Uncollected Goods Act 1995 (NSW) states: ‘This Act is available for the disposal of uncollected goods where there is no agreement between the parties on the means of their disposal. If there is such an agreement, this Act applies to any aspect of the disposal of those goods that is not dealt with in the agreement.’ In such a situation, the museum acquires its disposal right by means of the contract. Its powers are limited to those granted in the document.

[36] For example where an art museum is hosting a competition such as the Archibald Prize, the contractual terms of entry should always give the institution the right to dispose of works that remain uncollected after a certain time has expired. For further, more commonplace commercial examples of this, consider the conditions on the back of laundry and dry cleaning tickets.

[37] Jeanne Benas and Jean Gilmore led the task force and Ildiko DeAngelis, then of the Smithsonian Institution General Counsel’s office, was consulting counsel.

[38] For further commentary on the RC-MAAM Model legislation 1995: Rebecca Buck, ‘Found in Collection’, 2005; Ildiko DeAngelis, ‘Old Loans’, 2005.

 

31. PHILANTHROPY

30 march 2011

This chapter was reviewed by a number of people within the Office for the Arts, Department of the Prime Minister & Cabinet and the author gratefully acknowledges this assistance.

 Introduction

While a significant proportion of cultural funding in Australia comes from government sources, the current climate is one of encouraging private giving for cultural purposes. One way that organisations can obtain private support is through sponsorships and strategic partnerships. An alternative is to seek donations.

The differences between sponsorships and donations are significant: an organisation’s relationship with a donor is different in nature, dynamic and expectation. The relationships are also based on completely different tax principles:

A sponsor gets its tax deduction because the promotion and marketing of its business is a ‘business expense’ and therefore deductible. For a sponsor, the tax status of the recipient is irrelevant. The only relevant factor is the purpose of the expenditure.

By contrast, for a donor to get a tax deduction the tax status of the recipient is crucial. It must be an endorsed Deductible Gift Recipient (DGR).

There are no restrictions as to what can be donated. It might be money but it is often collection material. Each species of gift attracts particular administrative requirements intended to promote fairness and transparency in the valuation and tax deduction process.

In this chapter, we look first at the fountainhead of philanthropy – DGR status generally, then describe the Cultural Gifts Program for public collecting institutions and finally briefly look at how organisations that support collecting institutions – but do not themselves come within the definition of a public library, museum or art gallery – can get the benefit of DGR status.

Deductible Gift Recipient STATUS

If a gift is to be tax deductible, the recipient organisation must be endorsed as a DGR. The rules that govern eligibility are set out in the income tax legislation and it is not the purpose of this chapter to be a comprehensive guide on DGR status – the legislation lists over thirty categories. Simply understand that there are various ways that you can seek endorsement depending on the nature and objects of the organisation.

In the collections world, it is helpful to simplify matters by dividing the world into two distinct types of organisation, each with its own DGR endorsement procedures:

  • public museums, art galleries and libraries; and
  • cultural support organisations.[1]

Public libraries, museums and art galleries

If you work for a library, public museum or art gallery that gets (or is trying to get) donations, you must read Tax Ruling TR 2000/10. This tax ruling articulates the Australian Tax Office (ATO) interpretation of the words ‘public library’, ‘public museum’ and ‘public art gallery’.[2] This is fundamentally important if your organisation wants to be a DGR[3] or to accept gifts under the Cultural Gifts Program.[4]

The ruling acknowledges that there is no definition of these terms in the Income Tax Assessment Act 1997 (Cth). While the words are to be understood in their ordinary or everyday meaning the ATO will expect a public library, public museum or public art gallery to have the following features:

  • its collection is made available to the public;
  • it must be in Australia;
  • it is owned or controlled by a government or quasi-government authority, or by persons or an institution having a degree of responsibility to the public;
  • it is constituted as a library, museum or art gallery, other people recognise it as such, and it conducts itself in ways that are consistent with such a character; and
  • it is an institution.

(i) Available to the public

The ruling accepts that the collection of a library, museum or art gallery as being available to the public where it is for use by the public or a section of the public. If such access is minor, the institution is not public. On the other hand, it is not necessary that a collection be made indiscriminately available. Limitations on access can be consistent with availability to the public where they are to protect the collection, ensure orderly access and efficient operation.[5]

In the ruling the ATO accepts ‘that students attending a public educational institution are a section of the public, in this context’.[6] This is important for all libraries, museums and galleries that form part of universities for whilst some of these are open to the general, non-student public, others certainly are not. Indeed this has interesting consequences for it means that even if a collection is made available only to a particular section of the public,[7] it can still be treated as a public collection.

