Dealers seeing red over false bidding
When the hammer came down on an abstract painting by Zao Wou-ki at a Sotheby's Hong Kong sale in October, the HK$69 million bid set a new auction record for the Chinese-French artist.
The colourful piece, 10.1.68 (1968), then made headlines again three months later, this time for a less celebratory reason: the mainland woman who bid for it, Ren Chunxia, failed to pay up.
She was not alone. In separate sales that same season, Ma Dong, who won three paintings including Self Portrait in the Yellow Mountains by master Chinese painter Zhang Daqian has yet to pay for any of them. His bids totalled to just under HK$50 million. Wang Yongjun also failed to pay HK$6.02 million after he successfully bid for a fine guan-type censer from the Qing dynasty (1644-1911), which was part of the Meiyintang Collection of Chinese ceramics.
While Ren's case was fully settled this week, Ma and Wang are still being sued by Sotheby's for non-payment of the works.
False bidding among Chinese high rollers has come at a time when the mainland has become the world's biggest market for art and antiques. A report released earlier this month by The European Fine Art Foundation (Tefaf) showed that the Chinese share of the global art market rose from 23 per cent in 2010 to 30 per cent last year, pushing the United States, with 29 per cent, into second place for the first time.
'The powerful surge by China combined with a rise in fine-art sales, particularly in the modern and contemporary sectors, led to a continuing strengthening in the art and antiques market worldwide,' Tefaf said. 'Sales in 2011 rose by 7 per cent to Euro46.1 billion (HK$477 billion), an increase of 63 per cent from the market crisis of 2009.'
Major international auctioneers maintain that bad-faith bidders are 'the absolute minority'. But for a business that depends heavily on trust, goodwill and reputation, leading auction houses are adopting more stringent measures to safeguard the interests of vendors, especially against new buyers who are bidding for the top lots.
Since last year, both Sotheby's and rival Christie's have introduced a minimum HK$1 million deposit for top-lot bidding.
Chritie's Asia president Francois Curiel said the new policy was working well. 'Anybody who cannot produce the credit reference is asked to put in a deposit, which can be up to 10 per cent of what we think the buyer wishes to spend, and that has taken care of the problem very quickly.'
Christie's, whose next art sales in Hong Kong will be held in May, has witnessed a significant increase in business in the region. Its Hong Kong sales accounted for more than 14 per cent of its global auction total last year, up from just 4 per cent in 2001.
Kevin Ching, chief executive of Sotheby's Asia, said the deposit policy had speeded up payment, though it was not enough to deter Ren, Ma and Wang from defaulting. So the auction house took another course of action: a lawsuit.
'Sotheby's is probably seen to be more ready to issue legal proceedings against defaulting buyers than our competitors, but this is one policy that we'd deliberately adopted to send a message to the auction world that we are here to protect,' Ching said ahead of Sotheby's six-day spring sales, which start on Saturday.
'We are agents for the consignors; we are here to protect their interests and their rights. When circumstances justify, we should not be slow to send a very strong message by way of legal proceedings,' he said.
While there have been talks on how difficult it is to enforce Hong Kong legal judgments on the mainland because 'the degree of efficiency and sophistication in the legal system in China vary from city to city', a legal action, overall, could put enough pressure on the defaulting buyers to pay up, Ching says.
Since 2008, Sotheby's has brought nine non-payment cases to court; more than half involved mainland buyers. 'But we have to put that into context,' Ching said. 'Since 2005, Chinese participation in our sales had increased from 5 per cent to almost 40 per cent in 2011. Therefore, I wouldn't say there is a corresponding increase in problem cases.'
Ching said Ren paid 90 per cent of what she owed within weeks after a writ of summons was served and the rest was paid on Wednesday, upholding the record for Zao's work. Ching said non-payment accounted for about 1 to 1.5 per cent of his auction house's total turnover last year, worth more than US$1 billion.
Ching says a primary reason for defaults by bidders, especially newcomers, is that they are unfamiliar with the way international auction houses operate.
But there are also those who buy to speculate, Ching added. Particularly for the premium lots, the transaction is further complicated if there are a group of people behind the bid.
'People might change their mind or one person cannot come up with their share of the investment ... then the person ends up not being able to pay on time because of the internal disagreement between [members of] the buying group,' Ching said.
Curiel, from Christie's, says that in the rare cases when a bidder fails to pay, the auction house and the vendor decide together to either sue the buyer, offer the work of art to the underbidder, reoffer it in a future auction or privately, or cancel the sale.
Despite all the precautions taken, at the end of the day, it's a matter of striking the right balance, Ching says. 'We are an auction house; we want fierce bidding in the room. We want to fetch good prices for our consigners who want as many people bidding as possible. We don't want to do anything that would unreasonably dampen the bidding spirit.'