Monthly Archive for December, 2008

Panel of Experts:
Mr Kim Allen
Assistant Secretary, Collections Branch, Department of the Environment, Water, Heritage and the Arts
Ms Margy Burn
Director, Australian Collections & Reader Services, National Library of Australia
Mr Michael Crayford
Assistant Director, Collections and Exhibitions, Australian National Maritime Museum
Professor Graham Durant
Director, Questacon National Science and Technology Centre
Ms Caroline Greenway
Director, Cultural Property, Collections Branch, Department of the Environment, Water, Heritage and the Arts
Ms Caroline Lorentz
Manager, Loans, Historic Houses Trust of New South Wales
Mr Tim Sullivan
Deputy CEO and Museums Director, Sovereign Hill Museums Association
Mr Alan Ventress
Director, State Records Authority of New South Wales

INTRODUCTION

Whenever the museum acquires an object it undertakes a bundle of obligations including storage, maintenance, conservation, insurance, security, documentation. Each of these adds to the demand on the museum’s resources and it accordingly essential that the museum develop acquisition procedures that are considered and carefully articulated. Attention given to acquisition procedures is essential to good governance of the collection. As the collection is the core of any museum, so those responsible for the acquisition of material must ensure that the methods of acquisition adopted, protect the widest interests of the museum.

Basic Methods

The basic methods of acquisition are:

• Purchase,
• Gift[1],
• Bequest,
• Exchange,
• Legal deposit (for specified libraries); and
• Field collection.

The first three of these are legal transactions. The fourth has legal ramifications. All of them have the effect of acquiring the title in the object for the museum.

Considerations

Irrespective of the method of acquisition one must consider:

(a)             Relevance of the item to the institution’s mission statement and acquisition policy,

(b)             Ethics of the acquisition, and

(c)             Assurance as to title and provenance.[2]

Once it has been determined that the material is appropriate, the issue is to determine and implement the method of acquisition.

Where the acquisition is by means of purchase, gift, bequest or exchange, the narrow legal issue is whether the parties have concluded a clear and enforceable transaction that reflects their unambiguous intentions. The primary intention of the participants is that ownership should pass from the present owner to the museum. That may be attended by many other consequent intentions whether they be commercial terms or idiosyncratic conditions[3], but the root of the transaction is the passing of ownership to the museum.

DUE DILLIGENCE

Introduction

The basic methods of acquisition are: donation (including bequest), purchase, exchange, field collection and legal deposit. The first three of these are legal transactions. The fourth has legal ramifications. The fifth is a legal obligation. All of them have the effect of acquiring the title in the object for the museum.

Whenever the museum acquires an object for the purpose of accessioning[4], it undertakes a bundle of obligations including storage, maintenance, conservation, insurance, security and documentation. Each of these adds to the demand on the museum’s resources and it accordingly essential that the museum develop acquisition procedures that are considered and carefully articulated. Attention given to acquisition procedures is essential to good governance of the collection. As the collection is the core of any museum, so those responsible for the acquisition of material must ensure that the methods of acquisition adopted, protect the widest interests of the museum.

Irrespective of the method of acquisition one must consider:

• the relevance of the item to the institution’s collection policy;
• the ethics of the acquisition; and
• assurance as to title and provenance.[5]

Once it has been determined that the material is appropriate, the issue is how to achieve that end.

Where the acquisition is by means of purchase, gift (including bequest), exchange, the narrow legal issue is whether the parties have concluded a clear, unambiguous and enforceable agreement. The technical legal issues are sometimes the easier to satisfy than the ethical ones: For example, whether or not the museum owns the human remains in its collection may be answered quite easily from the legal perspective but whether or not it should own them, may be a more difficult matter.

On the other hand, proving legal title to an item is often quite difficult. Given that provenance is so often imperfect, there is inevitably an element of risk in acquiring collection material. These matters can come back to haunt one’s successors.[6] It is a risk that must be considered. It is a matter of judgment. Given the nature of some collection material, if some risks were not undertaken, much important material would be lost.

For example, the chain of provenance is often not well documented for archival materials offered to libraries but the library would take this risk. Further, since these materials have a typically low financial value compared with say artworks, the risk of a challenge to the library’s ownership is slight. This is simply good risk management: Know the legal position; gauge the likelihood of claim; consider the true financial risks and balance them against the collection value of the material. These are professional judgment decisions – and there is always some risk involved in judgment.

Sometimes the issue is not who is the owner but what can be done with the item. How do you overcome the difficulty of disposing of an object that has been lent to the museum and whose owners (or heirs) cannot be found? In such cases the museum has only the right to possess the material, not to dispose of it (for to do so can only be done by an owner, not a mere bailee.) Many museums are stuck holding material in their storerooms that they would rather divest but lack either a contractual or a statutory right to do so. This is one of the reasons that long-term loans are discouraged. It is also one of the reasons that museums established by statute should always contain a provision in their Act, which empowers them to dispose of such material after a certain length of time and after certain enquiries have been made.[7]

These problems are exacerbated where the acquisition is as a result of field collection. The laws as to ownership of apparently abandoned goods; shipwrecks[8], fauna flora and specimens found on private, leasehold, public or other lands; items taken contrary to statute, regulation or licence, all of these raise complexities as to the legal title that can be claimed for material collected in the field. In almost all cases, illegality has a detrimental effect on the enforceability of title and the professional need to record and publish the time, place and circumstances of the field collection also provides concrete evidence of the illegality surrounding the acquisition.

Acquisition documentation

In undertaking any acquisition, there is no substitute for carefully drafted writing. The quality of the museum’s agreements and records may not be called into issue for years, but when they are, the lawyers representing the interests of the claimants will subject them to detailed and aggressive scrutiny. What does one do when faced with a patron’s heir who says that the valuable collection verbally given to the museum was really only a long-term loan? Or when the work turns out to be a fake or to have been misattributed? What if it is alleged that the source of the item did not have the right to sell or donate it? What if the museum has failed to comply with the necessary formalities because a non-expert drafted its forms?

Claims relating to collection items never take into account the fact that the staff were over-worked and under-resourced; nor that they were acting in good faith; nor that what was done was in accordance with the common practice of the museum. Each case is determined by its own merits and circumstances. Each document is subjected to critical analysis. It either works or it doesn’t.

Too many collecting organisations have collection material in which, if tested, they could not prove ownership. Indeed, the truth is troubling. Over the years, particularly before the emergence of the professional collection managers, many institutions have even entered such material in their acquisition register as though they owned it. That registration is not supported by sufficient or appropriate documentation. It is a liability that is completely hidden from the public and the auditors – but it is a liability nevertheless. Indeed, in the course of research for this book, it was evident that many major collections claimed ownership of material in which they had never obtained legal title: Sometimes the documentation on the file is poorly drafted, confusing, ambiguous or simply absent.

How do you prove that a transaction was a gift and not a loan if there is no deed of gift on the file? (Long-term loans or uncollected loans can never become the property of the borrower merely by the passing of time.) In many cases there is just a letter thanking the ‘donor’ for the gift: such a letter is just one piece of evidence that is rebuttable by other evidence. It is evidence but it is not proof of ownership.

Whilst these omissions or weaknesses do give rise to potential liability, it is important that it be kept in perspective. With every year that passes without claim, the risk diminishes. Not only do the number of potential claimants lessen with the passing of the years, it may well be that potential claims will be frustrated by Statutes of Limitation[9] or equitable principle of laches[10].

Collections will always contain material for which they cannot absolutely prove ownership: For a governance perspective it is important to have a policy that acknowledges this potential liability and makes a commitment to deal with any such claims promptly and openly. Of course, the other important governance initiative is to make best effort to reduce the likelihood that such problems will arise in respect of future acquisitions.[11]

The basic documentation that is essential to a prudent acquisition procedure is as follows:

• An acquisition register in which all material acquired by the organisation is formally noted and described;
• The documentation file that contains (either the original or copies of) all of the documentation supporting the decision to acquire the material. This would include provenance due diligence enquiries, information and materials; the internal assessments as to the compliance of the material to the organisation’s Acquisition Policy; and
• The contract, deed or other documentation that evidences the manner and the terms by which the acquisition was achieved.[12]

So what is it that acquisition documentation must establish?

Establishing Provenance And Title

When you acquire an item, what you are acquiring is “title”. In this context, title means the ability to prove ownership of the item. [13] The ability to prove title should be one of the key determinants in any decision to acquire collection material. Unless good title is established, the transaction is fatally flawed. This is not just a legal issue; it is one of good governance, risk management and prudent allocation of resources.

When making the acquisition decision, curators focus on the ‘provenance’ of the item. They will look at the hands through which it has passed with a view to establishing the history of the item. This may provide a social, cultural and ethical basis for the acquisition decision – but it does not provide a legal basis for it.

Lawyers look at the same information but have a different focus. They take the provenance and examine what evidence there is to establish that those in the provenance chain actually had the rights of ownership that they purported to have. Their task is to establish the ‘chain of title’. The chain of title is only as strong as its weakest link.[14] An example of difference between establishing a provenance and establishing a chain of title is clearly demonstrated by the works of art appropriated by the Nazis: the provenance shows the hands though which the artwork passed; the chain of title establishes whether those whose hands the work passed through, can be shown actually have the rights of ownership that they claim. Provenance establishes the identity of those who possessed the item and a possessory time-line, whereas the chain of title shows the path of ownership.

Provenance and authenticity

If the museum is purchasing an item it is obviously important that it is, in fact, what it is supposed to be. The difference in the financial and cultural value between the real thing and a copy can be enormous.

1.    Representations By The Seller As To Authenticity

The line of cases that deals with warranties as to authenticity is far from clear. In the early case of Jendwine v. Slade[15], paintings described in a sale catalogue as being by Claude Lorraine and Teniers, were found to be copies. In an extraordinary decision, the court held that because the artists were long dead, the question of authorship was merely one of opinion, not a warranty. Thus the purchaser lost out.

A little later in Power v. Barham[16], the defendant sold four pictures purported to be by Canaletto. They were not. Here the purchaser won. One judge distinguished the earlier case on the ground that Canaletto was a more modern painter and that therefore one could be expected to actually ascertain the work’s authenticity and not merely give an opinion!  The importance of the case was that the judges decided that the proper approach was to look to the ordinary meaning of the words used at the time of the transaction to see whether, in all the circumstances, they implied a warranty of genuineness or whether they conveyed only a description or expression of opinion.

It should also be noted that words written on the receipt are not, in themselves, sufficient. One must look to the words used at the time of the transaction together with the receipt, to see if a warranty as to authenticity has been given[17].

The difficulty in providing a warranty varies from item to item. It is easy to prove that a diamond is a diamond but far harder to prove that an egg is by Fabergé. On the other hand, most reputable dealers are prepared to sign such warranties because their preparedness to stand behind their word is one of the factors upon which they base their business.

2.    Certificate of Authenticity

Where the purchase does not involve a full contract or even a particularly descriptive receipt, it may be appropriate to require of the vendor a Certificate of Authenticity. These are commonly given by vendors of fine art, multiples and fine prints and take the form of a document that certifies such matters as authorship, genuineness, title, size, process, relevant dates, signature, and so on. By issuing a document that sets out the basic features of the object and signing as to the truth and accuracy of those details, the vendor promises that the item is what it is purposed to be. It doesn’t make the details any more true than they inherently are. Rather, the certificate becomes a contractual term of the transaction and, accordingly provides the purchaser with evidentiary proof of the intentions of the parties should it prove necessary.[18]

Certificates are not necessary when you have a full contract documenting the transaction, as you would include the matters detailed in the certificate in the contract. However they remain useful for smaller transactions in which a full contract may be seen as over-kill.

3.    Warranty As To Authenticity

As the purchasing museum, it is usually wise to include a clause in the contract of acquisition, granting specific rights to inspect and return the work or object if it does not pass the inspection. For example:

The Buyer may have the Work/Object examined and provided that:

(i)        two or more experts as to this medium and period agree that the Work/Object has been misattributed or is a forgery or counterfeit or does not comply in some other material way with its description stated herein; and

(ii)       the Buyer provides notice to the Seller of its intention to return the Work/Object within four weeks of the date of purchase; then

the Buyer shall have the right to return the Work/Object to the Seller and to be refunded the full purchase price.

 How to undertake due diligence prior to acquisition

Due Diligence is a phrase that is commonly used in the corporate world. It is considered a basic part of good governance. All decisions involving a major expenditure of corporate resources are preceded by a rigorous examination of the risks and obligations that are involved in the transaction. The price, so often the focus of superficial enquiry, is merely one of the many matters that must be taken into consideration.

The following checklist describes some of the matters into which any institution should make enquiry when considering acquisition. Although there are important common themes, each institution should develop its own due diligence protocols in light of its own particular needs and characteristics.

 ACQUISITION DUE DILIGENCE CHECKLIST

1. Compliance with acquisition policy

• Does the intended acquisition comply with statutory limitations on the institution’s scope of collecting (as expressed in its governing legislation)?
• Does the intended acquisition comply with the institution’s internal Acquisition Policy?

2. Relevance

• Irrespective of the beauty, rarity or value of the material, is the material within the intended scope of the collection?
• Are there other collections that are better suited?

3. Necessity and desirability

• Is the material required or desirable for the collection? Just because it is within the scope of the collection is not a good enough reason to acquire it. (Many collections are burdened by duplicates and by unnecessary examples of similar material etc.)

4. Importance

• Not all collection material acquired by institutions is “important” in the sense that it is rare, valuable or precious. It may be all of these things but most collections will need collection material that can’t make any substantial claim to importance. Sometimes it’s just really useful.
• Some institutions do have rigorous requirements of “importance” – particularly in respect of material that they are considering for accession to their permanent collection. Even then, it must be recognised that the concept of ‘importance’ is a subjective one and it is essential that the person within the institution who is recommending the acquisition be able to put in writing his or her argument as to why the material is important to the collection.

5. Quality

• Quality is not necessarily analogous to importance. A quality object is not necessarily important – it may be a wonderful example of something commonplace. It is perhaps more unusual for the truly important not to have quality. Again it is a subjective matter and it is important that the proposer of the material.

6. Condition

• The state of repair of the material is always significant but is in itself not determinative. Rarity may mean that it is important that the institution acquire an example irrespective of its condition. On the other hand, for something to be of ‘museum standard’ usually implies that it is the finest example available to the collection.
• Sometimes the purpose for which the material is being acquired will determine the importance of condition. An item that is being considered for acquisition for the permanent collection will have a considerably higher bar to jump than if it were being considered for a research collection or teaching collection.
• So, has a condition report been undertaken? Is it in accordance with the expectations of the institution? Is the condition of the material appropriate for the collection into which it is intended to be accessioned?
• Does the material require restoration? If so has it been costed? What other issues attach to any restoration that is required?

7. Conservation requirements

• Does the material have particular or unusual conservation requirements? These may be expensive (either in cash or other resources).
• If so does the institution have the existing systems and resources to provide these requirements?

8. Proposed use

• What is the intended use of the material?
• Some material may be appropriate for the permanent collection. Other material may be only suitable for subsidiary purposes such as the research or the teaching collection. It is important to examine how the material is going to be used within the institution for this will help determine the priority that should be accorded the acquisition. If it is for research, the acquisition of duplicate examples is not only common; it is often essential.

9. Is the acquisition financially responsible?

• What are the direct costs of the acquisition?
• Given the acquisitions budget, are the direct costs of the acquisition justifiable and, how is the acquisition going to be funded?
•  Assuming that the material must be paid for and further assuming that the institution does not have the cash on hand to fund the purchase, what prudent legal mechanism can be adopted to reserve the material for the collection without entering a legally binding commitment to acquire it until the funding is in place.
• What are the indirect costs of the acquisition? Have the run-on costs such as storage, transport, insurance, personnel, restoration, documentation, been taken into account.
• Given the operations budget of the institution, are the additional run-on costs justifiable and funded?

10. Provenance

• Has the provenance of the material be satisfactorily established?
• Provenance is important for purposes of cultural history but it is also important for providing evidence that can be used to prove legal title – the right of ownership.
• Often times the provenance of the item cannot be seamlessly established. This does not necessarily mean that the material should not be acquired. That will depend on the nature of the material and the effect that the flaws in the provenance may have on its value or chain of title.

11. Legal title

• Has the seller established that it has title to the material?
• Is there a full description of the current owner of the item and the means by which they became the owner?
• What proof has been provided of that ownership?
• Are there simple enquiries that might be made to test the story? (For example if a biographer offers for sale the diary of her now-dead subject, the institution considering the acquisition should at least make enquiries of the subject’s executor to establish whether this the claim of ownership is reliable.)
• Have the basic enquiries been made to check that the material has not been reported as missing or stolen. (For example, where a work of art is being purchased from other than the artist, has reference been made to the Art Loss Register.)
• Did the material originate overseas? If so, was the material legally removed and exported from its place of origin?
• Is it legally present in Australia?
• Is there anything about the answers to these questions that indicate legal niceties or ethically tortured constructions? Some great institutions, leading curators and prominent board members have been all suffered greatly when harsh light has been applied to questionable transactions. This is one area in which standards have greatly changed in just a few years. There are now rigorous ethical standards imposed on collection transactions.[19]

12. Identity of the source

• Who or what is the source of the material? You cannot afford not to know.
• If the material is being purchased: “Is the vendor of substance and of established reputation?” This is relevant to the establishment of legal title, the enforceability of warranties given by the vendor and also the ethical reputation of the institution.[20]
• The related (but distinct) question is to ask: “Has the seller established that it has all the rights necessary to undertake the transaction? For example, is it selling in its own right or as an agent, executor or trustee? If the vendor is not acting in its own name, who is the actual owner?

13. Conditions

• Are there any conditions affecting the title that the museum would usually expect to enjoy? Preconditions in the acquisition transaction can seriously affect what the institution does with the item: how it is exhibited or used; what public access is permitted and so on. These matters are always important to the acquisition decision.
• If there any conditions associated with the acquisition do they affect provenance? Title? Right or ability to exhibit?
• Does the institution have the legal power to agree to those conditions?
• Even if it does have the legal power, why should it agree to the conditions?
• Do the conditions impose any additional burden or expense upon the institution? For example, does the condition affect the use that may be made of the item by the institution? Does it require the institution to do things that it would not necessarily have otherwise done?

14. Documentation

• How will the transaction be documented?
• Who is responsible for preparing that documentation?
• Should this be prepared ‘in-house’ is does the value or complexity of the transaction require outside counsel?