‘Where a library, museum or art gallery is carried on by an organisation and operated for the profit or gain of its owners or members, the facility is not public. However, the charging of appropriate fees is not, in itself, inconsistent with being a public library, museum or art gallery.’[8] This is highly significant: it means that charging for entry to the collection does not, of itself, destroy the public nature of the collection and thus, its beneficial tax status. The real question to be asked is purposive: what is the purpose of operating the collection? Is it for ‘profit or gain of its owners or members’?

(ii)            In Australia

To be eligible to receive deductible gifts under div 30 of the Act, the public library, public museum or public art gallery must be in Australia. If a facility, recognised as a library, museum and gallery, is established in Australia and makes its collection permanently available to the public in Australia, the ATO accepts that it is in Australia.[9]

Borrowing from and temporarily lending exhibits to overseas public libraries, museums and galleries, do not, in themselves, prevent an institution from being described as being in Australia. [10]

(iii)           Structure of the institution

It does not matter whether the organisation is a company, association, trust or government body – but it must have a formal structure. It cannot be an individual or a partnership.

(iv)           Management

The institution must be recognised and managed as a public resource. If it is not a government or quasi-government institution it must be controlled by people that have a responsibility to the community arising from their position within the community.[11]

(v)             Purpose of the institution

Where the purpose and activities of the entity are wholly those of a library, museum or gallery, there is little difficulty.

But what is the effect of running, say, the gallery shop? This activity is clearly commercial and while associated with the collection and exhibition purposes of the collection, is distinct from it. This issue is cautiously recognised by the ATO. The ruling states: ‘Where other purposes and activities are evident, we only accept the entity as a public library, public museum, or public art gallery if they are minor and consistent with the purposes and activities of a public library, museum, or art gallery.’[12]

Even more complicated is the situation where the principal entity is not a public library, museum, or art gallery, but is an organisation that operates such a collection as a minor part of its larger commercial purposes. A ready example might be a museum operated by and within a large mining company. Clearly the principal purpose of the organisation is commercial and is not that of operating a public museum, gallery or library. Yet one might well argue that as the collection is not operated for commercial profit and is open to the general public, it should attract the tax advantages accorded to ‘public’ collections. To deal with this conundrum the ATO ruling has provided the following guidelines:

‘A part of the entity may be accepted as a public library, museum, or art gallery provided:

  • the affairs of the library, museum, or art gallery are separate from the general affairs of the entity;
  • the public can readily distinguish the library, museum, or art gallery from the rest of the entity;
  • the collection is readily identifiable to the public as the public collection of a library, museum, or art gallery;
  • the accounts of the library, museum, or art gallery are separate from those of the rest of the entity; and
  • any gifts made to the library, museum or art gallery are used only for library, museum or art gallery purposes.’[13]

THE Cultural Gifts Program

Although it is sad for an author to admit, the starting point for finding information in the Cultural Gift Program is the Commonwealth government website.[14] It is excellent: simple, informative and practical. However, for those readers who just want a general overview, read on.

Purpose and administration

The purpose of the Cultural Gifts Program is to encourage the making of gifts of significant cultural material to public museums, galleries and libraries. It crosses the boundaries of two federal departments: the ATO and the department responsible for the arts. There are three distinct but related parts to the structure:

Formal responsibility: The Minister responsible for the arts is responsible for the day-to-day administration of the program up to the stage where a donor claims a deduction, and then the process becomes the formal responsibility of the ATO.

Administration: The Cultural Gifts Program is administered by a secretariat within the Department of the Prime Minister and Cabinet (PM&C), Office for the Arts, Canberra;[15]

External advice: The Minister responsible for the arts appoints an expert committee, (the Committee on Taxation Incentives for the Arts), which advises the Minister, the Departmental Secretary and the Commissioner of Taxation on the operation of the program. [16]

This is an efficient division of powers and responsibilities, permitting the ATO to ensure the integrity of the tax components, PM&C to supervise and administer the cultural purpose (the encouragement of gifts to public museums, galleries and libraries), and an outside body of expert knowledge to provide advice to both.

