Art Market

$24 Million Richter and $15 Million Bacon Embroiled in Nonpayment Dispute

Isaac Kaplan
Aug 17, 2017 9:41PM

Gerhard Richter, Dϋsenjäger, 1963. Image courtesy of Phillips.

Estimated to sell for upwards of $25 million at a Phillips auction last November, Gerhard Richter’s Düsenjäger (1963) was the top lot at Phillips’s 20th-century and contemporary art evening sale last November—without attracting a single bid in the room. The Richter had been guaranteed for $24 million by 28-year-old Beijing businessman and art collector Zhang Chang. But Zhang has so far refused to pay.

Zhang’s refusal to make good on his guarantee has resulted in an increasingly tangled series of lawsuits. The dispute has also ensnared a significant piece by Francis Bacon, which Zhang acquired in a separate sale, using borrowed funds he never repaid.

The collector’s nonpayment for Düsenjäger (1963) is among the most high-profile instances of a phenomenon relatively commonplace in mainland Chinese auctions and, to a lesser extent, in Hong Kong. About 41% of lots sold at Chinese auctions from May 2015 to May 2016 were never paid for, according to a recent report compiled by Dr. Clare McAndrew for Art Basel and UBS. The figure has risen in recent years from a low of 30% in 2013. It is rare, however, for such a prominent instance of nonpayment to occur in a New York sale.

After Zhang failed to pay for Düsenjäger, Phillips filed a lawsuit in May alleging breach of contract. Court documents show that, under an October 2016 guarantee agreement, Zhang was promised a financing fee of 50% of the buyer’s premium owed on a hammer price at or above $24 million (a minimum of $1.5 million) as well as 30% of any difference between the winning bid and the Richter’s guarantee. After the auction, Phillips paid the consignor, rumored to be billionaire Paul Allen, in full with the company’s own funds. Meanwhile auction house executives cautioned Zhang that he was missing his payment deadlines.

“Following the auction, Phillips fully honored all of its commitments to the consignor, who is not a party to any action related to the sale,” said a spokesperson for the auction house in an email to Artsy. “Phillips has every confidence that it will receive payment from the guarantor in due course.”

According to an affidavit by a Phillips employee, when Zhang was warned of possible litigation, he claimed that he was “beyond the reach of the United States.”

During conversations with the auction house, Zhang also disclosed that he had purchased a £12 million Bacon diptych in London in 2015 and that the piece was consigned this year to Gagosian Gallery for sale in New York. The February 20th consignment agreement between Zhang and Gagosian stated that “the consignor confirms that the physical Work is free and clear of any encumbrances and liens, and is fully available.”

Phillips filed to attach the work, Bacon’s Study for Head of Isabel Rawsthorne and George Dyer (1967), to its lawsuit, seeking the painting as payment of Zheng’s guarantee. This past June, a judge granted the auction house’s request to keep the painting in New York pending further litigation in the case. But an additional lawsuit filed last week by a second Chinese citizen has raised doubts as to whether the Bacon legally belongs to Zhang at all, complicating Phillips’s attempts to seize it.

In his petition, Lin San claims he loaned Zhang money beginning in 2015 for the express purpose of purchasing the Bacon. After Zhang failed to repay the funds in 2017, the two entered into a supplemental agreement in February, at which time Lin claims he was unaware of the dispute between Zhang and Phillips.

Under the terms of the document, the piece would be put up for sale at Gagosian for three months. The proceeds of any sale would go to Lin to pay the debt. If the work did not find a buyer before May 20th, title of the piece would be transferred to Lin.

The Bacon failed to sell within the given time frame and Lin asserts in his complaint that he was the “rightful owner” at the time the judge’s order attached the work to the Phillips suit. That order, Lin’s complaint states, “should be modified to exclude the Bacon Work from its scope.” Phillips has yet to respond to Lin’s complaint.

According to McAndrew, nonpayment does occur at auction houses of varying sizes around the world. However, she wrote, “its extent is much more marked and persistent in China, posing a significant drag on the market’s confidence and the depth of development of the auction house sector.”

Some attribute the prevalence of the issue in Chinese auctions to different norms or inexperienced new buyers operating in the highly professionalized global marketplace. Cases are usually settled privately for fear of costly and public litigation and involve less prominent artworks. But other auction houses have sued Chinese buyers in the past. Notably, Sotheby’s sued over nonpayment in 2012 and in 2010, though both those cases involved much less expensive work and concerned auctions held in Hong Kong.

Isaac Kaplan