15. Copyright

• If the material is copyright, does the transaction include any assignment or licence of those rights?
• If so, has it been established that the vendor of the material also is the owner of the copyright?

16. Warranties

• Is the vendor prepared to give a warranty as to the truth of its promises and an indemnity against any loss suffered as a consequence of any breach of those warranties?
• For example when the Getty approves the purchase of an object the vendor will be required to warrant for a period of 48 months from delivery of the object that:

(a)         The object is authentic;

(b)         The vendor has good legal title to the object;

(c)         The object has been (or will be) legally exported from its country of origin; legally exported from the country of purchase and legally imported (into the USA);

(d)         All customs and patrimony laws and regulations of all countries involved in the acquisition, have been met.

17. Delivery

• How will the material be delivered?
• Who is responsible for organising delivery?
• Who is responsible for paying for delivery?

18. Does the acquisition comply with the highest standards of professional ethics?

• In order to answer this, a separate due diligence enquiry must be made. The time has passed when institutions could close their eyes to issues of illegal export, holes in the chain of title and ethical dilemmas that may nevertheless affect the acquisition notwithstanding that the process is actually lawful. It is often said that there is a difference between The Law and Ethics and it is never truer than in the acquisition of collection material.
• Remember that ethics change. The collection of human remains was, at one time, commonplace enough in Australian institutions. Nowadays completely different attitudes apply.
• If the material is to be imported into Australia, what enquiries have been made to ensure that the material was or will be legally exported from its country of origin? What enquiries have been made to ensure that the material is being legally imported into Australia? Has the smell test been applied? [21]
• With some types of material it is important to consider whether it was scientifically excavated. This may well determine its usefulness as a collection item and may be the first indication that there are ethical issues attaching to the acquisition that must be settled.
• Are there any circumstances attached to the acquisition that may attract accusations of conflict of interest on the part of persons connected with the institution (such as staff, board members, sponsors, donors, suppliers…)?
• If there are problems found as a result of such enquiry, what is the monetary exposure of the institution?
• Does it represent a danger to the reputation of the institution either amongst the professional collection community or the public?

19. Approval procedures

• Has the approval for the acquisition been given by the appropriate persons, committees or board within the institution?

20. Announcement, Exhibition and Publication

• Is the organisation going to promptly and widely announce the acquisition to the press and make it publicly available (whether by public exhibition or otherwise). An image and description of an object on the institution’s website is often a useful means of publication but scholarly publication also meets this requirement.

21. Publication of Due Diligence Checklist

• Is the organisation prepared to make publicly available the due diligence acquisition checklist of the organisation?

22. Final test

• Because we are all inclined to be kind when evaluating our own decisions, prudent institutions might implement a three-fold test:[22]

(a)         Have we actively questioned the item’s provenance?

(b)         Are we prepared to make conspicuously available for public inspection its complete and accurate provenance?

(c)         Are we able to produce and publish records of each step taken throughout the acquisition process?

If the answer to any of those questions is anything other than a simple “yes”, perhaps you should resist any urge to acquire the material.

Authenticity Checklist

Although the checklist set out above deals with the major due diligence issues, sometimes the principal concern is that of authenticity. If you have concerns as to authenticity it is very helpful to ask the questions set out in the following checklist. It covers paintings & drawings, fine art prints and antiques:

LEGAL TITLE

Introduction

Given that provenance is so often imperfect, there is often an element of risk in acquiring collection material. As the establishment of the provenance is the starting point for proving legal title, where the museum decides to acquire an item despite an imperfect provenance, it must realise that it is also making a decision to acquire the item without provable legal title. Is the item so crucial to the collection that you are prepared to spend the resources of the museum on an item to which it can never fully prove ownership? It is a risk that must be considered. It is a risk that can come back to haunt one’s successors.[23]

These problems are exacerbated where the acquisition is as a result of field collection. The laws as to ownership of apparently abandoned goods; fauna flora and specimens found on private, leasehold, public or other lands; items taken contrary to statute, regulation or licence, all raise complexities as to the legal title that can be claimed for material collected in the field. In almost all cases, illegality has a detrimental effect on the enforceability of title and the curatorial or scientific need to record and publish the time, place and circumstances of the field collection also provides concrete evidence of the legality or illegality of the acquisition.

Principles

Title is the right of ownership. When one purchases a pint of milk, the money is handed over in exchange for the carton and the purchaser is then allowed to leave the shop with the carton of milk. From a legal point of view, the shopper and the shop owner have entered a contract of sale and, pursuant to that agreement, the legal title in the carton of milk changes hands. Now, the purchaser is able to exercise full rights of ownership over it. These include drinking it, destroying it, giving it away, or exhibiting it. With cartons of milk the process is so commonplace that we don’t think twice about it.

The acquisition of title in a collection object is no different in principle, merely more complex and thus more difficult to effect with prudence. We don’t ask ourselves whether the grocer had the right to sell the milk. The subject of the transaction and the transaction itself are so commonplace that we assume that the product labelled ‘milk’ and found in the ‘milk section’, is milk, and that the grocer has the right to sell it to you. Museums are not entitled to make the same assumptions in the acquisition of collection items.

Inherent in the transfer of title there are a number of legal landmines.[24] At its simplest, ownership is a bundle of rights. When we say that we own something, we are using a shorthand way of saying that we have the right to loan it, sell it, destroy it, exhibit it, pawn it, or do anything we like with it.

As owners, we may also give certain limited rights to others. For example, if we lend an object, the borrower has the right to possess it (and to do all the things that are compatible with that right). That right does not include the right to sell the object. Indeed there a many reasons why one may have possession of an object but not have the right to sell it.

The basic rule is that a donor or vendor can pass no better title than he or she possesses. Thus the recipient takes the chattel subject to the infirmities of title.[25] It is this principle that underlies the numerous claims being made throughout the world in respect of art that was looted by the Nazis during the Second World War. There are many complex issues inherent in establishing such claims but the claims are all based on the basic principle that the right of the current owners are defective because they have bought the works from vendors who did not have good title to the work. [26]

Although the Nazi loot issue is one that primarily affects art museums, less epic but similar situations occur quite commonly in most museums. Resolving requests for the return of collection material bought by or given to the museum, is part of the business of administering collections. These disputes are time consuming, expensive and can be damaging both to the collection and to the reputation of the institution. They are best avoided by making rigorous chain of title enquiries prior to making the decision to acquire.

Practical Approaches

Disputes as to title are largely determined on the strength of the documentary evidence. In many cases the museum’s records (particularly old records when professionalism of museum administration was seen not as good governance but rather proof of scientific or cultural dwarfism,) are simply inadequate to prove that its right to the material in dispute is stronger than that of the claimants. It usually makes no difference whether the museum has acted in good faith or had no notice of the defect in title.

Because of the centrality of documentation and provenance, when it receives a claim based on title, the museum’s initial reaction should be to ask for evidence supporting that claim. Then, before anything further is said, legal advice should be obtained as to the strength of any evidence supplied and whether or not any of the statutory exceptions to the general rule, may apply.

A museum employee cannot be expected to be an expert in the law of property, but must be expected to take sensible precautions to ensure that the museum is acquiring the quality of title that it requires.

How this is best achieved will always be the subject of debate and no one procedure will guarantee title however the most effective way to ensure that the institution is protected is to devise a due diligence checklist for the acquisition of material.[27] That said, generally, the acquisition documents should, where possible:

• State the basis of the acquisition; i.e. whether it is a gift, a bequest, an exchange or a purchase;
• Contain a statement from the source of the object as to how he or she came to have it.
• Contain a warranty from the source that he or she has the right to do what is being done.

Defective Records

Despite the best efforts of current collection administrators, most collecting institutions have material in their possession for which the documentation either is ambiguous, only partial, or entirely missing. Even more disturbing, is documentation that establishes or suggests that material is missing.

Each such item must be treated individually. Whilst there are mechanisms for dealing with uncollected loans[28], there is no one right approach. Where the documentation does not unambiguously establish the institution’s title in the material, nothing can cure that defect except either better documentation or a court’s determination.

In any event, the institution is usually reluctant to raise the issue with potential claimants. It does not want the embarrassment of having to admit that its documentation is less than perfect and that its claim to its collection material is unassailable. In taking the ‘do nothing’ approach it is tacitly agreeing to continue to carry all of the burdens and expenses of retaining collection material without complete assurance of ownership. This sits uncomfortably with modern understanding of good governance. A better approach is to look at each such item (either individually or as a class[29]), and consider the exact flaws in the title and decide what the institution wants to achieve. Once the goal has been determined, then a strategy can sensibly be formulated. Sometimes, the aim will be to expunge the material from the collection; with other items it may be to ensure that desired material will stay permanently within the collection; for still others, it may be to restore material to its rightful owner. The list goes on.

Where the institution decides that it wants to keep possession of such material, one option is to accession it in the normal way and assume the risk that, at a later date, there may be a claim. In many ways this sensible for the institution’s claim to the material can only be defeated by a claimant who can prove that it has a better claim to ownership. This burden of proof (the balance of probability) is often difficult to fulfil because, particularly because the original party is often dead and the documentation available to the claimant is no better than that held by the institution.

However, there are still things that can be done to reinforce the interests of the institution. For example, it may be appropriate to contact the relevant parties and discuss how they would like to be acknowledged when the material is made publicly available or exhibited. In this way, their view of the legal relationship will soon become apparent. Such enquiries can be made without making any admission as to any potential defects in the institution’s documentation. This can be followed up with correspondence that makes it quite clear what the intention of the parties was and is. It doesn’t have to be done in heavy legal documents – but does have to be handled with legal care so that the desired and proper outcome is achieved.

The most important advice for older, poorly documented acquisitions is, to be aware of the legal implications of a poor chain of title, and deal appropriately with any claims that arise – ie, speedily, with sensitivity to the claimant, and with the support of professional legal advice.

Basis of the acquisition

It is essential that the documentation show the nature of the transaction. When it is a purchase, the circumstances are usually obvious: money has been paid and possession of the object has been transferred. Where the transaction is a gift, the matter is more difficult.  When a claimant alleges that the museum acquired possession of an object by loan rather than gift, the museum’s rights are primarily determined by reference to its documentation. This should state unequivocally that the transaction was a gift and that title in the object was intended to pass to the museum.

Good governance demands that the staff responsible for overseeing the transaction have access to well-drafted standard documentation and, where necessary, suitably expert legal advice. Documentation drafted by self-confident non-experts is a source of riches for litigators.

Basis of the transferor’s rights

Persons donating or selling material to the museum, usually do so in good faith. They truly believe that they have the right to give or sell the object to the museum. All too often, museum personnel rely on that good faith and fail to ask basic questions such as, “How did you come to own this object?” This is particularly important when the object is a family heirloom (because competing claims by relatives are common) but also is an essential part of the provenance of the object. Simply asking the right questions frequently identifies defects in title. If the answers are not quite right, the alarm bells should ring. Further investigation will be required.

For this reason, normal enquiries as to provenance are essential. Just as the chain of ownership is important for intellectual and cultural purposes, so it is for legal purposes. When considering the provenance of an item, museum personnel should be awake to the legal ramifications of the information. A carefully considered provenance will often reveal a weakness in the chain of title that will necessarily affect the value or the desirability of an object and may even affect the validity of the transaction itself. If there is a weakness, it is better discovered before acquisition, than after.

Warranties

Museums frequently fail to insist on warranties in their acquisition documentation. This omission can be costly. It is not just the purchase price that is at risk: When a museum acquires an item it has to spend money. This may include the purchase sum, transport, insurance, the cost of any conservation procedures, the administrative costs of accessioning and the costs associated with simply storing and protecting the object. All of these will be wasted if the title acquired by the museum is successfully attacked. Moreover, the legal processes involved in a challenge to title are themselves expensive. Given this, the museum is well advised to include in its acquisition documents a warranty as to title that will enable it to recover some of its losses if something goes awry.[30]

For example, in sale or gift documentation one might include a clause as follows:

I hereby warrant that I am the owner (or agent of the owner) of the item described in this (purchase agreement/deed of gift etc.) and have the right to enter this transaction. I also warrant that I hereby transfer full legal and equitable title in the item to the museum.

In the event that my title is defective I agree to

(i)        return the purchase price plus 12% interest computed from the date of the sale, or the fair market value of the item as of the date the title’s invalidity is declared, whichever is the greater; and

(ii)       indemnify the museum against any awards, expenses, costs or any other like losses incurred as a result of the defectiveness of title.

If the item has been imported into the country it would be wise to include a clause warranting that it has been legally exported from its country of origin:[31]

I further warrant that the export of the item from any foreign country has been in conformity with the laws of such country and that its importation into Australia was in conformity with the laws of Australia.

Similarly it may be prudent to include a warranty that the item is not the subject of hire purchase, lease, covenant, caveat, court order or the like:

I warrant that the item is free from all orders, liens or encumbrances.

Unless the purchaser includes such warranties the courts will be loathe to imply them. There are many cases that demonstrate this unwillingness.[32] They take the view that if the parties did not see fit to include such promises in the contract, it is not the role of the courts to second-guess their intentions.

Statutes that affect title

There are many statutes that affect the effectiveness of title such as those relating to the illegal export of cultural property, laws protecting shipwrecks; laws protecting flora and fauna; laws protecting historic places and property. The museum must be alert to the particular issues raised by these statutes whenever it is dealing with material that is likely to attract such protection. Again, the most effective way of limiting risk is to ask the right questions and listen critically to ensure that the answers are fulsome and credible.[33]

Contractual conditions that affect title

Some donors attempt to attach conditions to gifts. Most museums strenuously resist accepting gifts with conditions: Such conditions are too easy to breach. For example, if a donor gives an object to a museum on the condition that it be exhibited no less than once every 10 years, what is the legal status of the object if the museum fails to honour the condition? It is highly likely that such failure can terminate the rights of the museum and can expose it to a claim from the owner (or his or her estate).[34]

It is wise for the museum to have a policy that prohibits the acceptance of gifts with conditions. It is also prudent that the museum have a mechanism by which that general policy may be reversed in individual and special instances. This procedure “should state who has the power to approve exceptions and what written records must be kept to explain each exception. As a safeguard, museum policy should require that a deed of gift for a restricted gift should be counter-signed by a museum official authorised to approve exceptions and that evidence of the restriction should always be on file with the accession records.”[35]

LEGAL DEPOSIT

What is legal deposit?

Under the Copyright Act 1968, a copy of any work published in Australia must be deposited with the National Library of Australia and the appropriate State library. In New South Wales[36], Queensland[37] and South Australia[38], state legislation also requires that a copy must also be deposited with the relevant state library.

Legal deposit extends not only to commercial publishers but also to private individuals, clubs, churches, societies and organisations. Legal deposit of the material is the sole responsibility of the publisher or author.

What are the benefits of legal deposit?

The National Library and other deposit libraries assume an obligation to preserve all material lodged with them. Legal deposit ensures that the works of authors and publishers will survive for the use of future generations. The comprehensive collections of Australian publications formed in this way provide the means for research into all aspects of Australian life, history, culture, artistic, commercial, technical and scientific endeavour.

Records for legal deposit publications are available through Libraries Australia, an online, shared cataloguing system, forming the basis of the Australian National Bibliographic Database. This means that all publications are brought to the attention of potential users through author, title, subject and many sophisticated electronic search strategies. Libraries Australia is freely available to anyone at http://librariesaustralia.nla.gov.au.

In addition selected records are included on databases available online. Social sciences and humanities literature published through scholarly periodicals and conferences are indexed in the Australian Public Affairs Information Service (APAIS). Health and medical literature published in periodicals and conferences are indexed in the Australian Medical Index (AMI)

Further help is given to publishers by the National Library’s Cataloguing-in-Publication program (commonly known as CIP). The address to contact is:

Cataloguing-in-Publication

National Library of Australia

Canberra ACT 2600.

Tel: 02 6262 1458

Fax: 02 6273 4492

Internet: http://www.nla.gov.au/services/CIP.html

What are the requirements of legal deposit?

The Acts requiring deposit have a number of common features. In particular, each relevant Act, whether state or Commonwealth, defines what works are subject to the deposit obligation.

What must be deposited?

Each piece of legislation defines the subject matter of the deposit in different terms. It is often (mistakenly) assumed that the deposit obligation only extends to books. It is much wider than that. For example, in NSW, even though the statutory reference is to “books” the definition section of the Act defines ‘books’ to include the obligation “any volume part or division of a volume newspaper pamphlet libretto sheet of letter-press sheet of music map chart or plan separately published” (s.2).

Some states provide for the deposit of more modern material such as “film, tape, disk or other like instrument or thing supplied to the general public and designed to reproduce visual images, sound or information…”[39]

The wording of these provisions differ in each jurisdiction and particular care must be paid to the exact language of the relevant statute. Many of them appear to have been drafted before we became truly familiar with the digital capture, storage and reproduction of information.[40] They need updating and it would make considerable sense if this process was undertaken collaboratively so that the legal deposit provisions, state and federal, were drafted in uniform terms.

As a starting point, all jurisdictions might look to the Victorian legislation[41]. It is neat, modern and technology agnostic.

4.    When Has Material Been ‘Published’?

A work is deemed to have been published if reproductions of the work or edition have been made available (whether by sale or otherwise) to the public. (This is the standard definition of “publication” provided by the Copyright Act 1968.)

5.    Best copy

The copy of the material must be a copy of the whole material and must be the best copy of that material as published. For example, if both a hard cover bound edition and a paperback edition are published, one copy of the hard cover edition must be deposited.

6.    Second and subsequent editions

A copy of a second or later edition in which copyright subsists does not have to be deposited unless it contains additions or alterations to the text or the illustrations. If a second or later edition does contain such additions or alterations then the best copy of that edition must also be deposited. If a book is reprinted with a change to the title, or any part of the content, or by a different publisher, it is considered a new edition.

7.    Claiming

When a legal deposit library finds that it has not received a published item on legal deposit it claims the publication from the publisher. This ensures that the collecting of currently published Australiana is as complete as possible, and at the same time, reminds publishers of the requirements of legal deposit.

Particular requirements of each deposit library

1.    National Library of Australia

Section 201 (1) of the Copyright Act 1968 (Cth) provides that “the publisher of any library material that is published in Australia and in which copyright subsists under this Act shall, within one month after the publication, cause a copy of the material to be delivered at his or her own expense to the National Library.”  Note the use of the term “library material”. This term is defined as meaning “a book, periodical, newspaper, pamphlet, sheet of letter-press, sheet of music, map, plan, chart or table, being a literary, dramatic, musical or artistic work or an edition of such a work, but does not include a second or later edition of any material unless that edition contains additions or alterations in the letter-press or in the illustrations.”[42]

It does not include films, tapes, disks and the like. Although the NLA has an extensive program of capturing and preserving digital material, it does not do this pursuant to the legal deposit legislation.