How organisations apply to participate in the program

To participate in the CGP, a collecting institution must apply to the secretariat. It must:

  • show that it is endorsed by the ATO under the Income Tax Assessment Act 1997 (Cth) as a DGR on the basis that it is a public art gallery, museum or library (including archives)[17] by providing a copy of the notification from the ATO advising of its DGR status;
  • provide a copy of its authorised collection policy, including a mission statement, acquisition policy, collection care, deaccessioning and disposal policy, loans policy and the mechanism for review.[18]

The Cultural Gifts Program from the donor’s view

Where a gift is made under the Cultural Gifts Program the donor not only obtains a tax deduction to the approved market value of the gift but also obtains a capital gains tax exemption in relation to the donation.[19] The tax deduction can be spread over five years.[20]

To obtain the taxation benefits under the Cultural Gifts Program, the gift must be made to a public collecting institution with DGR status and the collecting institution must be willing to accept the gift. Accordingly, the first step for any donor is to find a collecting institution that wants the gift. The would-be donor and the management negotiate the terms of the gift. The institution then arranges the material to be valued. These valuations must be:

  • current;[21]
  • in writing; and
  • for the GST inclusive value.

Limitations on deductions

There are a number of limitations built into the system:

(i)       if the property is acquired by the donor with the purpose of giving it away and the amount paid for the gift was below market value, the valuation for the purposes of tax deductibility is the lesser of the average of the market valuation and the amount paid;

(ii)      testamentary gifts[22] do not qualify for a tax deduction;

(iii)    if the donor puts conditions on the gift, this can affect the value of the gift and thus the value of the deduction that will be approved;[23]

(iv)    the deduction may be disallowed if the donor receives ‘advantage of a material mature as a result of the gift;[24]

(v)      if an artist or dealer makes a gift which is part of their trading stock, the deduction will be restricted to the cost of acquiring or producing the item(s).*

Further information

Detailed information about the Cultural Gifts Program is available on the Department’s website: <http://www.arts.gov.au/tax_incentives/cgp>.

Cultural Organisations (that are not collecting organisations)

One way of becoming a DGR is to be registered on the Register of Cultural Organisations (ROCO). The Register is maintained and administered by the Office for the Arts, the Department of the Prime Minister and Cabinet (PM&C).[25]

Cultural bodies eligible for listing on the Register are those whose principal purpose is the promotion of one or more of the cultural activities specified in sub-div 30-F, sub-s 30-300(2) of the Income Tax Assessment Act 1997 (Cth) (the Act): literature; visual, community, performing or Aboriginal and Torres Strait Islander arts; music; crafts; design; television; video; radio; film; or movable cultural heritage.

The ROCO is not the appropriate avenue for collecting institutions to attain DGR status. However there are many organisations that are related to collecting institutions that are listed on, or may be eligible for, the ROCO. For example, the Art Gallery of NSW attracts tax-deductible status because it is a ‘public art gallery’ within the Cultural Gifts Program[26] – but the Art Gallery Society of NSW attains its tax-deductible status through its registration on the ROCO. In brief, the collecting organisation gets its DGR status under the Cultural Gifts Program while related professional bodies and support organisations may be eligible for the ROCO.

To qualify for endorsement as a DGR the cultural organisation must:

  • have as its principal purpose, the promotion of cultural activities in accordance with subsection 30-300(2) of the Act;
  • be a company, incorporated association, trust or statutory body;
  • have an Australian Business Number;
  • maintain a separate public fund;
  • issue receipts;
  • be based in and operate in Australia.[27] Its causes and beneficiaries must also be in Australia.

There are a number of important restrictions placed on organisations on the ROCO, for example, bequests under a will are not tax deductible; and registered organisations or funds cannot accept donations on behalf of another non-registered organisation or individual.

What is a ‘Gift’?[28]

Gifts have the following characteristics:

  • there is a transfer of money or property: The key word is ‘transfer’. The legal ownership of the asset must change hands. Title must pass. It cannot be some form of loan.
  • The transfer is made voluntarily: you cannot be forced to make a gift. If it is a true gift, the owner must choose to transfer ownership. For example, a requisition cannot be a gift.
  • The transfer arises by way of benefaction: This one is a little hard to test. Who can possible tell what a donor’s true motives may be? However, one can say that this is one factor that distinguishes a donation from a sponsorship; and
  • The donor must not receive any other benefit from the donation, other than the tax-deductibility of their donation.

