Brexit threat to Pontormo
November 28 2016
Picture: NG/ACE
The National Gallery's laudable attempt to raise £30.7m to keep Pontormo's 'Portrait of a Man in a Red Cap' (above) appears to have been stymied by the UK's recent Brexit vote. The fall in the pound means that the picture has now become up to £5m more expensive, because its overseas owner paid in dollars, when the £/$ rate was much higher.
To recap; the painting was sold by the Earl of Caledon (and or his trustees) to the US collector Tom Hill last year. Mr Hill, a US citizen, paid £30.7m for the painting, having reportedly converted his dollars into pounds. We don't know when Mr Hill actually paid for the painting, but for most of last year the exchange rate was about £1.50 to the $.
As procedure dictates, Mr Hill applied for an export licence. But now the rate is about £1.24, which means that although the National Gallery has raised the required £30.7m, Mr Hill is sitting on a potential dollar loss of many millions. Quite reasonably, Mr Hill has (it has been reported) asked that the National Gallery increase its offer if they want to buy the picture from him.
I think the case is without modern precedent, and at the moment it's not clear what will happen. The UK's export guidance states that museums can stop works from being exported overseas if they raise a 'matching offer'. But there is nothing specific in the guidance or the legislation, as far as I can see, about how that matching offer is defined. In other words, should it be a matching offer in GBP, or in the currency they paid?
It's a general rule of the UK's export system that owners should not be financially disadvantaged by any part of the process. So on the face of it I think Mr Hill is entitled to ask for the matching offer to be a properly matching one, as far as he is concerned. That said, the legislation gives the Secretary of State for Culture (Karen Bradley MP) considerable leeway over these matters, and it will I suspect be for her to decide what happens next.
If she decides that the National Gallery's £30.7m offer is indeed 'matching', then Mr Hill can either accept it (highly unlikely, you'd imagine) or refuse it. If the latter, he retains ownership of the painting, but cannot export it from the UK, nor re-apply for a licence within ten years.
If the Secretary of State decides that the matching offer must fully compensate Mr Hill, then the NG will be obliged to seek another £5m (it is thought). Which will of course be difficult. It's interesting that no public campaign has yet been launched for this painting - might we see one now? But that said, it could be difficult to ask the public to cough up more money on the basis that it's due to the Brexit vote. Hardly an easy sell.
And that's the wider point here. The vote to leave the EU, and the subsequent decline in the pound (which looks set to be stay in the short-term at least) has made UK heritage assets cheaper for overseas buyers. Now is therefore a historically advantageous time for those wanting to snap up important British works of art, and we can expect to see an increase in export licence applications. But due to the various economic and fiscal pressures the UK is facing in the years ahead, can we also expect an increase in the money required to 'save' these works? I doubt it. So much for 'Vote Leave, Take Control'.
More on the Pontormo story here in The Art Newspaper, and here in The Sunday Times (with a quote from me).
Update - a reader writes:
This has happened before, sort of. It was one of the arguments put forward by the Prince of Liechtenstein for upping the value of the Coello portrait of Don Diego after it had been held by UK authorities for a couple of years while HMRC investigated the Simon Dickinson deal. When the National Gallery refused to meet the new price. The application for an export license was withdrawn – temporarily as you know. An application was then submitted again a few years later with the work re-valued upwards even more.
It is rather surprising, given the time these events take, that this hasn’t happened more often And I suppose if the increase now is agreed to, then the reverse situation must also come in to play – ie when currency fluctuations disadvantage the buyer.
Update II - a reader writes:
In your piece on the Pontormo you suggest that there is ambiguity at what represents a matching offer. If you look at the case hearing, it would seem to me that the system and the nature of the written undertaking given as part of it are entirely clear:
"The Committee recommended the sum of £30,618,987 (representing the private sale price of £29m plus £1,618,987 commission of $2.5m converted into GBP at the date of the meeting at the rate 1.5441756581) as a fair matching price."
and
"The applicant confirmed that the owner would accept a matching offer at the price recommended by the Committee if the decision on the licence was deferred by the Secretary of State."
The issue is not, I think, that there is ambiguity about the sterling value of the matching offer, but rather that there is no legal mechanism to force an applicant to honour their undertaking regardless of any currency issues. The system relies on applicants playing by the rules, which they are increasingly disinclined to do. The result is that on the rare occasions when galleries go through the difficult process of trying to put together the funding for a major acquisition it is becoming increasingly frequent that all the effort proves to be in vain. As far as I'm aware Rembrandt's Portrait of Catrina Hooghsaet and the Pontormo would have represented the second and third largest purchases in the National Gallery's history (treating the Sutherland Titians as one deal) - not minor deals.
It is fair to feel sorry for the American buyer, though the structure of the deal seems to have been designed to make a matching offer harder, and the currency exposure resulted from that structure. On the other hand, our system already gives more weight to the rights of owners and less to the rights of society in relation to heritage items than many other countries. If owners seek to undermine the system it must surely be right to respond by rebalancing the system to ensure that galleries retain some chance of "saving" at least occasional major works.
Your analysis on the effect of Bexit is probably right. There appear only to be two viable solutions:
1) Provide increased acquisition funds to galleries.
2) Simply ban the export of major heritage items, which would result in lower prices for items that could only be sold to UK buyers.
Without one or other the result will clearly be that the existing flood of great artworks out of the country will become a deluge. In cultural terms our descent to third world status will be more or less complete. Can the last one out please turn off the light (unless it was a Tiffany - in which case it will already have gone).
It's interesting to read that the buyer accepted in principle the prospect of a matching offer being made, and of accepting it. Of course, the system means that if at that stage the buyer says they won't accept a matching offer then the application is effectively rejected. So in one sense, from the point of view of buyers, there really isn't much alternative to saying they will accept a matching offer. Many cross the fingers and hope like hell that one won't be made. We can certainly say that buyers aren't playing fair by doing this. But the fact is it happens, and we need to address why. Previously, I have sugested that the effective penalty for declining to accept a matching offer should be increased; we should raise the ten year period in which owners cannot re-apply for a licence to even longer, say 20 or 30 years.
And evidently, at this stage of the proceedings (in late 2015) the buyer or their agent was not anticipating the sharp currency change as a result of Brexit. They must have been prepared to accept some change in the exchange rate at around the 1.544 £/$ rate. If I was the buyer (Mr Hill) I'd want to know two things; why didn't my adviser secure a better committment from the committee on the exchange rate question or make sure I'd hedged the currency, and whether the dramatic change in the rate triggered by Brexit doesn't in effect mean the deal has to be re-visited.
Update III - a reader responds:
Pace your reader who says that it is fair to feel sorry for the American purchaser of the Pontormo, it is fair to feel nothing of the kind. The purchaser must have known that the National Gallery would want to buy the painting, he must have known that it was loan on there and that his deal involved removing it suddenly from the Gallery's walls, forcing the Gallery to raise a matching offer in great haste.
I do think various people have behaved badly in this affair, but I don't think Mr Hill is one of them. He liked a picture, wanted to buy it, and bought it. So far, the UK's export system is performing its part of the bargain in such cases, which is to give UK institutions every chance of keeping the painting in the country and on public display, but without penalising, financially, either the buyer or the seller.
Update IV - Change needs to take place at the other end of the process too. I think it is imperative that the requirement for owners of conditionally exempt works of art to notify the government before a sale is completed - thus giving museums more notice and time to raise funds - is made legally binding.