Even though state legislation may impose an obligation of legal deposit in a particular state collection, this is additional to the over-arching obligation of legal deposit with the National Library.

When sending legal deposit material to the National Library one must ensure that there is a name and address attached so that the legal deposit receipt can be sent. No other forms are required.

Legal Deposit Unit

National Library of Australia

Canberra ACT 2600

Telephone: 02 6262 1312

Facsimile : 02 6273 4492

E-mail: legaldep@nla.gov.au

Internet: http://www.nla.gov.au/services/ldeposit.html

New South Wales

Legal deposit is required under the New South Wales Copyright Act 1879-1952, ss 5-7. The Act requires that a copy of every ‘book’ first published in New South Wales be lodged within two months of publication. ‘Book’ is defined in the Act as any book, newspaper, pamphlet, leaflet, music, map, chart or plan separately published and ‘bound’, sewed or stitched together’.

The language of the Act is arcane but is illustrates the historical and social roots of this obligation:

S.5 (1): A printed copy of the whole of every book which shall be first published in this colony after the passing of this Act together with all maps prints or other engravings belonging thereto finished and coloured in the same manner as the best copies of the same shall be published and also of any second or subsequent edition which shall be so published with any additions or alterations whether the same shall be in letterpress or in the maps prints or other engravings belonging thereto and whether the first edition of such book shall have been published before or after the passing of this Act and also of any second or subsequent edition of every such book of which the first or some preceding edition shall not have been delivered for the use of the Free Public Library and the Library of the University of Sydney bound sewed or stitched together and upon the best paper on which the same shall be printed shall within two calendar months after the day on which any such book shall be first sold published or offered for sale within this colony be delivered by or on behalf of the publisher thereof at the said Libraries.[43]

Collection ServicesState Library of New South WalesMacquarie StreetSydney NSW 2000 Tel: 02 9273 1489 Fax: 02 9273 1246 Email: orders@sl.nsw.gov.au	Legal Deposit OfficerUniversity of Sydney LibraryUniversity of Sydney NSW 2006Tel: 02 9351 7268 Fax: 02 9351 7305 Email: legaldeposit@library.usyd.edu.au
Legal Deposit OfficerNSW Parliamentary LibraryParliament HouseMacquarie Street Sydney NSW 2000 Tel: 02 9230 2384 Fax: 02 9230 2640 Email: libreq@parliament.nsw.gov.au

Northern Territory

Legal deposit is required under the Publications (Legal Deposit) Act 2004. This Act requires documents published in the Northern Territory be deposited within two months of publication. ‘Document’ means any document available to the public including books, newspapers, magazines, periodicals, reports, newsletters, calendars, directories, handbooks, guides, sheet music, maps, pamphlets, audio cassettes, video cassettes, films, multimedia kits, computer magnetic tape, computer optical discs, floppy discs, compact discs, CDROMs, DVDs. The Act also includes Internet Publications including websites and PDF files.

Legal Deposit Officer

Northern Territory Library

GPO Box 42

Darwin NT 0801

Tel: 08 8999 3929

Fax: 08 8999 6920

Email: ntlinfo.dcdsca@nt.gov.au

Queensland

Legal deposit is required under the Queensland Libraries Act 1988 (which replaces Part VIII of the Libraries and Archives Act 1988). The Act requires that material published in Queensland be deposited within one month of publication with the State Librarian and the Librarian of the Parliamentary Library.

Material is defined as “every part or division of a book, periodical, piece of sheet music, map or chart, also non-print: an audio tape, film, video recording, disk, microfilm or microfiche. Material is considered to have been published if reproductions of the material or edition have been supplied (whether by sale or otherwise) to the general public.”

Library Deposits (Queensland) Acquisitions Branch State Library of Queensland P O Box 3488 South Brisbane QLD 4101 Tel: 07 3840 7893 Fax: 07 3846 2421 Email: jol@slq.qld.gov.au

Parliamentary Librarian Parliamentary Library Parliament House George Street Brisbane QLD 4001 Tel: 07 3406 7199 Fax: 07 3210 0172 Email: Library.inquiries@parliament.qld.gov.au

South Australia

Material published in South Australia must be deposited within one month of publication: South Australian Libraries Act 1982, s35 and Libraries Act Amendment Act, 1989. “Material” includes “a book, or a part or division of a book: a newspaper, magazine, journal or pamphlet: a map, plan, chart or table: printed music: a record, cassette, film, video or audio tape, disk or other item made available to the public, designed to store and facilitate the reproduction of visual images, sound or information.”

Legal DepositState Library of South AustraliaGPO Box 419ADELAIDE SA 5001 telephone: +61 (0)8 8207 7261 telephone: +61 (0)8 8207 7281 facsimile: +61 (0)8 8207 7307

Parliamentary LibrarianParliamentary Library of S.A.GPO Box 572Adelaide SA 5001 Tel: 08 8237 9398 Fax: 08 8212 1797

 Tasmania

Legal deposit is required under the Tasmanian Libraries Act 1984, s 22. A book published in Tasmania be deposited within one month of publication. “Book” means “any book, periodical, newspaper, printed matter, map, plan, music, manuscript, picture, print, motion picture, sound recording, photographic negative or print, microphotography, videorecording and any other matter or thing whereby words, sounds or images are recorded or reproduced”.[44]

Legal Deposit Officer

State Library of Tasmania

91 Murray Street

Hobart TAS 7000

Tel: 03 6233 7502

Fax: 03 6233 7506

Email: Heritage.Collections@education.tas.gov.au

Victoria

Legal deposit is required under the Victorian Libraries Act 1988, s49. The Act requires the deposit within two months of every new publication published in Victoria.

The Act defines a relevant ‘publication’ as including:

” the whole or any part of-

(a)  any printed book, periodical, newspaper, pamphlet, musical score, map, chart, plan, picture, photograph, print and any other printed matter; and

(b)  any film (including a microfilm and a microfiche), negative, tape, disc, sound track and any other device in which one or more visual images, sounds or other data are embodied so as to be capable (with or without the aid of some other equipment) of being reproduced from it”.

Legal Deposit Officer

State Library of Victoria

328 Swanston Street

Melbourne VIC 3000

Tel: 03 8664 7141

Fax: 03 9663 1480

email: MonoAcq@slv.vic.gov.au

Western Australia

Legal deposit was required under the Western Australian Copyright Act 1895, ss 4, 7-9. The Act required that a book published in Western Australia be deposited within two months of publication.

This Act was repealed in 1994. In this Act “publication” meant a ‘book, newspaper, magazine, journal, pamphlet, map, plan, chart or table, printed music, a film, tape, disc or other device, and anything prescribed to be a publication for the purposes of this definition’.

Until legal deposit legislation is reinstated the State Library of Western Australia hopes that publishers will abide by the spirit of legal deposit. Deposit material is housed in the JS Battye Library of Western Australian History.

Legal Deposit

Battye Library

State Library of Western Australia

Alexander Library Building

Perth Cultural Centre

Perth WA 6000

Tel: 08 9427 3107 Fax: 08 9427 3276

Email: battref@mail.liswa.wa.gov.au

DONATIONS

Introduction

Many museums are brought into existence by generous collectors who have decided to give their private collections to the community. This is not the case in Australia where all of the most important museums are federal, state or local government institutions. However, some of these would never have come into being had it not been for the generosity of private philanthropists.[45] More commonly, Australian museums look to philanthropists to enhance their collections. At a time in which acquisition funds are limited, many museums have to develop their donor programs if their collections are to grow in size and quality.

In spite of the importance of donations, many administrators do not go about the acceptance of donations in a legally safe manner. As discussed above, there are three matters that should be considered:

• the power to accept donations;
• the means used to secure legal ownership of the material.
• whether the museum really wants the gift.

The first of these considerations is essentially a curatorial matter – tempered by the priorities of the museum as articulated in its acquisition policy. The following material focuses on the museum’s power to accept the gift and how best to secure the gift, for these are legal matters.

Power to accept gifts

The museum only has the power to do things permitted by the instrument that governs it. For example a museum established by a State or Federal government will have its own, individual legislation. That statute (or its attendant regulations) will invariably provide a specific power to accept or refuse gifts.[46] Usually, the statutory provision that provides the power to accept gifts will specify that any gift must be accepted in pursuance of the museum’s objects.[47] Thus a natural sciences museum may not have the legal power to accept the gift of a vintage motorcycle, even if it were inclined to accept it.

By contrast, museums established by local governments do not have the benefit of having their own individual legislation and are established pursuant to more general powers provided by the legislation that establishes and governs the operation of the relevant council. Whilst the Local Government Act grants the local council the power to establish a museum it never provides specific powers such as that to accept gifts. Such powers are implicit for they are essential to the operation of the permitted function. Accordingly, any restrictions as to the power to accept gifts may be found in the Indeed they provide little more than the general provide specific and they vary so much from instance to instance that the best advice is to contact the relevant local government authority, in writing and ask it to advise of any such restrictions.

Museums that are non-profit companies or incorporated associations will have to examine their articles or constitutions and ensure that they have the power to accept donations.[48]

Approval of gifts

One of the day-to-day difficulties for curators is that kindly, generous or powerful people who wish to donate material to the museum, frequently approach them. The pressure to accept unwanted donations can be enormous. For this reason it is essential that every museum have a protocol for dealing with such offers.

A common approach is for all offers of gifts to be channelled through the registrar or the director. They will prepare a recommendation for the board. No staff member should indicate that a gift might be accepted until the director and the board have considered it.

The board must approve all gifts to the museum. In this, the board will be advised by the director but the final word must lie with the board.

Each institution must develop an approval mechanism that is appropriate to its size. In a major institution, gifts may require the sign-off from the head curator of the relevant section, the administrative director (or finance controller) and the director, before going to the Board for approval. In a small museum where there is only one (or perhaps even no) full time staff member, such luxuries are impossible. In such cases the approval function may require sign-off from the director and an acquisitions sub-committee. Such a sub-committee may have the benefit of outside consultants and experts, either as members of the committee or advisers to it.

Whatever the process, the principle is clear. Every museum needs a clearly articulated mechanism by which gifts may be accepted of refused. It should provide a means of ensuring that:

• the gift complies with the accessioning policy of the organisation;
• the decision is made according to an ethical procedure free of duress and conflict of interest;
• the decision makers are appropriately informed and expert;
• the acquisition is prudent given the finances and other resources of the museum.

Ordinary gifts

Unless otherwise specified, the legal title in a gift passes upon its delivery. It is usually not difficult to show that the possession was given to the museum; the difficulty more usually arises from having to prove that the transaction was in the nature of a gift.

Briefly, for a gift to be legally effective one must be able to show that:

• there was a clear intention to make a gift;
• the object was delivered; and
• the gift was accepted.

The most difficult of these to prove is the intention to make a gift. For example, in the absence of appropriate documentation, it is difficult to prove that a transaction was a gift and not a loan. For example, in 1987 the Museum of Contemporary Art in Madrid announced that it had to return 61 works by Picasso that had been allegedly donated to the museum by the artist’s widow, because of the absence of documentary proof of her intention. One may imagine that when dealing with works of that importance and value, the documentation would have been immaculate: Apparently not so. To overcome this surprisingly commonplace sort of problem, all museums should develop standard procedures that will protect their perceived rights in such items.

A Deed of Gift provides the most powerful proof of ownership. Although not essential for the legal efficacy of a gift, the deed form is undoubtedly the safest way to record the museum’s ownership of the gifted item. Because a deed is somewhat formal and needs witnessing by a person who is not party to the deed, many administrations choose to limit their use of the deed form to gifts of over a certain value, or where possession of the item is not handed over at the time of gift.

Following, are three standard forms: the first, where there is no intellectual property being gifted[49]; the second where the donor is giving the museum the item and the copyright in it; and the third, where the donor is giving the item, retaining the copyright granting the museum a licence to use the copyright

Deed of gift where no copyright involved

This is a deed of gift that may be used where the gift is of material in which there is no copyright[50] or in which the copyright has expired[51].

DEED OF GIFT – NO COPYRIGHT

 

THIS DEED OF GIFT is made the                                          day of                200 .

BY:                                                                                          (the “Donor”)

TO:      National Museum of Australia, a body corporate established by the National Museum of Australia Act 1980 (“Museum”)

RECITAL:

The Donor wishes to donate to the Museum the object(s) described in the Schedule (“Object(s)”).

THIS DEED PROVIDES as follows:

1. RIGHTS

The Donor is the owner of the Object(s).

2. GIFT OF OBJECT

The Donor hereby donates the Object(s) to the Museum.

As from the date of this Deed the Object(s) is the unconditional and absolute property of the Museum.

3. WARRANTIES

The Donor warrants that he/she/it is entitled to give the Object(s) to the Museum.

4. APPLICABLE LAW

This Deed shall be governed and construed by law in force from time to time in the Australian Capital Territory.

THE SCHEDULE

Description of Object(s):

1.

2.

EXECUTED AS A DEED on the date written above.

1.2            

SIGNED SEALED AND DELIVERED by/for and on behalf of…………………………………….. (Name of Donor)in the presence of…………………………………….. (Name of Witness)	) ) ) )	……………………………………..(signature)
THE COMMON SEAL of the NATIONAL MUSEUM OF AUSTRALIA was duly affixed in the presence of:…………………………………….. (Name of Witness)	) ) )

 Deed of gift with licence of copyright

Sometimes, the donor of the object also owns the copyright in it. Sometimes the donor is prepared to donate the copyright as well as the object: Sometimes not. The following document would be used where the patron wishes to donate the object and give the museum the non-exclusive right to exercise the copyright in it, but wishes to retain ownership and control of the intellectual property.

DEED OF GIFT – WITH LICENCE OF COPYRIGHT

 

THIS DEED OF GIFT is made the                   day of               2008.

BY:                                                                                          (the “Donor”)

TO:      National Museum of Australia, a body corporate established by the National Museum of Australia Act 1980 (“Museum”)

RECITAL:

The Donor wishes to donate to the Museum the object(s) described in the Schedule (“Object(s)”) and license the intellectual property in it/them.

THIS DEED PROVIDES as follows:

1.    RIGHTS

1.1  The Donor is the owner of the Object(s).

1.2  The Donor is the owner of all Intellectual Property rights in the Object(s).

1.3  For the purposes of this Deed, the term “Intellectual Property” means all rights in copyright, patents, registered and unregistered trademarks, registered designs, trade secrets, know-how, rights in relation to circuit layouts and all other intellectual property as defined in Article 2 of the Convention Establishing the World Intellectual Property Organisation of July 1967.

2.    GIFT OF OBJECT

2.1  The Donor hereby donates the Object(s) to the Museum.

2.2  As from the date of this Deed the Object(s) shall be the absolute property of the Museum.

3.    INTELLECTUAL PROPERTY LICENCE

3.1  The Donor hereby grants the Museum the non-exclusive right to exploit all Intellectual Property in the Objects throughout the world.

3.2  This licence permits the Museum to exploit the Intellectual Property for all purposes as set out in section 6 of the National Museum of Australia Act 1980 including, without limitation, the taking of photographs of the Objects for inclusion in exhibition catalogues, on postcards and in other merchandise sold by the Museum and for record keeping for the purposes of the Museum, but without any obligation on the Museum to do so.

3.3  This licence is irrevocable, royalty free and in perpetuity. It includes the right to sub-license,

3.4  In sub-clause 3.1, “exploit” includes registration, copying, making, using, exercising, vending, publishing, broadcasting, transmission, storage, communication, licensing, sale and any other exploitation whatsoever, irrespective of media or technology, whether now known or yet to be invented.

4.    WARRANTIES

4.1  The Donor warrants as follows:

4.2  The Donor is entitled to give the Object(s) to the Museum;

4.3  The Donor is the owner of the Intellectual Property in the Object(s) and has full right power and authority to license it to the Museum.

5.    APPLICABLE LAW

5.1  This Deed shall be governed and construed by law in force from time to time in the Australian Capital Territory.

THE SCHEDULE

Description of Object(s):

1.

2.

3.

EXECUTED AS A DEED on the date written above.

SIGNED SEALED AND DELIVERED by/for and on behalf of

…………………………………….. (Name of Donor)in the presence of…………………………………….. (Name of Witness)	) ) ) )	……………………………………..(signature)
THE COMMON SEAL of the NATIONAL MUSEUM OF AUSTRALIA was duly affixed in the presence of:…………………………………….. (Name of Witness)	) ) )

 

Deed Of Gift With Assignment Of Copyright

This document is used where the donor owns the object and the copyright in it, and wishes to donate both to the museum.

 DEED OF GIFT -  WITH ASSIGNMENT OF INTELLECTUAL PROPERTY

THIS DEED OF GIFT is made the                                day of                                      200X.

 

BY:                                                                                               (the “Donor”)

TO:           National Museum of Australia, a body corporate established by the National Museum of Australia Act 1980 (“Museum”)

RECITAL:

The Donor wishes to donate to the Museum the object(s) described in the Schedule (“Object(s)”) and the intellectual property in it/them.

THIS DEED PROVIDES as follows:

1.  RIGHTS

1.1  The Donor is the owner of the Object(s).

1.2  The Donor is the owner of all Intellectual Property rights in the Object(s).

1.3  For the purposes of this Deed, the term “Intellectual Property” means all rights in copyright, patents, registered and unregistered trademarks, registered designs, trade secrets, know-how, rights in relation to circuit layouts and all other intellectual property as defined in Article 2 of the Convention Establishing the World Intellectual Property Organisation of July 1967, including all reversions and extensions thereof.

2.    GIFT

2.1  The Donor hereby donates the Object(s) to the Museum.

2.2  The Donor hereby assigns to the Museum all Intellectual Property in the Objects throughout the world and in perpetuity.

2.3  As from the date of this Deed the Object(s) and the Intellectual Property therein, shall be the absolute property of the Museum.

3.    WARRANTIES

3.1  The Donor warrants as follows:

3.2  The Donor is entitled to give the Object(s) to the Museum;

3.3  The Donor is the owner of the Intellectual Property in the Object(s) and has full right power and authority to assign it to the Museum.

4.    APPLICABLE LAW

4.1  This Deed shall be governed and construed by law in force from time to time in the Australian Capital Territory.

THE SCHEDULE

Description of Object(s):

1.

2.

3.

EXECUTED AS A DEED on the date written above.