This last point creates much confusion. How can the DGR reinforce the generous behavior and thank its donors, without endangering the tax deductibility of the benefaction? An acknowledgment that a recipient makes in appreciation of a payment can be consistent with the payment being a gift. Other acceptable forms of acknowledgment include stickers, mention in a newsletter or periodical, and plaques if they are of small cost and prominence. However, enlarging the acknowledgment into forms of advertising would prevent the payment from being a gift.[29]

Many forms of fundraising are not ‘gifts’ for tax purposes. For example, the following payments are not gifts:

  • purchases of raffle or art union tickets;
  • purchases of chocolates, pens etc;
  • the cost of attending fundraising dinners, even if the cost exceeds the value of the dinner;
  • membership fees;
  • payments where the person has an understanding with the recipient that the payments will be used to provide a benefit for the ‘donor’;
  • the gift of a service, as no money or property is transferred to the DGR;
  • volunteers’ expenses in carrying out the voluntary work, and the value of unpaid work.

Gift types

To be tax deductible, a gift must fall within one or more of the following gift types. For each gift type, this section explains the types of gifts covered, the types of DGRs that can receive the gifts, and valuation issues.

(i)     Money

To be deductible the gift must be over $2. It can be in Australian or foreign currency and can be made in cash, cheque, credit card or electronic transfer. (It does not cover gifts made under a will.) Gifts of money can be made to any DGR.[30]

(ii)    Property valued by the Tax Office at more than $5000

Type of gift:

Any kind of property may be gifted. To be deductible, the property must be valued by the ATO at over $5000. There are particular rules that apply depending on whether the property was purchased more or less than 12 months prior to the gift.

Recipients

This gift type applies to all types of DGR (except for gifts to the Commonwealth for the purposes of Artbank).

Valuation

In general, if the purchase occurred less than twelve months prior to the gift, the amount of the deduction will be the lesser of:

  • the market value of the property on the day the gift is made; and
  • the amount paid by the donor for the property.

If the purchase occurred more than twelve months from the date of the gift, the amount of the deduction will be the value of the property as determined by the ATO at the time of the gift.

For donors who are registered for GST, or are required to be registered, the amount paid is reduced by the amount of the GST credit (if any). This is because the donor effectively receives a refund of the GST paid on purchasing the gifted property.

If GST was not included in the price of the property purchased by the donor, no adjustment would be made. Examples are purchases from businesses that are not registered for GST and not required to be registered.

For donors who are not registered for GST, and not required to be registered, the amount paid is not adjusted to exclude GST.

(iii) Listed shares valued at $5 000 or less, and acquired at least twelve months before the gift was made

Type of gift

This gift type covers the gift of shares, but only if four conditions are met:

  • the shares were acquired in a listed public company;
  • when the shares were gifted, they were listed for quotation on the official list of an Australian stock exchange;
  • the shares were acquired at least twelve months before they were gifted; and
  • the market value of the shares was $5000 or less on the day they were gifted.

It does not cover gifts made under a will.

Recipients

This gift type applies to all types of DGR (except for gifts to the Commonwealth for the purposes of Artbank).

Similar to property donations, there are rules that apply to the valuation of the shares depending on whether they were purchased more or less than twelve months from the date of the donation.[31]

(iv)   Trading stock disposed of outside the ordinary course of business

Type of gift

This gift type covers the trading stock of a business, but only if the gift is a disposal of the trading stock outside the ordinary course of the donor’s business. In other words a furniture shop owner can give a bookcase to the DGR because the shop owner’s ordinary course of business is ‘selling’ not ‘giving’ furniture.

This gift type applies to all types of DGR (except for gifts to the Commonwealth for the purposes of Artbank).

Valuation

The value of the gift is the market value of the trading stock on the day the gift was made.

(v)    Gifts made under the Cultural Gifts Program

Type of gift

This gift type covers gifts of culturally significant property (except property that is an estate or interest in land or in a building or part of a building) made under the Cultural Gifts Program.

Recipients

This gift type applies to the following DGRs:

  • DGRs that are public libraries, public museums, public art galleries or institutions consisting of two or more of these;
  • DGRs endorsed as DGRs for the operation of a public library, public museum, public art gallery or an institution consisting of two or more of these;
  • the Australiana Fund; and
  • the Commonwealth for the purposes of Artbank.

The property must be accepted by the DGR for inclusion in a collection it is maintaining or establishing. For Artbank, the property must be accepted by the Commonwealth for inclusion in a collection maintained or being established for the purposes of Artbank.