 

SIGNED SEALED AND DELIVERED by/for and on behalf of

 

……………………………………..
(name of Donor)

in the presence of

……………………………………..
(Name of Witness) )
)
)
) 

……………………………………..

(signature)   THE COMMON SEAL of the NATIONAL MUSEUM OF AUSTRALIA

 was duly affixed in the presence of:

……………………………………..
(Name of Witness) )
)
) 

Deed Of Gift With Commentary

Clause	Contract Text	Commentary
	THIS DEED OF GIFT is made the                    day of 200X.

BY:                                                                                          (the “Donor”)

TO:      National Museum of Australia, a body corporate established by the National Museum of Australia Act 1980 (“Museum”)

RECITAL:The Donor wishes to donate to the Museum the object(s) described in the Schedule (“Object(s)”) and the intellectual property in it/them.

THIS DEED PROVIDES as follows:This makes it clear that the nature of the transaction is that of Gift. It is not a loan.RIGHTS1.1       The Donor is the owner of the Object(s).

 Although it seems obvious, it is very important that the name of the donor is absolutely correct – it must be the person or entity that actually owns the subject of the gift. The donor must be the owner. 1.2       The Donor is the owner of all Intellectual Property rights in the Object(s).

1.3       For the purposes of this Deed, the term “Intellectual Property” means all rights in copyright, patents, registered and unregistered trademarks, registered designs, trade secrets, know-how, rights in relation to circuit layouts and all other intellectual property as defined in Article 2 of the Convention Establishing the World Intellectual Property Organisation of July 1967, including all reversions and extensions thereof.This sample is used where the donor also owns the copyright in the gift. It should never be assumed that the donor understands copyright. Many wrongly assume that because they own the ‘thing’, they also own the copyright in it. Such donors will say that they won copyright and are prepared to give it to the museum, in complete good faith: It’s just wrong and such mistakes can be very expensive for the museum.

If donors say that they own copyright, ask how that ownership came about. If they inherited it, you need to see the will. If they bought it, you need to see the document evidencing it. Remember, no-one can acquire copyright from another unless the transfer is in writing.GIFT2.1 The Donor hereby donates the Object(s) to the Museum.

 This is the statement of Gift. It is the heart of the transaction. 2.2 The Donor hereby assigns to the Museum all Intellectual Property in the Objects throughout the world and in perpetuity.This is the clause that passes ownership of the copyright from the donor to the museum. There are other models to use when (i) the museum is only obtaining a licence to use the donor’s copyright and (ii) where the donor doesn’t own the copyright and therefore cannot grant any rights in it. 2.3 As from the date of this Deed the Object(s) and the Intellectual Property therein, shall be the absolute property of the Museum.This makes it clear that the donor is intending to pass possession to the museum. There are no conditions. The museum’s ownership is absolute.WARRANTIES3.1       The Donor warrants as follows:

(a) The Donor is entitled to give the Object(s) to the Museum;

(b) The Donor is the owner of the Intellectual Property in the Object(s) and has full right power and authority to assign it to the Museum.

 Where donors allege that they have greater rights than they really have, the museum will suffer unnecessary and considerable expense.

As a general rule, the donor cannot pass on to the museum, greater rights than are enjoyed by the donor in the first place. If someone has borrowed something, he cannot give it away. If someone has a life interest in something, she cannot give it away. In both cases, the person has a right to the possession of the thing but is not actually the owner of all rights in it.

It is essential risk management on the part of the museum (let alone good curatorial and registration practice) to be clear that the person making the gift has the requisite power to do so.APPLICABLE LAW4. This Deed shall be governed and construed by law in force from time to time in (specify State or Territory).

  THE SCHEDULE

Description of Object(s):

1.

2.

3.

Describe the objects to be donated, with maximum detail and clarity. The museum must be able to establish clear proof that the item given pursuant to the gift is in fact the collection item in dispute. Careful registration practices are essential in this regard.EXECUTED AS A DEED on the date written above.

SIGNED SEALED AND DELIVERED etc

If a deed is not used, it is essential that the museum use an “Acknowledgement of Donation”. This is not a legal term. It merely provides evidence of the parties’ intentions. As this is contemporaneous with the gift, provided that it is properly drafted, later contestants will find it hard to contradict.

This form must make it absolutely clear that the donor intends that the museum is to receive full legal ownership so that the rights of the museum are unquestionable. The form should contain the following words:

The museum accepts your unconditional gift of the items in the attached Schedule. The museum hereby acknowledges in accordance with your expressed intention that it now has full title to, and responsibility for, the said items.

Once the gift is complete, it cannot be revoked.

Future gifts

A promise to make a gift is unenforceable unless it is in the form of a deed (if the gift is to take place while the patron is still alive), or in a will (if it is to happen upon death).[52]

It is not uncommon for a patron to seek to leave material with a museum on the understanding that it will be later given or bequeathed to the museum.[53] Then the patron has a change of mind, or dies without giving the necessary instructions in the will, and the museum is asked to return the material that it has expected to keep. This is not merely a matter of disappointment; the museum will have expended resources on the object that it may not have been prepared to apply, had it known that its possession was to be only temporary. Moreover, public museums are established for public purposes and it is questionable whether it is proper to apply those resources for private purposes.

A deed that records an intention to pass the physical possession of the gift at a later date should be registered.[54] Non-registration does not affect the validity of the gift as regards the museum and the donor, but it is risky for until it is registered, it may be defeated: In particular, an unregistered deed of gift may be voided by any creditors of the donor.

Conditional Gifts

1. The Condition Must Be Legal

To be valid, the condition must be possible to fulfil and must not be illegal or against public policy.

A donor can impose conditions on a gift that are either precedent or subsequent:

• Conditions precedent must be fulfilled before the passing of legal title in the gift can be complete.[55]
• Conditions subsequent are those that bind the donee after the gift is complete.[56]

If a condition precedent is breached, title never passes and the donor remains the owner. If a condition subsequent is breached, subject to any contrary intention expressed in the deed, the gift is at an end and, thereafter, the museum will only hold the item as a trustee for the donor. Such conditions can be very onerous on the museum and they are frequently honoured largely in the breach. This is very dangerous if the museum is not to be exposed to later claims for the return of the gift.

2. The Museum Must Have The Power To Accept

Careful consideration must be given to the statute or rules which govern the museum to ensure that the power to accept such gifts is present, and if so, the procedure that must be adopted.

In most statutory museums the decision to accept a conditional gift is one that only the board or trustees can make. Some have delegated this to the director, but in no case should the decision be made at curatorial level. The obligations imposed by such conditions can haunt an administration long after the curator has gone to greener pastures.

3.  Tax Deductibility As a Condition

Museums are sometimes offered gifts on the condition that the donor will obtain a tax deduction under the Cultural Gifts Program. These are somewhat difficult under the Program, for property in the item must have already passed to the museum before the deduction can be claimed. Of course, the gift may be subject to the condition that, if a deduction is refused, the gift will fail and the item shall be returned to the would-be donor. However this will be unattractive to most donors because all conditions attaching to gifts under the Program must be disclosed to the Commissioner of Taxation who may then take the condition into account when determining value of the gift and thus the amount of the deduction.

It is much more simple to have a rule that the museum will not accept such a condition and that potential donors must rely on their own taxation advice as to the likelihood of any deduction.

4. Detailing the Conditions

Whether the Deed of Gift or a mere Acknowledgement of Gift is used, any conditions that are agreed to should be carefully spelled out on the form. These conditions must be narrow and explicit. They should be professionally drafted.

It is often a good idea to put a time restriction of the conditions so that after an agreed length of time, the museum has absolute ownership of the gift, free from all conditions.

5. Filing

Although this is hardly a legal matter, it is sensible to keep all deeds of gift and acknowledgements of gift recorded securely in a special file or have them bound from time to time. In this way a permanent and easily accessible record is always available.

EXCHANGE

Exchange is one way that institutions can acquire collection material without an acquisition budget.

Exchange between public museums

For the most part, exchanges occur between public museums. It is not particularly uncommon, particularly where one museum has material that is surplus to its needs but which would be useful to recipient institution.

Exchange is more common between natural history museums and social history museums because their collections contain large amounts of non-unique material. It is far more uncommon between art museums because of the unique nature of most art works. It is this characteristic that that is at the heart of the deaccessioning debate and it is why that debate has been principally focussed on art museums.[57]

For the museum disposing of the material in this way, it is a reasonably safe way to dispose of deaccessioned items: If there is any discrepancy between the market values of the items at least the difference remains in the public system. Any such discrepancy will be a matter to the board to consider, for it has a duty to its institution, its public, its patrons and its staff.

Exchange between public museum and dealers

Where the exchange is between a museum and a private dealer, warning bells ring. No matter how restricted the accession budget may be, exchanging material with the private sector gives rise to possible accusations of professional misbehaviour. Like all questions of ethics, it issue is not whether there has been misbehaviour: The question is whether a cynical observer might query the appropriateness of the transaction. Curators have an obligation to maintain a professional distance with the dealers and private collectors with whom they must relate in the course of their work. Given that the relationships are often personal as well as professional, no museum professional can risk the accusation that he or she has allowed public collections material to pass into private hands on an exchange basis. At the very least, if there were any suggestion that there was inequality of value or there is a personal relationship between any of the players, there would be grounds for investigation for corruption.

No museum can afford the odour of scandal, whether established or merely alleged. All sources of funding, whether governments, patrons or sponsors, are sensitive to such matters and in attempting to save money by acquitting material by exchange, is likely to be massively outweighed by any public controversy.

Procedure

The procedure that must be adopted where an exchange is contemplated, should be no less rigorous than that adopted for any other acquisition. The intended acquisition must be subjected to the collection policy: simply because the transaction will not cost any money must not influence the decision.

Once the material has been identified as appropriate for acquisitioning, each museum should undertake valuation due diligence. Each should value not only its own exchange material but also that of the other. This is a process that should not usually be undertaken internally. Even if there is a reluctance to introduce valuers from the commercial sector (albeit that it may be a sensible precaution), the institution should at least obtain the opinion of another suitably experienced museum professional to provide an opinion as to respective values. It is a brave board that would approve an exchange without exposing the transaction to the rigor of independent opinion.

Formalities

So that the intention of the parties is absolutely clear, it is important that the transaction is properly documented. In legal terms, the transaction is a contract – not a gift: owner A is passing ownership of object A to owner B and, in return, owner B is passing ownership of object B to owner A. Each party is providing consideration to the other.

Sometimes these transactions are done by way of exchange of letters but these are frequently flawed because the informality of the form tends to result in a certain casualness as to content. To ensure that the transaction is properly documented it is best to draft a simple but formal contract so that each party can be assured that all the necessary elements have been dealt with:

(i)             A description by owner A of object A);

(ii)            A statement that a condition report on object A has been annexed to and forms part of the contract;

(iii)           A warranty by owner A that the description of object A is correct and that upon delivery, the condition of the object will conform with that described in the annexed condition report;

(iv)          A promise by owner A that it is the owner of all rights in, and title to, object A;

(v)           A promise by owner A that it knows of no adverse claim in respect of the object A;

(vi)          A statement that it intends to pass all rights in and title to object A to owner B;

(vii)         Mirror description and promises by owner B concerning object B;

(viii)        A statement as to any agreed arrangements concerning delivery;

(ix)          A statement that makes it clear exactly when the titles will pass. (For example it may sate that title will not pass until each party confirms in writing that it has gained possession of the other’s object and that the object conforms with the condition report;

(x)           A mechanism by which the parties can undo the deal in the event that one party does not get its item – either at all, or in the condition described in the condition report annexed to the agreement. For example, what will happen if one of the items is destroyed during transit? One party gets a new collection item and the other gets nothing. To avoid this it may be prudent to include a term by which the parties promise that:
“In the event that the party A fails to deliver its object to party B (either at all or in the condition described in the condition report annexed to the agreement), then party B may terminate the agreement by giving written notice to party A. Where the agreement is so terminated, and party A has already taken possession of the object of party B, Party A shall promptly return that object to party B at its own expense, and all right and title in the returned object shall revert to party B without the need for further formality.”

BEQUESTS

Introduction

If a patron offers to give an item to a museum upon his or her death, the usual way of securing this future gift is by inclusion in the owner’s will.

Bequests have had an archaic form of terminology all of their own. One did not “give”, rather, one “devised” real estate and “bequeathed” chattels. This distinction is still used by many lawyers although there is now authority that says that the word “give” is now sufficient to cover both situations. The following clause may be provided to persons who indicate that they intend to leave a bequest to the museum.

I GIVE to the (name of museum), for its general purposes, (sum of money, description of property etc.). The receipt of the director or other proper officer of the museum shall be a full and sufficient discharge to my Executor(s) or Trustee(s).

Commonly occurring problems

Bequests are a curate’s egg. They are an essential means by which museums are able to expand their collections. They can also lead to embarrassment, frustration, loss and expense unless they are administered effectively.

1. Inadequate or Inaccurate Description

Problems frequently arise where donors insufficiently or inaccurately describe their intended gift in the will. Understandably, the other beneficiaries of the will have an interest in challenging such gifts if there is any chance of avoiding the bequest. To overcome this, if the museum is notified by the patron of the intended bequest it should ask to inspect the item and offer to provide the donor with a description that will accurately identify the piece for inclusion in the will.

2. Unsuitable Gifts

When notified of a bequest, the museum should ask for a copy of the will (or the sections which affect the bequest) so that it can verify the title that is being passed and any conditions that may attend the gift.

It should also request the opportunity to examine the objects to determine condition and authenticity before accepting the bequest. At the very least it would require photographs and relevant documentation.

It can cause considerable embarrassment when objects bequeathed to the museum are not suitable for accessioning.

It must be clearly stated that there is no obligation on the museum to accept an unwanted bequest. If the bequest does not comply with the institution’s accessioning policy and procedures, it should be refused.

This may create difficulties with patrons and their families but it is better to be strict in the acceptance of bequests than having to either keep unwanted material in the collection or to later have to explain to the relatives that the object should be deaccessioned.

If there are some objects in the bequest that the museum does want to accept, but not others, it has the right to choose. In some cases, the deceased has made it a condition of the bequest that the museum must take all or nothing. Such situations are a matter for soul searching and it is understandable that the museum may not wish to lose the chance to acquire an important object at the expense of having to take the residue. Such decisions will always be a matter of balancing the costs against the benefits. Sometimes such issues can be resolved through negotiation with the executor but may require the sanction of the court.

Dealing With Living Patrons

Where possible, when a patron informs the museum that he or she intends to leave a bequest to the museum, it is important that the director views the intended gift and discusses the situation with the patron. With a modicum of diplomacy, many problems can be averted: Unwanted bequests are best headed off early. The patron must be made to feel appreciated but the museum must seek only to acquire objects that are within its accessioning policy, without any attendant detritus that would otherwise cause expense, inconvenience and even scandal.[58]

One of the techniques often used by directors with their patrons is to explain that while a particular object is not required by the museum, it may be appropriate and desirable to another institution. Assistance in making that referral may be all that is required to save the day.

Deeds That Takes Effect On Death

Perhaps the most effective way of making sure that the patron does not change his or her mind between the making of their will and the time of their death, is to have the patron make an irrevocable commitment whilst still alive. To do this one uses a Deed of Gift. The deed ensures that the gift is actually going to be made and that no intervention (short of immortality) can interfere with the museum’s certainty of eventually acquiring the item.

Deeds of Gift may be varied to suit the needs and desires of donor and institution. The two basic options are as follows:

Completion of Gift Dependent On Condition Subsequent

With this type, the item is gifted to the museum but the gift does not actually mature (and thus ownership pass to the museum) until the death of the patron[59]. In other words for the gift to be complete, the patron must die. The transaction is final (in that it cannot be reversed) but its completion is contingent upon and its timing determined by, the occurrence of the later event.

With this option, the possession of the object may either:

• stay with the patron until death, or
• may immediately pass to the institution, which then holds it on trust until the patron’s death. Thereupon, the legal basis upon which the institution holds the object changes from that of bailee to that of owner.

Immediate Gift But Delayed Possession

Here, the gift is completed during the life of the patron except that it is a term of the gift that the patron retains possession of the item until his or her death. With this option, ownership passes before death. It is possession, not ownership, which is delayed.

Whichever option is adopted, the institution will need to ask: ‘What are the consequences of the decision for the museum?’ Perhaps the most important consideration is the duty of care to the intended collection item. When the museum becomes the owner of the item, irrespective of whether it has possession of it, it assumes the obligations of ownership and has a duty of care towards the item.[60] Accordingly, if the gift is to be present but possession is to be delayed, the parties must negotiate a protocol for the care of the item. Those conditions should be included in the Deed of Gift.[61]

In both options, the trigger is death: that is the event that perfects the gift – either by completing the pre-condition to the gift or by triggering the hand-over of physical possession.

PURCHASE

Introduction

A contract for goods or services may be wholly in writing, wholly oral, or partly in writing and partly oral. No particular formalities are necessary. Generally speaking, an oral contract is just as binding as a written one. The requirement for writing is so that the parties can achieve a degree of certainty as to the terms of the transaction.

The terms included in contracts of sale and purchase of cultural material will usually include matters such as: the right of the seller to sell the item, a detailed description of the item, the amount and manner of payment, what delivery arrangements are agreed to, when responsibility for the safekeeping and insurance of the piece will pass, and that all title in the piece will transfer to the buyer.

Conditions that attach to the item itself, should, as in the case of gifts, be treated with great caution. The museum should ensure that the contract details the subject of the sale and the manner that it will be executed, but should rarely agree to terms that will diminish their right to deal with the object after the purchase is complete.

Where those goods are objects for the collection, the museum should protect itself by including in the contract of purchase some or all of the warranties already discussed.

The following is a checklist of issues that are relevant when purchasing collection material:

Purchase checklist

COLLABORATIVE ACQUISITION METHODS

It is perhaps one of the features of modern museums that they are collaborative in ways that, even forty years ago, would not have been considered appropriate, or indeed have been considered at all. The benefits of collaboration have been well enumerated.[62]  Examples include collaborations between:

(i)              Museums and other collecting organisations such as libraries

(ii)            Museums and schools[63]

(iii)           Museums and public broadcasters[64]

Collaborations at the institutional, structural and functional levels provide institutions with an opportunity to demonstrate the combination is more vital, relevant, inclusive, accessible and creative than its constituent parts. The legal negotiations and structures that under-pin such collaborations are beyond the scope of this book to discuss in detail. However, if those legal foundations are not clearly articulated, the collaboration will surely fail when subjected to pressure. Sometimes these arrangements are little more than funding arrangements[65]; sometimes they are in effect joint ventures[66]. Sometimes the collaboration involves a merger of two existing entities into one new one. These are complex transactions and it is pointless to talk about them in generalities. Each instance will have its own catalysts, drivers and imperatives.

On a more modest level, collaboration is also evident in object acquisition and collection development. Given the expense of museum-quality material, several museums have negotiated sharing relationships[67]. Rather than facing the difficult and lonely task of raising the money necessary to purchase a collection item, some museums are co-operating with other institutions to share both the cost and the ownership of the desired item.

Similarly, where a museum owns a part of a whole and another museum owns the other, it makes sense that both should collaborate so that the public can have the benefit of seeing the item whole.

Joint purchase and ownership

In 1980 the Smithsonian Institution’s National Portrait Gallery and the Boston Museum of Fine Art jointly purchased Gilbert Stuart’s portraits of George and Martha Washington for $4,875,000. Then in 1981 the Getty Museum combined with the Norton Foundation to jointly purchase Poussin’s Holy Family for $4,000,000.

None of this was particularly new: In 1973 the Louvre had combined with the Metropolitan Museum of Art to jointly purchase a medieval carved ivory comb depicting the Tree of Jesse. This illustrates the point that international boundaries are no impediment to joint purchase.

There are several Australian examples of acquisition co-venturing. For example, John Glover’s painting Mount Wellington and Hobart Town from Kangaroo Point was bought jointly by the National Gallery of Australia and the Tasmanian Museum and Art Gallery[68]; and in 1991 the manuscript of Patrick White’s novel, ‘The Memoirs of Many in One’, was jointly purchased by the National Library of Australia and the State Library of NSW. In this latter case, each institution has a colour microfilm of the original for primary access, and the original moves from one library to the other as it is needed.[69]

With all such deals it is essential that the parties work out an arrangement so that everyone can enjoy the fruits of the venture. By way of example, consider the problems of negotiating the deal between five museums in the State of Washington that jointly purchased a collection of American drawings and works on paper that would have been beyond the means of any one of them. The basic rules of their consortium were as follows:

• The life of the consortium is to be 99 years;
• A governing committee made up of representatives from each institution, makes all decisions about purchases or sales;
• The collection is to be kept as a single unit;
• It will be exhibited in rotation amongst the members;
• Each member has the right to exhibit the entire collection for four months every two years;
• The co-venturers share operating expenses;
• The collection is subject to agreed exhibition and handling standards; and
• At the end of the 99-year period, the collection will be divided amongst the members.

This approach may be used to develop new collections (as above), or to keep large and expensive collections intact.

Standing loan joint ventures

This technique differs from the above because each participant owns outright its portion of the individual parts. This is particularly useful where a work has been fragmented.

For example, the head of an alabaster neo-Sumerian statue had been separated from its torso. The Metropolitan owned the head and the Louvre owned the body. In 1974 the parties came to an agreement by which the work could be reunified and exhibited as a whole. Each retains ownership of its own portion, and the right to exhibit the whole work rotates every three years.

Each party to such a relationship has a rightful concern that its own accessioned item is taken proper care of and that its public obligations are fulfilled. The conflicting yet commonly shared interests of the partnering museums requires a carefully articulated agreement both to harness the natural tensions and enhance the potential benefits.

The following document is a joint venture agreement designed for this purpose. It is merely an example of how the parties may deal with some of the issues; it does not purport to be a model for all such transactions. It is intended to tease out the issues in such a transaction and to show how those issues can be addressed in an agreement. Accordingly it is a long document and in many cases, where some of the issues are not relevant to a particular collaboration, some simplifications can be made.

Standing Loan Joint Venture MODEL Agreement

THIS AGREEMENT made the         day of          2008

BETWEEN      

X MUSEUM OF AUSTRALIA,                                     (“XMA”)

AND    

MUSEUM OF ##                                                                      (“##”)

INTRODUCTION

1. One of the statutory functions of the XMA is “to exhibit, by itself or in collaboration with others, in Australia or elsewhere, material, whether in written form or in any other form and whether relating to Australia or to a foreign country”;
2. The XMA is the owner of the XMA Item tem fully described at Item 1 of the Schedule (the “XMA Item”).
3. ## is the owner of the item fully described at Item 2 of the Schedule (the “## Item”).
4. The XMA Item and the ## Item are each portions of a [describe whole] (the “Object”).
5. XMA and ## wish to enter a joint venture in relation to possession and exhibition of the Object (the “Joint Venture”).

This document articulates and evidences the terms upon which the parties will participate in the Joint Venture.

TERMS OF AGREEMENT

1.         Association

            XMA and ## hereby associate themselves as joint venturers. 

2.         Purpose of the Venture

            The purposes of the Joint Venture is set out in Item 3 of the Schedule.

3.         Scope

(a)        The relationship of the parties is limited to carrying out the purposes of the Joint Venture described in clause 2 above and will not encompass any other activity, similar or dissimilar, in which either party may be engaged.

 (b)       Nothing contained in this Agreement is to be construed as constituting a partnership for any purpose whatsoever.

 (c)       The duties, obligations and liabilities of the parties will in every case be separate or several and not joint or collective.

 (d)       Except as may otherwise be specifically provided in this Agreement, a party will not have any authority to act for, or assume any responsibility or obligation on behalf of, the other party.

(e)           If a party acts on behalf of the other party without authority, such party hereby agrees and undertakes to indemnify the other party against any losses, claims, damages and liabilities arising out of any such act.

(f)            The Schedule forms part of this Agreement and the parties shall comply with all Items set out therein unless the Management Committee or the parties otherwise agree in writing.

(g)           The party borrowing the Item of the other is referred to as the “Borrower” and the party lending an Item to the Borrower is referred to as the ”Lender”.

4.         Term

 (a)       The term of the Joint Venture will be for the period set out in Item 4 of the Schedule (the “Initial Period”), commencing on the date of execution of this Agreement.

(b)            The Initial Period will automatically extend unless and until one party gives the other at least six (6) months’ written notice to the other, that it elects to terminate the Joint Venture. (The Initial Period together with any extension of that period is referred to as the “Term”).

(c)            At the end of that six-month notice period, the Term will end.

5.         Participating Share and Ownership of Assets

(a)            Notwithstanding any other provision or consequence of this Agreement, at all times during the Term:

(i)             The XMA shall remain the absolute owner of all rights in and title to the XMA Item;

(ii)           The ## shall remain the absolute owner of all rights in and title to the ## Item.

(b)            Neither party shall undertake any merchandising or other commercial exploitation of the Object (“Venture Product”) without the approval of the Management Committee. The Management Committee shall determine:

(i)     The appropriateness of the proposed Venture Product,

(ii)        What quality controls to be imposed on such Venture Products,

(iii)       Which party is responsible for administering the development, manufacture, distribution, sale and accounting, for the Venture Product;

(iii)          The division (if any) of the net profits derived from the Venture Product;

(d)            The parties (through the Management Committee mechanism) may agree at any time to vary their proportionate share in any particular Venture Product but in the absence of such agreement to the contrary each party will own the rights to the Venture Product as tenants in common in equal shares.

6.         Trade Marks

            If the parties decide that any name, design trade mark, patent, licence or deed should be registered in relation to the activities of the Joint Venture or any Venture Product, the application and any registration shall be in the joint names of the parties unless otherwise agreed by both parties in writing. The parties shall meet the cost of any such application or registration in equal shares.

7.         Management

(a)        The management and control of the Joint Venture will be the responsibility of the Management Committee. This committee will have the overall responsibility for the management and operation of the Joint Venture on a day-to-day basis.

 (b)       Each of the parties has the right to nominate two (2) representatives on the Management Committee. Each of the parties may, without reference to the other:

 (i)       Remove either of its nominees from the Management Committee;

 (ii)      Appoint another in his/her place; and

 (iii)     Fill any casual vacancy due to either of its nominees ceasing for any reason to be a member of Management Committee. 

Any nomination of or removal of a member (or proxy) shall be under the hand of a Director of the XMA or the Director of ## (as the case may be).

 (c)       The decisions of the Management Committee [must be unanimous/shall be by majority].

(e)            The Management Committee:

(i)             May meet together for the dispatch of business, adjourn and otherwise regulate its meetings and procedures as it thinks fit.

(ii)           Shall be responsible to both parties to this Agreement and will act only in accordance with the terms of this Agreement and any subsequent direction approved by both parties.

(f)              The Management Committee shall not be deemed to have met unless there shall be a quorum. The quorum at any meeting of the Management Committee shall be one representative of each of the parties.

 (e)       Any member of the Management Committee has the right to be represented by a proxy. Proxies may only be appointed by the tabling of a written appointment signed by or for the party that nominated him/her to represent such member at any meeting or any specified meetings of the Management Committee. The person so appointed as proxy will in all respects be empowered to act in the place and stead of such member, but only for the particular meeting or meetings for which his/her appointment was made.

 (f)        A resolution in writing signed by each member of the Management Committee will be as valid and effectual as if it had been passed at a meeting of the Committee duly convened and held.

 (g)       The Management Committee must appoint a Secretary and cause minutes to be made in a Minute Book, recording all resolutions and all proceedings at its meetings. Until otherwise agreed by the parties, the XMA shall supply the Secretary and provide the administrative support reasonably required by the Management Committee.

(g)            Meetings of the Management Committee may be in person, telephone, video-conferencing or any other technologies or media.

(h)            Resolutions of the Committee in all matters relating to the Joint Venture will be binding upon each of the parties.

8.        Review And Evaluation

(a)       The Management Committee shall develop performance indicators and an evaluation strategy for reporting to the parties.

(b)       The Management Committee shall report annually to the parties. Such report shall include the evaluation measures set out in Item 5 of the Schedule.

9.         Capital and Financing

(a)            The Joint Venture will be financed by equal contributions XMA and ##. 

(b)            The initial budget is as set out in Item 6 of the Schedule or as otherwise agreed from time to time.

(c)            The XMA will co-ordinate the accounting for the Venture. The ## will provide all documentation and financial records reasonably required by the XMA in order to permit it to fulfil this task.

(d)            The Management Committee will cause an accounting to be provided to the parties within sixty (60) days of each March 31^st, June 30^th, September 30^th and December 31^st.

(e)            Neither party will spend any money or incur any liability in the name of the other, or of the Venture, without the prior authorisation of the Management Committee.

(f)              At least once in every year the Management Committee, will provide each party with a formal financial report on the joint venture. This will be prepared on behalf of the Management Committee by the XMA, with the full co-operation and assistance of the ##.

9.         Profit Participation and Costs

(a)            All profits, losses, deductions and credits, shall be allocated between the parties in the amount and proportion determined by the Management Committee.

(b)            Before paying any sum to a party by way of profit, the following expenses (and any additional or other mutually agreed expenses) must be deducted:

(i)        Applicable taxes including Goods and Services Tax;

(ii)           Actual cost of advertising (including television, radio and other advertising conducted in relation to the Venture Product);

 (ii)       Manufacture cost of the Venture Product (including pre-production costs of creating artwork, production parts and the like);

 (iii)      Monies paid to third party licensors of copyright materials used or reproduced in relation to the Venture Product (including third party licensing royalties at the relevant party’s actual licence royalty rate;

 (iv)      Distribution costs;

 (vi)      Promotional expenses;

 (vii)     Such other costs or overheads as the Management Committee or the parties may agree from time to time.

10.       Initial Possession and Exhibition

(a)        The parties will share the right to possess and exhibit the Object.

(i)         Each party agrees to comply with the conditions of loan as determined from time to time by the Management Committee (“Conditions of Loan”).

(ii)        Each party may only exhibit it only in the places, spaces and conditions approved by the Management Committee.

(iii0       Each shall have exclusive possession of the Object for alternate periods of 12 months (“Loan Period”). The first Loan Period shall commence three months from the date of this Agreement. The XMA shall have the right to possess the Object for the first Loan Period.

(iv)       Any extension of a Loan Period must be in writing signed by both parties.

(v)        The party that that has the then current right of possession of the Object has the right to reduce the Loan Period subject to giving the other party at least two months notice in writing. 

(vi)       The first public exhibition of the Object will be at the place described at Item 7 of the Schedule and is intended to open on or about the date set out in Item 8 of the Schedule.

(b)        The first public exhibition of the Object will close on the date set out in Item 9 of the Schedule.

11,       Transport, Packing And Unpacking Of The Collection Item

2.1            (a)        The parties shall comply with arrangements specified in Item 11 of the Schedule for the transport of the Item during the Loan Period and, at the end of the Loan Period, its return.

2.2            (b)        The Borrower must arrange all necessary international customs clearances in relation to the object exported/imported (except for Australian copies of all necessary customs clearance documentation).

2.3            (c)        The Lender shall arrange all necessary Australian customs clearances in relation to the export/import of the Collection Item.

2.4            (d)        The party responsible for the packing and unpacking of an Item must comply with all requirements set out in Item 12.

2.5            (e)        The parties must prepare condition reports as and when required in Item 13 of the Schedule.

12.       Possession Of The Collection Item

2.6            (a)        The Borrower is wholly responsible for the Lender’s Item from the moment it leaves the Lender’s possession until it is returned to the Lender.

2.7            (b)        The Borrower must remain in the possession of the Lender’s Item throughout the Loan Period.  Further it must not lend the Lender’s Item to any other person whatsoever or let it out of its custody without the prior written approval of the Lender.

1. 13. Return Of The Collection Item

3.1            (a)        On expiration or termination of the Period of Loan the Borrower must return the Lender’s Item to the Lender, or to such other place as the Lender may advise in writing.

3.2            (b)        If the Lender requires that its Item be despatched to a place other than the place from which it was collected at the commencement of the Loan Period, the Lender will be responsible for any additional transportation charges approved in writing by the Lender prior to despatch. Any such additional costs must be approved by the Lender prior to being incurred by the Borrower.

3.3           14.       Couriers

3.4           The party specified in the Schedule as having responsibility for the supply of a courier must (i) meet all related costs including fares, expenses, accommodation and travel and (ii) obtain the other party’s written approval of the courier that it selects to oversee the shipment of the Item.

1. Protection Of The Item

3.5            (a)        The Borrower must at all times ensure that the Lender’s Item is treated with all due care and protection against the effects of sunlight, dirt, dust, mechanical vibration, mishandling, atmospheric contaminants, moisture, extremes of temperature and humidity, insects and vermin, fire, theft, foodstuffs, drink, smoking or handling by inexperienced persons or members of the public.

3.6            (b)        The Borrower must comply with any conservation and security requirements set out in Item 14 of the Schedule.

3.7            (i)         The Borrower must ensure that any instructions given by the Lender for the unpacking, handling, installation, display, maintenance and repacking of the Lender’s Item are followed.

3.8            (ii)        The Borrower must retain and safely store the original packing material at the Borrower’s expense and must repack the Lender’s Item with the same material and in the same manner as it was packed by the Lender.

3.9            (c)        The Borrower must not transport the Lender’s Item in a damaged condition except where there is an immediate threat to the safety of the Item or to arrest or reduce ongoing damage to it.

3.10         (d)        The Borrower must not in any way whatsoever restore, repair, alter or do anything that may compromise the integrity of the Lender’s Item, nor permit any third party to do so.

3.11         (e)        The Lender’s Item must not be displayed in an outdoor exhibition unless it has been lent specifically for display or operational use outdoors (and unless this is specified in the Schedule).

3.12         (f)         If the Borrower breaches any of the conditions relating to the safety or care for the Lender’s Item in such manner as the Lender, in its absolute discretion, considers will or may endanger the Item or any of them, the Lender may order the immediate withdrawal of the Item from the exhibition and may take immediate repossession of such Item. If this occurs, the Borrower is responsible for all costs incurred by the Lender as a result of the Borrower’s breach including (but not limited to) all costs associated with the return of the Item to the Lender.

1. Damage, Deterioration Or Loss Of Item

3.13         (a)        The condition of the Item on receipt by the Borrower should be exactly the same as that detailed on an accompanying condition report. If there are any points of variance the Borrower must immediately notify the Lender.

3.14         (b)        In the event of damage, deterioration or loss occurring during the Loan Period, the Borrower:

(i)               Must comply with the procedures set out in Item 15.

(a)            (ii)         Must not undertake any conservational or restorative procedures without the written authority of the Lender.

3.15             (iii)     Both parties will collaborate in giving written notice or other information to the transport company and any insurer or indemnity provider.

1. 17. insurance

4.1            (a)        Unless agreed otherwise the Borrower must insure the interest of the Lender in the Item with an insurance company approved by the Lender from the time the Item leaves the possession of the Lender until the time the Item is returned to the possession of the Lender. The insurance must be against all risks, with exclusions limited to ordinary wear and tear, gradual deterioration, insects, vermin or inherent vice, repairing, restoration or retouching processes, hostile or warlike action, insurrection, rebellion, nuclear radiation, nuclear reaction or radioactive contamination.

4.2            (b)        The Item must be insured for the value specified in Item 16 of the Schedule.

4.3            (c)        Where the Period of the Loan exceeds one year the Lender may reassess the value of the Item and may notify the Borrower of the reassessed value. If so notified the Borrower must insure the Item for the reassessed value within twenty-one days of such notification.

4.4            (d)        Prior to the despatch of the Item the Borrower must provide the Lender with a Certificate of Insurance that the Borrower has effected in accordance with this Clause. Certificates of Currency must be supplied by the Borrower from time to time at the request of the Lender;

4.5            (e)        The Borrower must notify the Lender in writing of any changes to, or cancellation of, the policy at least twenty-one days prior to such event.

1. 18. Costs

5.1           All costs directly associated with the loan must be borne by the Borrower. Any payments to be made to the Lender by the Borrower must be made in Australian Dollars.

1. 19. Liability & Indemnity

6.1           The Lender, its officers, servants and agents shall not be liable for injury or death to any person or any loss or damage to property arising in any way whatsoever out of the loan of the Item to the Borrower. The Borrower must indemnify, and keep indemnified, and must reimburse the Lender, its officers, servants and agents, with respect to any and all loss, claim, demand, action, suit, proceeding, liability, cost and expense incurred by the Lender, its officers, servants and agents in relation to any such injury, death, loss or damage.

1. 20. Access

7.1           During the Period of Loan, the Borrower must agree to any reasonable request made in writing by the Lender, to provide the Lender’s officers, servants or agents with access to the Item.