Intending donors should contact the DGR, then they or the DGR should seek more information from the Cultural Gifts Program Secretariat in PM&C.

Valuation

The general rule is that the amount of the deduction is the average of two or more written valuations made by valuers approved by the Secretary to PM&C.

However, if the property was

  • acquired for the purpose of giving it away,
  • acquired subject to an arrangement that it would be given away, or
  • acquired (otherwise than by inheritance) less than one year before making the gift,

the valuation of the gift is the lesser of the amount the donor paid for the property and the average of the written valuations.

Where the written valuations for the property do not fairly represent the GST-inclusive market value of the property, the deduction is adjusted to the GST-inclusive market value on the day the gift was made.*

Written valuations are not required if no amount is included in the donor’s assessable income in relation to the gift, and an amount would have been included if the property had been sold rather than gifted. An example could be property purchased with a profit-making intention that is later disposed of by gift. The valuation of the gift is the amount paid for the property, or if the property had been manufactured or created, the amount allowable as a tax deduction if it had been sold by the donor.

If the donor is registered for GST, or required to be registered, these amounts may need to be adjusted.

For this gift type, donors can make an election to spread the deduction over a period of up to five years.

Conditional gifts

A gift deduction is reduced by a reasonable amount if property is donated subject to conditions on the ownership, custody and control of the property.

Capital gains tax exemption

Gifts of property made under the Cultural Gifts Program are exempt from capital gains tax. Any capital gain or loss made from such gifts is disregarded.

This rule does not apply if the donor or an associate of the donor later acquires the gift for less than market value.

(vi)   Gifts made under the Cultural Bequests Program

This program has been suspended. Gifts made in a deceased’s will are not tax deductible.

(vii)  Places included in the National Heritage List, the Commonwealth Heritage List or the Register of the National Estate

Type of gift:

This gift type covers gifts of places included in:

  • the National Heritage List, or the Commonwealth Heritage List, under the Environment Protection and Biodiversity Conservation Act 1999 (Cth), or
  • the Register of the National Estate under the Australian Heritage Council Act 2003 (Cth).

Places included in these lists are:

  • places of outstanding natural, Indigenous or historic heritage value to the nation
  • places of significant natural, Indigenous or historic heritage value owned or leased by the Commonwealth, and
  • places of significant natural, Indigenous or historic heritage value throughout Australia.

This gift type does not cover gifts made under a will.

Recipients:

This gift type applies to DGRs that are National Trust bodies.

The gift must be accepted by the National Trust body for the purpose of preserving it for the benefit of the public.

Valuation:

The general rule is that the valuation of the gift is the average of the written valuations provided by valuers approved by the Department of the Environment, Water, Heritage and the Arts (DEWHA).

SUMMARY OF CULTURAL ORGANISATIONS AND GIFTS

Cultural organisations[32]

DGR table – general categories Item number Other conditions
(see chapter 3)
Type of gift
(see chapter 6)
Public fund on the Register of Cultural Organisations–See Public fund on the Register of Cultural Organisations.

Gift condition: the public fund must be listed on the Register of Cultural Organisations when the gift is made.

12.1.1
  • in Australia
  • endorsement
  • receipts
  • self-review
  • $2 or more
  • property > $5,000
  • property < 12 months
  • shares ≤ $5,000
  • trading stock
Public librarySee Public library, public museum and public art gallery. 12.1.2
  • in Australia
  • endorsement
  • receipts
  • self-review
  • $2 or more
  • property > $5000
  • property < 12 months
  • shares ≤ $5000
  • trading stock
  • cultural gifts
  • cultural bequests
Public museumSee Public library, public museum and public art gallery. 12.1.3
  • in Australia
  • endorsement
  • receipts
  • self-review
  • $2 or more
  • property > $5000
  • property < 12 months
  • shares ≤ $5000
  • trading stock
  • cultural gifts
  • cultural bequests
Public art gallerySee Public library, public museum and public art gallery. 12.1.4
  • in Australia
  • endorsement
  • receipts
  • self-review
  • $2 or more
  • property > $5000
  • property < 12 months
  • shares ≤ $5000
  • trading stock
  • cultural gifts
  • cultural bequests
Institution consisting of a public library, public museum and public art gallery or of any two of themSee Public library, public museum and public art gallery. 12.1.5
  • in Australia
  • endorsement
  • receipts
  • self-review
  • $2 or more
  • property > $5000
  • property < 12 months
  • shares ≤ $5000
  • trading stock
  • cultural gifts
  • cultural bequests

 

 

ENDNOTES


[1] See ss 30–100 of the Income Tax Assessment Act 1997 (Cth).