1. 21. Acknowledgement, Information & Catalogues

8.1            (a)        The Borrower must prominently acknowledge the Lender as specified in Item 17 of the Schedule. Such acknowledgement must be accorded on exhibition labels, in exhibition catalogues and in any publicity or permitted reproduction of the Item.

8.2            (b)        The Borrower must ensure that information concerning the Item used in catalogues, labels or for any other purpose conforms factually to information furnished by the Lender or otherwise approved by the Lender.

8.3            (c)        Within four weeks of the return of the Item at the end of the Load Period, the Borrower must supply the Lender with the report and associated materials required in Item 18 of the Schedule.

1. 22. Copyright And Reproduction

9.1            (a)        The copyright status of the Object is stated in Item 19 of the Schedule.

9.2            (b)        Except as stated in Item 19 of the Schedule, the Borrower must not permit the Collection Item to be photographed or otherwise reproduced without the prior written approval of the Lender.

9.3            (c)        Notwithstanding clause 22 (b) above, where the Borrower is a public Lender, it shall be entitled to reproduce the Item to the extent and for the non-commercial purposes permitted by Part III, Div 5, Copyright Act 1968 (such purposes may include reproduction for conservation purposes and institutional documentation.)

23.       Transfer of Joint Venture Interest

(a)            The XMA may not assign, sell, transfer, pledge, mortgage, encumber or in any other manner, whether voluntarily or involuntarily, transfer or permit the transfer of the whole or any part of the XMA Item or its Joint Venture interest except as permitted in this Agreement.

(b)            The ## may not assign, sell, transfer, pledge, mortgage, encumber or in any other manner, whether voluntarily or involuntarily, transfer or permit the transfer of the whole or any part of the ## Item or its Joint Venture interest except as permitted in this Agreement.

 (c)       If a party wishes to assign the whole of its Joint Venture interest to another institution or company controlled, directly or indirectly, by the party wishing to transfer its interest, then such party may transfer its interest with the consent in writing of the other party. Such consent may not be withheld unreasonably (in respect of an assignment to a responsible and respectable assignee) upon production of such evidence as the party whose consent is sought requires, but may be subject to such conditions as the consenting party considers fair and reasonable in the circumstances.

(d)        Except as provided in (c) above, if a party received and desires to accept a bona fide offer to acquire its Item or its Joint Venture interest, such party must give written notice to the other party stating therein:

(i)        its desire and intention to dispose of its Item or Joint Venture interest (as the case may be); and

 (ii)      the full details of the bona fide offer (accompanied by a copy thereof, if in writing).

(e)        The party receiving such notice will thereupon have alternative options, which must be exercised (if at all) by notice to the other party, within thirty (30) days after the effective date of the notice of the offer, specifying that it elects either:

(j)          to acquire the interest to be transferred on the same terms and conditions as are contained in the bona fide offer; or

(ii)        to terminate the Joint Venture.

(d)           Any purchase hereunder must be consummated on the date specified in the notice of election or ninety (90) days after the effective date of such notice (whichever is earlier). If a party having the above matching right fails to exercise the same, then the interest which is subject to the same may be transferred to the third party and at the time and price and upon the conditions specified in the notice of the offer.

24.       Termination of the Joint Venture

            (a)        The Joint Venture will terminate if any of the following events occur:

            (i)         the expiration of the Term;

(ii)        subject to clause 14, the failure of the Management Committee to unanimously agree for a continuous period of forty five (45) days upon any substantial matter affecting the Joint Venture; and

            (iii)       a party provides notice of termination pursuant to clause 10 (d);

(iv)       the mutual agreement of the parties.

(b)        Upon termination of the Joint Venture, irrespective of the grounds or termination,

(i)       Each party will return to the other, all property that is in its power or control that is owned by the other.

(ii)      In the case of documentation relating either to the XMA Item, the ## item, or to the Object, each shall provide the other with a complete copy of all such documentation in their possession or control. Without limitation, this shall include copies of all accessioning documentation; condition/conservation reports; loan agreements; exhibition reports; exhibition catalogues (if not already provided).

(iii)     Each party shall immediately cease the manufacture (or cause the manufacture to cease) of all Venture Products.

(iv)      Each party may continue to sell any Venture Products that have been already manufactured or that have been irrevocably ordered, at the time of termination.

14.       Dispute Resolution

(a)       In the event that there is a dispute between the parties to this agreement the parties shall negotiate their differences in good faith.

(b)       If any matter remains outstanding ten days after the dispute arising, either party may deliver to the other a notice requiring that the dispute be referred forthwith to a disputes committee.

(c)       The disputes committee shall consist of four members. The Board of Trustees of each party shall each appoint two of its members (none of whom shall be members of the Management Committee) to the disputes committee.

(d)       The representatives of the parties shall be vested with the authority to settle the dispute.

(e)       The disputes committee shall meet within seven days of the delivery of the notice referred to in paragraph (ii) above and shall make best efforts in good faith to resolve the dispute.

(f)        In the event that the dispute cannot be resolved within fourteen days of the notice referred to in paragraph (ii) above, or such other time as the disputes committee may unanimously  agree, either party may forthwith serve notice on the other party requiring that  the matter be referred to the Australian Commercial Disputes Centre Limited (“the ACDC”) for conciliation to be conducted in accordance with the Conciliation Rules of ACDC in force at that time.

(g)       In the event that the dispute has not been resolved within twenty-one days (or such other period as may be agreed by the parties) after the appointment of the conciliator, the dispute shall be submitted to arbitration, administered by the ACDC.

(h)       The arbitrator shall be agreed between the parties from a panel suggested by the ACDC or failing agreement an arbitrator appointed by the Secretary General of the ACDC.

(i)        The arbitrator shall not be the same person as the conciliator.

(j)        Any conciliation and/or arbitration shall be held in Canberra and subject to the foregoing shall be conducted and held in accordance with and subject to the laws of the Australian Capital Territory.

(k)        Each party shall pay its own costs incurred in the conciliation and /or arbitration process.

15.       Dissolution

            Upon termination of the Joint Venture:

 (a)       The parties must commence the winding up and liquidation of the assets and affairs of the Joint Venture. The proceeds of liquidation are to be applied and distributed: first to the creditors of the Joint Venture (and if insufficient, each party hereto must contribute rateably to the satisfaction of the debts of the Joint Venture) and to the parties rateably according to their proportionate share in the Joint Venture. The Joint Venture will be terminated upon payment or other satisfaction of all the liabilities and liquidation and distribution of all assets;

 (b)       Either party may offer to purchase any asset of the Joint Venture and if both should so offer, then the parties must tender by sealed offer, with the higher tenderer having the right to purchase the asset(s) the subject of the tender.

(c)        Each party will immediately take full power possession and control of its Item forming part of the Object. Neither part shall obstruct or inhibit the other from exercising this right.

(d)        If there is any dispute as to the right to any other assets relevant to the Joint Venture, such dispute shall be resolved pursuant to the disputes provisions of this Agreement. Until such dispute is resolved, the property in dispute shall be held in escrow by the party then in possession of it. Whilst in escrow, that party shall be wholly responsible for that property and shall hold the other party’s entitlement therein on trust and shall indemnify that other for any damage or loss caused thereby during the period of escrow.

16.       Insurance and Indemnity

(a)        The Joint Venture must maintain with responsible insurers, such insurance as the Management Committee may determine to be desirable.

 (b)       Each party hereby promises to indemnify and hold harmless the other party from and against all claims, demands, losses, expenses, costs and damages which may be made against such other party or which it may incur or sustain as a result of or arising from any negligence or wilful default by the first mentioned party in the performance of any of its obligations under this Agreement.

17.       Confidentiality

Except as required by Law, the parties will hold technical and commercial information absolutely secret and must not disclose (or permit to be disclosed) such information to any person, firm or corporation whatsoever during the continuance of this agreement or at any time within five (5) years after its termination.

18.       Miscellaneous

(a)        Any notice required or permitted to be given under this Agreement must be in writing and will be effective when personally served or when received or when delivery is refused or unclaimed if by mail (which must be certified or registered) or telegram telex or facsimile to the respective addresses of XMA and ## as set out at the beginning of this Agreement, or such other address as any party may designate by notice.

 (b)       This Agreement is binding upon and enures to the benefit of the parties hereto and their respective permitted successors and assigns.

 (c)       Each party promises be just and faithful to the other and to be bound at all times to render to the other proper accounts, full information, full particulars and truthful explanations of all matters relating to the affairs of the Joint Venture and to offer every reasonable assistance in carrying out the Joint Venture to their mutual advantage.

1. 19. GST

(a)        The parties acknowledge and agree that:

(i)         The consideration due or payable for any supply of any goods, services or any other things under this agreement has been calculated without regard to, and is exclusive of, any GST.

(ii)        If any GST is imposed on any supply made under this agreement, the supplying party may recover from the recipient party, in addition to any consideration payable for the supply, an amount equal to the GST imposed on the supply calculated at the GST tax rate prevailing at the time the supply is made (the “GST amount”), provided that the supplying party has provided to the recipient party a valid tax invoice complying with applicable laws and regulations (the “Tax Invoice”).

10.1         (b)        If the recipient party is required to pay any GST amount in accordance with this clause, the recipient will pay the GST amount within 14 days of receiving the tax invoice.

1. 20. Applicable Law

11.1         The law applicable to the Agreement is the law of the Australian Capital Territory.

READ UNDERSTOOD AND AGREED:

Signed for and on behalf of X Museum of Australia	) ) ) )	……………………………………………… Director
in the presence of:   …………………………………………….	) ) )

 

Signed for and on behalf of ##	) ) ) )	……………………………………………… Director
in the presence of:   …………………………………………….	) ) )

SCHEDULE

Item 1: Description of XMA Item:

Collection Item	descriptor	descriptor	descriptor
1.
2.

Item 2: Description of ## Item:

Collection Item	descriptor	descriptor	descriptor
1.XMA Item:
2. ## Item:

    

Item 3: Purpose of Joint Venture:

(a)        Publicly exhibit the whole Object;

(b)        Present educational programs relating to the Object.;

 (c)       Cause journal and news article to be written in relation to the Object;

(d)        Develop, manufacture, distribute and sell merchandise relating to the Object;

(e)        Such other purposes as may be agreed in writing between the parties from time to time.

Item 4: Initial Period

Five years

Item 5: Evaluation Measures

Item 6: Budget

Item 7: Place of First Exhibition

Item 8: Date of Opening of First Exhibition

Item 9: Date of Closing of First Exhibition

Item 10: Obligations of Lender Preparatory to Delivery

Item 11: Transport Obligations

As determined by the management Committee

Item 12: Packing and Unpacking Obligations

12.1A representative of the lender museum must be present at each unpacking or repacking of its Item.

12.2Suitably qualified personnel approved by the lender museum must carry out repacking of the Item at the conclusion of any exhibition.

12.3All packing and unpacking instructions issued by or on behalf of the lender museum must be followed explicitly.

Each Item must be handled with special care at all times to prevent damage or deterioration. For the purpose of repacking, original packing materials must be retained and the Item repacked with the same materials and in the same way as they were delivered to the borrower museum.

Item 13: Condition Reports

An initial condition report on the Item will be prepared by the Lender prior to the Collection Item being delivered to the Borrower. A dated and signed copy of this report will be made available to the Borrower at time of delivery of the Item.

The Borrower shall provide conservation personnel who shall prepare a condition report on the Item upon each unpacking and prior to each repacking, noting any changes in the condition of each Item. A dated and signed copy of each report shall be countersigned by a representative of the Lender and the Borrower.

Item 14: Standard of Conservation and Security

14.1     Conservation:

For the purpose of safeguarding the condition of the Item and the Object, the borrower museum must maintain them in a temperature between 18 and 23 degrees Celsius, relative humidity at between 50 percent to 60 per cent and light levels to a maximum of 75 lux for works on paper and within a range between 100-200 lux for paintings.  Fluorescent lights must be filtered to remove the ultra violet range.

No hanging devices are to be removed, repositioned or replaced by the borrower museum without the written approval of the lender museum. If such consent is given, such devices must be returned to the Item prior to final packing.

The borrower museum must ensure that any cleaning and maintenance of the exhibition display area is done under appropriate supervision.

14.1     Security:

The Item must be stored and installed only in a facility that is equipped with adequate fire detection/prevention systems. 

All external doors and accessible windows must be locked and fitted with alarms and the exhibition and storage areas must be covered by electronic or closed circuit television surveillance devices that are activated whenever security personnel are not present. The alarm systems must be monitored continuously a security control centre, police station, or by an accredited recognised security company.

While the exhibition is open to the public the borrower museum must ensure that the number of security staff in the exhibition is sufficient to keep the Item and all exits from the venue constantly under visual surveillance.

While an exhibition is closed to the public the borrower museum must ensure that the perimeters of the exhibition venue are patrolled periodically.

Item 15: Protocol in event of damage, deterioration or loss of Item

Item 15.1         In event of damage, deterioration or loss of Item the borrower museum must:

(i)             Telephone the lender museum immediately upon the discovery of the damage, deterioration or loss and seek instructions;

(ii)           Comply with all instructions given by the lender museum;

(iii)          Provide a detailed written report to the lender museum covering the nature, extent, circumstances and any other relevant details concerning the damage, deterioration or loss as soon as practicable and in any event within seven days of its discovery; Where accidental damage occurs to a Item;

(iv)          Where the damage, deterioration or loss may have occurred in transit, notify the carrier;

(v)            Retain all packing materials until the lender museum and the carrier have had an opportunity to inspect the Item, the damage and the packing materials; and

(vi)          Take photographs to document the damage.

Item 16: Insurance Value of Loan Items:

Item 17: Acknowledgement:   “On loan from the X Museum of Australia”

Item 18: Promotion and attendance report:

The report furnished by the Borrower to the Lender shall include the following:

(i)            attendance figures (which shall be broken down into school groups, other  special tours and general public);

(ii)           press clippings relating to the exhibition;

(iii)         two free copies of any catalogue or printed material produced by the borrower museum and one free copy of any publicity or media material which refers to the Item and/or the Item;

(iv)          details of any radio or television promotion, publicity or other coverage of the exhibition;

(v)           copies of all printed promotional and publicity material;

(vi)          details of the education program and any other services that the Borrower associated with the exhibition;

(vii)        sales figures of exhibition merchandise.

Item 19: Copyright

19.1       Copyright in the XMA Item is owned by ……………………

19.2       Copyright in the ## Item is owned by …………………….

19.3       Where the Lender is the owner of copyright in the Item, the Borrower is entitled to reproduce the Item for the following purposes:

(a)           the exhibition catalogue;

(ii)            promotion and advertising of the exhibition;

(iii)           etc

OR 19.3 Where the Lender is not the owner of copyright in the Item, the Borrower shall be responsible for obtaining any permissions required to permit any reproduction to be performed by the Borrower.

Item 20: Special Conditions:    

 

 

 

 

 

 

---

 

PANEL OF EXPERTS

Ms Dimitra Birthisel Corporate Counsel and Board Secretary, Museum Victoria

Ms Jasmine Cameron Assistant Director-General, National Library of Australia

Mr Tony Caravella Member, Social Security Appeals Tribunal

Mr Joseph Corponi Senior Project Manager, Arts Victoria

Mr Frank Howarth Director, Australian Museum

Dr Matasha McConchie Director, Collections Development, Department of the Environment, Water, Heritage and the Arts

Mr Peter Morton Executive Officer, Powerhouse Museum

Mr Russell Smylie Executive Officer, Australian National Maritime Museum

Mr Tim Sullivan Deputy CEO and Museums Director, Sovereign Hill Museums Association

INTRODUCTION

What is Governance?

Governance generally refers to the processes by which organisations are “directed, controlled, and held to account”[1].It is underpinned by the principles of openness, integrity, and accountability[2]..

Openness is required to ensure that stakeholders can have confidence in the decision-making processes and actions of organisations, in the management of their activities, and in the individuals within them. Being open through meaningful consultation with stakeholders/shareholders and communication of full, accurate and clear information leads to effective and timely action and stands up to necessary scrutiny[3]..

Integrity comprises both straightforward dealing and completeness. It is based upon honesty and objectivity, and high standards of propriety and probity in the stewardship of funds and resources, and management of an entity’s affairs. It is dependent on the effectiveness of the control framework and on the personal standards and professionalism of the individuals within the entity. It is reflected both in the entity’s decision-making procedures and in the quality of its financial and performance reporting.[4].

Accountability is the process whereby organisations, and the individuals within them, are responsible for their decisions and actions, including their stewardship of funds and all aspects of performance, and submit themselves to appropriate external scrutiny. It is achieved by all parties having a clear understanding of those responsibilities, and having clearly defined roles through a robust structure.  In effect, accountability is the obligation to answer for the responsibility conferred.[5].

More recently governance has been described as “the system by which companies are directed and managed. It influences how risk is monitored and assessed, and how performance is optimised”[6].. Governance is concerned with structures and processes for decision-making, control and behaviour at the top of organisations. Effective governance is also essential for building consumer and community confidence in an organisation, which is in itself necessary if the organisation is to be effective in meeting its objectives.

Whilst there is no single model of good governance, there are a number of common elements that underlie good governance practices[7]. These are outlined in this chapter.

Governance in Public Sector Organisations

Public sector entities have to satisfy a complex range of political, economic and social objectives, which subject them to a different set of external constraints.  They are also subject to forms of accountability to various stakeholders, including Ministers, other government officials, the electorate (Parliament), customers and clients, and the general public.

Government relies on governing board members of statutory corporations and authorities to meet desired Government outcomes by strategically directing government resources. In return, all board members are required to perform their duties honestly, openly, in good faith and with a high order of care and diligence. These performance requirements can be referred to as principles of governance which are derived from the common law.  Failure to adhere to corporate governance requirements could result in criminal and/or civil penalties.

To be effective, governance as a notion should be tailored to, and interpreted within, the specific context of an organisation’s structures, objectives, relationships and activities.

There are several aspects to the successful governance of a non-profit organisation:

• Ensuring that everyone involved has a clear idea of their expectations, roles and responsibilities in relation to the objectives and running of the organisation and the management of its finances;
• Recognising and addressing the problems that can occur in organisations that depend heavily on the commitment and enthusiasm of a few individuals.
• Establishing and managing an effective working relationship between the individual members of the board so as to make the most of the skills and talents of its members;
• Creating and maintaining the relationship between the board, the staff and volunteers of the organisation to ensure that there are proper lines of communication, accountability and responsibility established and maintained;
• Ensuring that there are clearly defined ethical standards in place for both staff, management and board;
• Educating the board and management in the politics, ethics and controversial issues facing collection institutions.

This section outlines the purpose of the board; selecting the board; duties of board members; helping the board to work more effectively; and dealing with problem board members.

Purpose Of The Board

The board has a multiplicity of purposes, the foremost of which is a management role in relation to the organisation and its staff. Although these will differ depending on the nature and size of the organisation the main responsibilities of the board generally include the following:

• Establish and review the structure of the organisation. One might say that it is hardly the role of the board of a statutory institution to establish and review its own structure. This is a role generally undertaken at a government departmental level.[8] On the other hand, in organisations the review of the constitution is something that the board should regularly, if infrequently, undertake.
• Define and review the policies and practices of the organisation. These include policies concerning the cultural objectives of the organisation but also policies relating to the employment of staff, the relationship of the organisation to other institutions and to the public, the raising of funds, and the financial management of the organisation;
• Devise and review the strategies for implementation of the organisation’s objectives. The organisation’s strategy is something best generated by the board – taking advice from management. The healthy board takes time for personal reflection, listens to the organisation’s management, staff and stakeholders and considers the views of any informed and interested thinkers and commentators – and then develops its own strategic goals. It doesn’t just ratify the plan served up by management;
• Review the performance of the organisation against the strategic plan. The strategic plan maps the direction of the organisation and the targets that the management is expected to meet;
• Advocacy and representation (in particular the relationship between government, key stake holders and board) is critical. The CEO of the organisation might well be the media face of the organisation but it is the chair (or president), supported where necessary by select board members, who is responsible for representation of the organisation within government and other strategic relationships.[9]
• Establish and maintain clearly defined lines of communication, delegation, and responsibility[10].
• Help raise money for the organisation. All collecting institutions need to make money beyond the funding that they receive from government. The sources for earned income are very diverse and it is important that some members of the board have skills that are relevant to this need. The American approach is to leave governance to an executive committee and use board membership as a reward or bait for philanthropy. Under the Australian legal system that confers considerable liability on board members, governance must be the primary role of any board member. Raising funds is important, but secondary to governance.[11]
• Provide the organisation with a network of contacts. The effective board has tentacles. Collectively, its members must have relationships that extend into a wide range of crevices. They should have connections and they should be prepared to use those contacts for the benefit of the organisation. Relationships are important.
• Lend their credibility and reputation to the organisation. Being a board member of a collecting organisation may be an honour for the individual – but the relationship is two-way. The organisation either enjoys or suffers the reputation of those who lead and represent it.[12]

Powers of Governance

Whilst boards may have common purposes, they do not have common powers. Not all boards are created equal. Some boards truly govern the organisation while others are actually advisory. The only way of determining one from the other is to examine the legal instrument by which the organisation has been established.

Incorporated associations and companies:

There is no doubt that the board of an incorporated association or a company, is responsible for the governance of the organisation. The Companies Act and the Incorporated Associations Acts all make it clear that, subject to the vote of the members acting in General Meeting, the board is responsible for the governance of the organisation.

It makes no difference whether the company is for profit or not-for profit; the font of power is the board. The person responsible for day-to-day care of the collection is merely an employee of (or sometimes a consultant to) the company and is thus, eventually, answerable to the board.

Collections Created By Specific Legislation:

Here there can be no general presumption as each statute confers different powers.

The founding statute may empower the board to actually govern the organisation. For example the Australian War Memorial Act 1980 (Cth), s.9 (2) states:

(2) The Council is responsible for the conduct and control of the affairs of the Memorial and the policy of the Memorial with respect to any matters shall be determined by the Council.

However, many other statutory bodies have boards that, although they may apparently govern, are merely advisory in nature and power. For example the Archives Act 1983 (Cth), s.11 states:

(1) The Council shall furnish advice to the Minister and the Director–General with respect to matters to which the functions of the Archives relate.

(2) The Minister or the Director–General may refer any matter of the kind referred to in subsection (1) to the Council for advice and the Council may, if it thinks fit, consider and advise the Minister or the Director–General on a matter of that kind of its own motion.

It should not be overlooked that often the statute that establishes the governing body often provides that in performing its functions and exercising its powers under the legislation, the board/council/statutory body is subject to the direction and control of the relevant Minister.

Collections Created By Non-specific Legislation

There are some statutory bodies in which the board may have apparent power over the collection but in reality, the font of power lies elsewhere. This tends to occur in organisations in which the collection is subservient to the principal purpose of the organisation.

Common examples of this are museums and galleries within universities. The real power lies with the University Council, which in turn delegates some of its powers to the department within which the collection operates, and then some of those powers cascade down to the university employee responsible for management of collection. In some cases the collections have boards or committees but these are largely advisory in nature.

By way of further example, the Reserve Bank maintains a collection. Under the Reserve Bank Act 1959, the Reserve Bank Board has no specific power to establish and maintain a collection[13] but section 8A does confer a very general power that would give it the right to determine whether, as a matter of policy, the Reserve bank should maintain a collection at all.

8A (2)   The Reserve Bank Board is responsible for the Bank’s monetary and banking policy, and the Bank’s policy on all other matters, except for its payments system policy (see section 10).[14]

In fact, when one considers the powers of the Governor of the Reserve Bank it would appear that the control of the collection actually sits in his hands.

12 (2)    Subject to sections 10 and 10B, the Bank shall be managed by the Governor.[15]

Trusts

Assuming that the trust has been established by deed, the ultimate power of governance lies with the trustees. This is not so clear-cut when the trust is set up under some other mechanism such as a statutory trust.

For example the New England Regional Art Museum (NERAM) is incorporated as a Crown Land Reserve Trust and managed by trustees appointed by the Minister of Land and Water Conservation. Originally the Minister appointed the members of its board of management as the trustees but in May 2005, the Dumaresq Council was appointed as the Corporate Trustee. Accordingly it is the Council that governs the collection rather than its board of management. It doesn’t own the collection but it manages it as trustee for the state government.

Unincorporated Organisations

As unincorporated organisations do not have a legal entity that is separate from their members, the body responsible for the governance of the organisation is the committee or person elected or appointed by its members. The appointee is responsible to the members of the group but no one else. The powers enjoyed by the appointee are conferred by and subject to the majority decision of the group.

The role of the board

The role of the board is to provide stewardship and to ensure that the organisation is managed in accordance with its statutory and legal responsibilities. The board is the final decision making authority on all matters relating to the organisation and its activities. In performing this role the board’s activities include but are not limited to:

• Setting and reviewing strategic direction, goals and objectives
• Oversight of management and performance of the organisation
• Approving major decisions and where appropriate, making recommendations to the Minister
• Policy making
• Delegation of authority
• Succession and performance evaluation of the chief executive
• Ensuring compliance with applicable laws and policies
• Reviewing and setting executive remuneration
• Ensuring areas of significant business risk are identified, assessed and appropriately managed
• High-level allocation of resources, budgeting and planning
• Succession of the board
• Financial performance review
• Reporting to government, shareholders and to stakeholders on its stewardship
• Overview of accountability
• Approving terms of reference for board subcommittees.
• Receiving, considering and actioning recommendations from board subcommittees
• Establishment and oversight of policies
• Enhancement and oversight of stakeholder relationships
• Assessing the board’s own performance
• Approving and fostering an appropriate corporate culture matched to the organisation’s values and strategies

Of course management will be crucially involved in many of these tasks: After all, there are few board functions that are not informed and implemented by management. This is a sensitive balance in all organisations. On one hand, tt is important that the board does not allow itself to be self-indulgent by meddling in the management of the organisation: Generals don’t go onto the battlefield. On the other, it is essential that senior management recognises that, at the end of the day, it is the board that determines policy and direction of the organisation and is ultimately responsible for its oversight.

Matters to be considered by the board

The board should have a regular schedule of key issues to be considered.  In order to ensure good governance, these issues should include but are not limited to:

• Approving the financial statements and annual report
• Approving the Instrument of Delegations
• Approving the business plan and budget
• Monitoring building redevelopment
• Monitoring Key Performance Indicators
• Monitoring media activities
• Conducting board evaluation

Leadership

The board as a whole provides leadership by playing an active role in shaping the culture of the organisation, often in the following ways:

• in the way it interacts with management;
• in the way it develops, in conjunction with the chief executive and senior management, strategic plans and allocates resources;
• in the way it fosters communication down, up and across the organisation;
• the extent to which individual staff are appropriately empowered to make decisions without seeking approval through the Instrument of Delegations;
• the nature and methods of applying and enforcing policies and procedures; and
• how performance is managed and rewarded.

Setting the strategic direction

It is the board’s duty to ensure that there are processes for monitoring the performance and progress of the organisation towards its goals, which are set out in the strategic plan. The board must approve the mission and strategic plan and will review progress in fulfilling its mission and the associated strategic plan. Performance milestones should be sufficiently specific to enable the chief executive to report effectively and authoritatively to the board. The strategic plan provides the basis for long term planning for the organisation. The strategic plan must be consistent with the objectives of the organisation.

The board should, from time to time, in consultation with the chief executive, management and/or staff, approve review the Mission Statement and may vary the strategic plan, as circumstances evolve.

The board approves policy as the framework for management.

Annual report

The board is responsible for the production of an annual report.  The annual report provides stakeholders with performance information that demonstrates accountability for the expenditure of funds and for the efficient and effective operation of the entity. Statutory obligations in relation to the content of the annual report will vary depending on the entity structure.

Role of the chair

The chair’s role, on behalf of the board, is to protect and further the integrity of governance. In this role as leader in this process, the chair is also a servant to the board as the governing body.  However, even though all the board members bear a responsibility for governance discipline, the chair as first-among-equals not only guides the process but is empowered to make certain decisions.

Equally important to formal duties outlined below is the key leadership, visionary and people management role of the chair including:

• providing leadership to help the organisation identify its goals and work towards them;
• monitoring the overall process of organisational management and policy fulfilment;
• presiding over board meetings and directing board discussions to effectively use the time available to address the critical issues facing the organisation;
• ensuring board minutes accurately reflect board decisions;
• ensuring that the board has the necessary information to undertake effective decision making and actions;
• guiding the ongoing effectiveness and development of the board and individual board members;
• acting as a mentor to the chief executive;
• identifying and recruiting people to serve on the board who can contribute to the organisation’s success;
• inspiring and motivating board members, management and staff; and
• managing conflicts at the board level.

Role of board members

Board members bear initial responsibility for the integrity of governance. The board’s proper exercise of authority is the beginning of accountability.  Though the chair bears particular responsibility with respect to governance process, the entire board has to bear its individual share of responsibility.  The board is not able to delegate this responsibility.

The role of board members can be broadly summarised as follows:

• The board has a direct responsibility to approve governing policies. Board members have the obligation to fulfil fiduciary responsibility, guard against undue risk, determine priorities and generally direct organisation activity. A board can be accountable yet not directly responsible for these obligations by setting the policies that will guide them.

• The board is responsible for the assurance of executive performance. Board members are obliged to ensure that the staff faithfully serves the board’s policies.  If the chief executive fails to fulfil these explicit expectations, the board itself is liable. Although the board is not responsible for the individual performance of staff, in order to fulfil its accountability for the performance of the organisation, the board must ensure that staff as a whole meets the criteria the board has set.

The members of the board must also:

• discharge their duties in good faith and honestly in the best interests of the organisation with the level of skill and care expected;
• use the powers of office for proper purpose, in the best interests of the organisation as a whole;
• act with required care and diligence, demonstrating commercial reasonableness in their decisions;
• avoid conflicts of interest and not allow personal interest, or the interest of an associated person, conflict with the interests of the organisation;
• not make improper use of information gained through their position of board member;
• make reasonable inquiries to ensure that the organisation is operating efficiently, effectively and legally towards achieving its goals;
• undertake diligent analysis of all proposals placed before the board;
• serve on board subcommittees as required; and
• act as advocates and ambassadors for the organisation.

Role of the board secretary

The board secretary is generally responsible for carrying out the administrative and governance requirements of the board as follows:

• ensuring that the board agenda is developed in a timely and effective manner for review and approval by the chair;
• ensuring that board meeting papers are developed in a timely and effective manner;
• coordinating, organising and attending meetings of the board and ensuring correct procedures of governance are followed;
• drafting and maintaining minutes of board meetings; and
• working with the chair to establish and deliver best practice governance.

Role of the chief executive

Despite the governance structure of the particular organisation, the chief executive’s role broadly includes the following:

• taking and approving all and any actions and initiatives required to deliver the organisation’s strategic and operational plans approved by the board;
• ensuring transactions outside the chief executive’s delegation levels are referred to the board for approval;
• ensuring that all actions comply with the organisation’s policies in force from time to time;
• other responsibilities as delegated by the board to the chief executive;
• in conjunction with other senior management, carrying out the instructions of the board and giving practical effect to the board’s decisions; and
• meeting the legislative requirements and statutory reporting obligations in accordance with relevant legislation.

Relationship of chief executive and board

One of the often-vexed issues in the management of any organisation is the relationship between the chief executive and the board.[16]

To determine where the power truly lies, it is essential to consider the preceding section.

1.    Company or incorporated associations

In a company or incorporated association the power lies entirely with the board.[17] Accordingly, it is the incorporated body, acting through its board that employs the chief executive. The chief executive is subject to the power of the board and must carry out its policies and instructions.

2.    Statutory Bodies

In a statutory body, the statute determines the matter: but this can become quite complex. In many, the chief executive is employed by the Public Service and is thus answerable to a government department and ultimately the Minister. At the same time, he or she is answerable to the Board. This inevitably contains the seeds of conflict. To whom is the chief executive ultimately responsible?

The answer lies, in part, in asking:

i.         Who is the employer of the chief executive?
ii.         What does the organisation’s statute dictate?

For example in the case of the Reserve Bank collection, once the Reserve Bank Board has made the decision that a collection is appropriate, all decisions as to management lie firmly with the Governor.[18]

With the Australian Archives, the Act is clear that the Director-General may exercise any of the powers expressed in the Act to be conferred on the Archives. The power lies with the Director-General, not the board. The Act goes on to specify that the Director-General must comply with directions from the Minister (provided that those directions are not inconsistent with the Act.[19]

The Historic Houses Trust of NSW provides an interesting illustration of the conflict that is inherent when the chief executive has two masters. On the one hand the power relationship between its Board and its Director is spelled out quite explicitly in the Act[20]: Section 14 states that the Director is subject to the immediate control of the Board:[21]

The Director:

 (a)   Is responsible for the administration and management of the property of the Trust and of services provided in conjunction therewith,

(b)    is the secretary to the Trust, and

(c)    in the exercise and performance of the powers, authorities, duties and functions conferred or imposed on the Director by or under this Act, is subject to the direction and control of the Trust.

So in the case of disagreement between the board and the Director, it is the Director who must cede with grace. On the other hand, the Director is a public servant and thus under the control of the Public Sector Employment and Management Act 2002[22]. As such, the Director is answerable to the Ministry and ultimately the Minister and matters such as salary and conditions of employment are matters to be determined by public service mechanisms – not the Board. Such divisions are perhaps not problematic until there is a conflict between the wishes of the Board and the wishes of the government of the day. In such situations the Director is subject to the “direction and control of the Trust” whilst also receiving strong messages (if not direction) from the Ministry. At the end of the day, the answer always comes back to the question: “What do the Statutes say?” In matters relating to the statutory powers of the Trust, the Director must comply with the directions of the Trust. The Act requires it. On other matters, such as those mandated by the Public Sector Employment and Management Act 2002, the Trust has no power.

Selecting The Board

The board is the head of the organisation – both actually and metaphorically. Effective organisations have good boards; ineffective organisations have dysfunctional boards.

In many statutory bodies, the statute establishing the body will prescribe the constitution of the Board. Sometimes, the statute will prescribe the relevant skills required of board members or the categories of persons that are eligible for appointment. For example, s. 11 of the Museums Act 1983 (Vic) states that

(1)        The Board shall consist of not more than eleven members and not fewer than seven members appointed by the Governor in Council of whom not fewer than half shall be chosen from persons:

(a)        holding senior academic office at a university in Victoria in a discipline   appropriate to the functions of the Board;

(b)        who, in the opinion of the Minister, are experienced in business administration and finance; or

(c)        who, in the opinion of the Minister, are distinguished in education, science, the history of human society or another field appropriate to the functions of the Board.

Board appointments are usually made by the Governor in Council on the recommendation of the Minister.  Existing Board members may be consulted by the Minister in relation to new Board appointments and re-appointments.

When selecting a board you are creating a reservoir of wisdom and skills to govern the organisation by setting the strategic direction and the organisation’s objectives. The board is an invaluable source of knowledge; wisdom; contacts; vision and experience so, having regard to the objects of the organisation, work out the specific talents that are needed on the board. A good board is comprised of people:

• with the managerial, financial and appropriate cultural experience and expertise to oversee the organisation;
• of integrity and with good standing in the community who will exercise their powers and discharge their duties in good faith and for a proper purpose.  Persons who will act in the interests of the organisation as a whole and not promote their personal interest by making or pursuing a gain in which there is a conflict, or the real possibility of a conflict, between their personal interests and those of the Board;
• with credibility in their field and who have a network of contacts that can be called upon so that the resources of the board are greater than the sum of its members. One of the important contributions that board members must be expected to make is to lend actively their personal reputation to the organisation. This is often overlooked. If you are establishing an organisation of national focus, the board must contain members of national reputation and networks. If it is a local community organisation, persons with influence within the local community are more appropriate. It is horses for courses. Not only must they have the reputation, they must be prepared to use it for the benefit of the organisation. Their name alone may help, but they must also be prepared to write that letter or make that phone call; in other words, actively to use their contacts for the benefit of the organisation.
• who provide independent voices. Those responsible for board appointments should avoid inviting friends and ‘yes people’. This is an issue for small, local organisations and for national institutions.[23]
• with the time to commit to the organisation. A good board member will be a busy person. When a prospective board member asks how much time will be expected of them, it is important to be frank. The true time commitment must be articulated. Productive board membership takes much more than attendance at board meetings and the reading of board papers. The strategy retreat, the sub-committee work, the lobbying advocacy and fundraising work and the associated thinking time, all adds up to a large commitment from a time-poor person.
  Board members are workers. Famous names who won’t come to meetings, won’t become actively involved, won’t write that letter or make that important phone call, have no part on the board. Figureheads make good patrons but can be disappointing board members.
• who offer more than the promise of money. Don’t invite someone just because they are rich. Look for people with true networks of influence which will be more valuable to the organisation.
• who provide particular skills needed by the organisation – either generally or at a particular time in its development.
  Professional advice is expensive. So, unless the organisation is so rich or successful as to be able to afford professional fees, or so small-scale as not to need professional skills, the group might invite the necessary expertise onto its board. For example, it can be invaluable to have an accountant in the group to assist in budgeting, advising on fund raising strategies, reviewing expenditure and preparing financial reports. Similarly, as most organisations these days have to raise money of their own it is almost always important to have a well-connected businessperson on the committee. Such a person will not only give sensible practical advice on finance and administration but will also be able to make personal contact with potential sponsors.[24]
• with relevant experience in the area. As one of the most important functions of any board is to determine policy, it is vital to have a strong representation of persons with relevant experience in the area. Knowledge and practical experience is more important than fine intentions.
• who provide the organisation with a balance of skills on the board. A balanced board includes persons who represent a range of constituent interests.[25] Balance should also take into account other matters: gender, race, geography, age – but it should be RELEVANT SKILL that is the determining factor.
• provide corporate continuity. It often takes a board member the best part of a year to find their feet and become a truly effective contributor. Accordingly, it is disadvantageous if the board has too many experienced heads leaving at the same time and too many novices joining the board. Regular renewal and rejuvenation is important and should be planned so that the board remains a healthy mix of experience and new ideas.