[2] TR 2000/10 replaces earlier the guidelines dealing with such gifts, (Taxation Rulings IT 290, IT 2020, IT 2032 and IT 2676).

[3] Under div 30 of the Income Tax Assessment Act 1997 (Cth).

[4] See item 4 of the table in s 30–15 of the Act (gifts under the Cultural Gifts Program), and sub-div 30-B items 12.1.2 – 12.1.5 in s 30–100.

[5] TR 2000/10, para 6. (For example a library can operate as a reference collection only.)

[6] Ibid, para 7.

[7] For example, medical collections available only to medical students and health professionals.

[8] TR 2000/10, para 9.

[9] Ibid, para 12.

[10] Ibid, para 13.

[11] These are referred to as ‘responsible persons’ and include doctors, JPs, judges and other members of the legal profession, councillors, clergy and church authorities, directors and senior executives of large companies, accountants, medical practitioners (and other persons who belong to a professional body that has a professional code of ethics and rules of conduct), senior members of the teaching profession, persons who have been awarded an honour, persons who hold (or have held) public positions (eg appointed by Government ministers), and persons who hold a public or elected office such as town clerks, councillors, mayors and MPs.

[12] Ibid, para 10.

[13] Ibid, para 11.

[15] A comprehensive Cultural Gifts Program Guide is available at <http://www.arts.gov.au/tax_incentives/cgp>. It is essential that reference be made to this document when considering application for participation in the Cultural Gifts Program. Much of the information in this section is derived from that official document.

[16] The Committee on Taxation Incentives for the Arts reviews the valuations of gifts to ensure that they reflect current GST market value; certifies that the gift complies with the guidelines; and advises the Commissioner of Taxation on aspects of gifts which may assist the Commissioner to exercise discretionary powers. (Ibid at p 13.)

[17] Endorsement is pursuant to sub-s 30–15(1)

[18] Ibid at p 3.

[19] In other words, the donor does not pay capital gains tax on the difference in value between the purchase price and the assessed market value at the time of the donation.

[20] For information on spreading and apportionment, see Cultural Gifts Program Guide at p 11.

[21] The gift must be valued to give its market value either on the day of the gift or a date within ninety days before or after the gift was made.

[22] This includes gifts bequeathed under a will; gifts made by the executors from the corpus of the will; and gifts by trustees acting on the instructions under a will.

[23] For example if conditions are attached to the gift that prevent the institution having full custody, control and clear title, the ATO may reduce the amount of the deduction (s30–220).

[24] Such as free or discounted entry or membership.

*If an artist or dealer makes a donation from their personal collection, the donor must demonstrate to the satisfaction of the Commissioner of Taxation that the item(s) were not held for commercial gain. In order to qualify for a deduction of the current market value, the donor must have held the item(s) in their personal collection for a period of at least twelve months. See p 19 of the Cultural Gifts Program Guide.

[25] See more detailed information on ROCO at: <http://www.arts.gov.au/tax_incentives/register_of_cultural_organisations>, and the procedure for seeking endorsement as a DGR is set out at: <http://www.ato.gov.au/nonprofit/content.asp?doc=/content/34490.htm&page=2&H2>.

[26] See discussion of the Cultural Gifts Program above.

[27] The Australian National Maritime Museum has an interesting twist on this. Donors who are US citizens can get a tax deduction in the US by donating to a company established in Delaware that has been given tax-deductible status by the US Government. Of course that does not mean that the US company is itself a DGR: it gets the US donations and transfers them to the Australian parent body.

[28] This information is taken from the Gift Pack Guide at: <http://www.ato.gov.au/nonprofit/content.asp?doc=/content/34496.htm&page=2&H2>.

[30] Except gifts to the Commonwealth for the purposes of Artbank.

[31] For information on gifts of shares valued at $5000 of less, see Facts Sheet (NAT 71222).

* In cases where the Committee is not satisfied that the average of the valuations represents the GST inclusive market value of the donation on the day it was made, the Committee will refer the donation to the Commissioner of Taxation for determination. See Summary chart on p 15 of the Cultural Gifts Program Guide.

[32] GiftPack: (referenced to chapters are to the chapters in the GiftPack) <http://www.ato.gov.au/nonprofit/content.asp?doc=/content/34490.htm&page=13&H13>.




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