Summary of Skills

• managerial, financial and appropriate cultural experience and expertise
• integrity and good standing in the community
• credibility in their field
• a network of contacts
• independent voices
• time to commit to the organisation
• offer more than the promise of money
• particular skills needed by the organisation
• relevant experience in the area
• provide a balance of skills and attributes on the board
• corporate continuity

The likelihood of identifying the right person is promoted by using a ‘skills matrix’:

SKILLS MATRIX 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Ask

The identification of good potential board members and the likelihood them accepting can be enhanced by good process:

i.         Whether the organisation is a large government body or a small volunteer one, the selection of board members should be done using a skills matrix to ensure that the appointment meets the identified needs of the organisation. This matrix will vary from organisation to organisation and, even with the same body, will vary from time to time.
ii.         When you have created a skills matrix that suits the needs of the organisation, under each of the required skills, make a list of the names of people who would be the very best you can think of. Review ALL appropriate names – not just people you know.

iii.         Take some time to think about that list: consider the strengths and weakness of each of the potential names. Diplomatically ask around about each candidate. People who have worked with them will have views about their true value and effectiveness (this may be quite different from their public persona). Sometimes you will find that although they are well known and well regarded in their specialist field, they have a track record of being divisive or lazy board members. All that glitters is not golden.

iv.         Ask only the best. Don’t worry if you don’t know them personally. Nobody minds being invited onto a board. It is usually flattering. Get an appointment and do your pitch in person. It is much more effective than just writing a letter or talking on the phone.

v.         Give the candidate the material they need to make an informed decision. They need to know why you believe they would make a useful contribution to the organisation and what would be expected of them.

vi.         If your first choice says ‘no’, don’t be disheartened. It’s not personal. Instead, ask them for names of persons that they think might be suitable. They may well come up with a suggestion that is fantastic but one that you hadn’t considered or hadn’t dreamed would be interested. (If the suggestion is someone you don’t personally know, ask if you can use his or her name to make contact. It makes the next approach so much easier.)

Helping The Board Work For The Organisation

The health and success of an organisation reflects the effectiveness of the Board. There just aren’t any cot-case organisations with terrific Boards. This section discusses some of the ways that an organisation can get the most out of their Board and ensure that their board works as well as it should.

The care and feeding of board members

Board members give their time generously and without much return. Nobody accepts appointment to a board for the money. They are making a voluntary contribution to a community activity that they really care about. They are almost certainly very busy and it is important that they are made to feel welcome, involved and acknowledged. If they are to contribute to their maximum ability to the benefit of the organisation, there are some basic steps that every organisation should put in place.

Introduction procedures for new board members

Every organisation must ensure that there are clear handover procedures for the induction of new members onto the board. A good handover ‘package’ would include:

i.         a personal brief as to what is expected of them;
ii.         a copy of the relevant legislation or constitution governing the organisation;

iii.         copies of the latest annual report, strategic plan, corporate/management plan, business plan, the financial reports and papers and minutes of the last few meetings;
iv.         the policies of the institution including Ethical Conduct Policy and Code of Conduct;
v.         guidelines as to discipline and lines of communication,

vi.         a list of key personnel, and
vii.         any other documents of which the new Board member should be aware.

The new board member should be introduced to management and the staff and, if there are premises, shown around the offices. Every new board member should have a feeling of belonging.

Then, every three or four months, the chair should contact each member individually and have a brief chat as to how they think the organisation is going, whether there are any issues that need addressing and, most importantly, how they feel they are contributing to the organisation. This gives the chair the opportunity to hear more private views that may need to be expressed and acknowledged and also permits the chair the opportunity to deal with any problems or issues, such as lack of performance, that may be embarrassing to discuss at the board meeting.

Assignment of responsibilities

Perhaps the most important internal function of any board is the definition and assignment of individual responsibilities to directors. In all cases, because a board can only function by delegating certain tasks to individuals or subcommittees, it is important for boards to consider how to go about delegating tasks in the most effective manner. This also involves an understanding of the appropriate limits that should be placed on individual board members actions and responsibilities.

When assigning responsibilities you must make sure that:

i.         The best use is being made of their expertise and contacts;
ii.         Individual board members are being realistic about the level of responsibility they can take on. (The Chair must be careful not to overload any particular board members. They are volunteers. That generosity must not be abused or they will soon lose the fire in their belly. Jobs need to be spread around between board members. If they can’t be, it may well indicate that you need to review the make-up of the board);
iii.         The responsibility should be clearly articulated so that there can be no mistake as to the commitment being undertaken;
iv.         There should be a reporting line and a time line put against each task;

v.         Each task should be fully minuted so that the responsibility is recorded and both the individual and the Board itself knows that there will be a report on the activity at the next meeting.

Decision making, defining policy and setting strategy

When looking at the policies and strategies of an organisation, Board members must ask themselves:

i.         Does our organisation have a written Statement of Objectives that is clearly articulated, understood and accepted? Without it, the organisation has no basis for determining its actions and its priorities. Without it, the senior management of the organisation has no tiller with which to guide its day to day decisions;
ii.         How long is it since the organisation’s policies and priorities were reviewed? Unless these are regularly reviewed, the organisation may become stagnant or the victim of conflicting and incompatible priorities for resources.
iii.         How are policy reviews undertaken? Is the Board involving all the people who have a contribution to make in the policy development process? Is it using the best available techniques? All too often, boards make policy without sufficient involvement of their members, their staff, their funding bodies and other groups who may have real contributions to make to the process. The involvement of select outsiders may assist the board to gain a wider perspective of their own organisation. Few boards have the internal skills to carry out thorough policy reviews using only their own internal resources and the board could consider seeking the assistance of a professional facilitator to assist in the process.
iv.         How are strategies determined? While the responsibility for determining strategy lies with the board, in most cases it is management, the staff, volunteers and members who will carry out the strategies and in many cases it is management that actually designs the strategies. It is one of the areas in which there is great potential for conflict with management but it is important that the board oversees the development and implementation of the organisation’s strategies. It is the board that must call for them, query them and, when satisfied, approve them. Later, it must evaluate and amend them. This remains an on-going process.

Setting limits and creating communication channels

One of the frequent sources of conflict in organisations is the absence or breakdown of proper communication channels. One could write books about good communication within organisations, yet the basics are simple enough.

The chair is responsible for the conduct and productivity of the board members. The chief executive services the board and inevitably has a relationship with the board members but it is the chair, not the chief executive, who controls the board and its members.

Similarly, it is the chief executive who controls the employees of the organisation. This is not the function of the board or the chair. If the staff is dysfunctional, it is the task of the chief executive to fix it. That is not the role of the board, or any of its members.

Communication between the chief executive and the board should always be through the chair. (This may be delegated to the chief executive as to purely administrative matters, but the line is a thin one. When in doubt, the chief executive should always seek the Chair’s leave before communicating with members of the board. Similarly, outside the boardroom, members of the board should raise matters of concern with the chair rather than the chief executive.

Where a government department is the highest form of authority of an organisation, the channels are often blurred because communications between Ministry and chief executive are so frequent and so often ordinary. However, it is good governance practice if the Ministry remains conscious of the importance of communication channels and involves both the chief executive and the chair in any matters of significant consequence to the organisation.

In reverse, when a Ministry requires a direct reporting relationship with the public servant chief executive it must remain conscious and sensitive to the inherent conflict that it is imposing on the chief executive. The Ministry should remain conscious of the benefits in requiring that both chair and chief executive participate in any significant communications between the Ministry and the institution.

Many board members need to understand better the nature of and limits to their relationship with employees, volunteers, members, and with the public. Each of these relationships is potentially complex and may give rise to difficulty, whether an organisation is large and has numerous employees and a senior management, or whether it is a small organisation that is not much larger than the board itself.

There should be clear guidelines as to what a board member may or may not do in relation to management, staff, members and volunteers. For example, in terms of dealing with staff – the organisation should have written guidelines articulating the staff selection, instruction, reporting and review procedures. The Board, as a collective entity, has responsibility for ensuring that appropriate staff policies and procedures are in place. It is not each board member’s individual duty (or right) to get the staff to do what he or she individually thinks is best.[26]

The prudent board also holds annual or semi-annual confidential interviews with senior management so that it can learn more about the needs and expectations of those controlling key sections of the operation. A sub-committee of the board may undertake this; the Chair sometimes does it. In larger organisations (where resources permit) an outside consultant might conduct the interviews so that the staff feels more able to speak freely about difficult matters without the fear of later retribution.

Simple communication protocols are important. If they are complicated, they are forgotten or ignored. When a simple approach is maintained, greater clarity, control, discipline and effectiveness is maintained. There is less opportunity for miscommunication and mischief.

Delegation

The delegation of power and authority is another form of setting limits – whether it be on sub-committees or on individual board members who are delegated responsibilities.

If boards have one problem that is greater than almost any other it is in the delegating of power and authority.  Because a corporate body can only act by a series of delegations it is necessarily and fundamentally dependent upon the quality of those delegations. Three common problems arise with delegations: invalidity, vagueness or, quite simply, they are forgotten.

Invalidity usually arises because the delegation is outside of the powers of the board, or outside of the objects of the organisation, as set out in the constitution;

Vagueness arises because the terms of the delegation have been insufficiently articulated.

Oversight usually occurs because the delegation has not been formally or clearly recorded in a special delegations book (and not just in the Minutes Book).

When establishing a delegation of power the board needs to ensure that the constitution allows for that the authority to be delegated. Once that has been established, when setting out the extent of the delegation it is important that the parameters are clearly defined and that everyone knows what is expected. It is prudent for the board to approve an instrument of delegation setting out the relevant delegations to sub-committees, management and individual staff for the day-to-day operation of the organisation.  The instrument of delegations should be reviewed annually to ensure that the delegations remain relevant and at appropriate levels.

In relation to establishing delegations outside of the instrument of delegations in relation to a project or for a specific purpose, the board needs to:

i.         Make it clear whether the subcommittee or individual is being given the power to make a decision or whether it is merely authorised to make a recommendation to the board that in turn makes the decision;
ii.         Ensure that the nature and burden of work involved is appropriate – indiscriminate assignment of work to others is not delegating, it is dumping, and giving orders is not the same as delegating;
iii.         Select a capable person;
iv.         Provide a specific time frame through each of the project’s phases;
v.         Establish specific review dates throughout the entire time frame; and
vi.         Record the fact of the delegation and its ambit. Verbal instructions should usually be followed up in writing so that the memo can be referred to later.

Remember that while the ultimate responsibility stays with the delegator, true delegation implies that the individual, subcommittee, or subordinate is given the authority to do the job: that they can make independent decisions and have the responsibility for seeing the job done well. When a board delegates a task it should avoid unnecessary interference. If you have selected the right person and given clear instructions, let them get on with it.

Sub-committees

Even the smallest of collecting organisations need sub-committees. It is inefficient for the board to undertake all of the work that must be done. Much of the work can be delegated to small groups with particular expertise.

Common sub-committees include: Audit[27]; Marketing and Promotion; Finance[28]; Fundraising[29]; Collection Management[30]; Sponsorship and Philanthropy[31]; Risk Management[32]; Emergency Planning[33]; Contract Committee[34]; ICT Committee[35]; Workplace Relations Committee[36].

Obviously not all organisations require all of these sub-committees although it would be a very rare organisation that would not benefit from at least two or three of them. Even the smallest of collecting organisations benefit from sharing the workload and expanding the available skill base.[37]

A committee system allows for specialised, skilled and interested people to work efficiently. Accordingly appointment to sub-committees is skill-based although the actual machinery for appointment is very dependent on the constitution of the organisation. For example, in some statutory organisations the Act states that the chair or president of the Board is an ex officio member of every committee of the board[38]. This does not mean that the chair of the board is automatically the chair of every committee. That would be foolhardy. It is a much more advantageous to appoint the leader in that specialty area to the leadership role on the committee. If there is an Executive committee the chair of the board would be expected to also chair the Executive Committee but it would be most usual for the chair of the board to head any other sub-committees. After all, each of the committees must report to the board and that reporting process is one that is controlled by the chair.

In most organisations it is not necessary for all of the members of a committee to be members of the board. Although the committee’s powers are delegated from the board, it can be made up of members who are not also board members. Indeed, this can be very healthy for the organisation: It permits the organisation to leverage its support in the community by inviting into the engine of the organisation a wider range of expertise and support than can ever be delivered by the board members acting alone.

Relationship of the board with its committees

The relationship between the board and the sub-committees should be one in which the committee supports and assists the work of the board. The board that remains ultimately responsible for the governance of the organisation and no amount of delegation can change that.

The power of the committee flows from the board. It is the delegation from the board that confers and delimits the power of its committee. Most committees are advisory and only have the power to make recommendations: They do not have the power to make final decisions on behalf of the board. There needs to be very special reasons to justify giving a sub-committee the power to commit the organisation to any obligation, liability or strategy. Their power is usually limited to advise and make recommendations to the board. Whether the board accepts that advice is another matter: If the board choses not to do so, it may be brave but it is not acting beyond its powers.

Given this, it is essential that care be taken in articulating the precise task being delegated to a sub-committee. This will usually include some basics as to expected milestones and the timetable for reporting to the board. Strong sub-committees are good things but they must remember that they are the handmaidens of the board.

As mentioned above, there are usually no rules as to the composition of the sub-committees: Members are usually appointed at the will of the board. Although some statutes may make the chair of the board an ex officio member of every sub-committee[39], the chair (as leader of the board) should always have the right (but not the obligation) to attend sub-committee meetings[40].

The CEO of the organisation does not have the ‘right’ to attend sub-committee meetings[41]. Sub-committees are creatures of the board, not the administration. If the CEO wants to attend particular sub-committee meetings, he or she should be appointed to the sub-committee by the board. In many cases the CEO attends ‘by invitation’ rather than ‘by appointment’. In other words the chair of the sub-committee invites the CEO to attend and participate. That invitation is discretionary and can be withdrawn or suspended at any time.

Confidentiality

One of the most frequently occurring issues in not-for-profit organisations is getting board members to understand that what transpires at a board meeting is confidential information and should not be revealed without the permission of the board. Except where one is required by the Law to reveal such information, there is no excuse for breach of this fundamental rule.

Some organisations require their board members to sign non-compete and/or confidentiality agreements. This is not common but can be a useful way of emphasising to the board members that the discussions of the board table are supposed to stay within the boardroom.[42]

It is more common (and perhaps more appropriate) that the organisation have a written confidentiality policy that has been endorsed by the board. Adherence to this policy should be a condition of staff employment contracts and board appointments. If should be made very clear that those who are unable to comply with the policy, should resign (or failing that, be removed.)

These are standard fiduciary requirements of board membership. As part of their induction process, new board members should be given a copy of such policies and have them explained.

Invitees to board meetings

Board meetings are neither social occasions nor an appropriate place to conduct board-management discussions. Although the CEO (and in larger organisations the legal counsel) might be expected to attend board meetings, the presence of any employee is a matter of privilege not right.

There are many situations in which it is appropriate that all non-board members (including the chief executive) be required to leave the room. Basically, if there is any likelihood that the presence of a non-board member may inhibit the discussion of the board, that non-board member should be asked to leave the room.

It is not generally appropriate to allow members of the general public to attend board meetings (although there may be some local councils that have rules requiring it.) Board members must be able to speak freely and with candour. Board participation is not a spectator sport.

Reviews and self-evaluation process

Just as employees need regular reviews, so too do board members. Self-evaluation is important as it provides feedback on the working of the board and identifies areas requiring improvement.  In the interests of good governance and to maintain and continually improve the excellence of governing, the board should undertake an annual assessment of its performance, the performance of individual board members and that of its sub-committees.

Larger organisations usually retain an outside consultant to conduct the review but in smaller organisations, the task is left to the Chair. This gives the board member the chance to reveal any concerns or criticisms that he or she may have about the board, the Chair, the organisation and their own performance. It also gives them the opportunity for confidential feedback as to their own performance.

Often overlooked, it is important the Chair’s performance also be reviewed. It is important the Chair take this opportunity to improve performance by hearing the views of all other board members.

DUTIES OF PEOPLE IN RESPONSIBILITY

Every person in a position of responsibility has duties imposed by law. For example, some museum organisations are a part of a government department and their employees are departmental employees bound by various laws such as the Public Service Act, Audit Act, Finance Directions and so on.

Other institutions may be statutory bodies, established and funded by government but operating under their own statute. Those established by Local Government will operate under different rules again, including the Local Government Act.

Then there are companies established under the Corporation Law, incorporated associations established under the Incorporated Associations Act and trusts which are governed by the Trustee Act and associated legislation.

Employees of all tiers of governmental institutions may be hired as government employees or under contract, while employees of companies, trusts, and associations are all employed under a common law contract of employment. These will all impose particular responsibilities in addition to those set out in the legislation.

The following can only provide a guide to board member rights and responsibilities and does not try to discuss the complexities of the numerous individual circumstances.

Duties of Board Members of Statutory Bodies

1.    The Statutory Duties

The statute that establishes an institution also sets out the basic duties of those responsible for its governance. Necessarily, each such institution is different and all employees and board members should be familiar with the terms of their statute.

2.    The Duty To Observe Natural Justice

Besides the provisions of the statute that establishes an institution, those invested with power have an obligation to observe the rules of natural justice. These include the duty to act fairly, to take into account all relevant matters and to omit all extraneous considerations.

Each board member’s duty is to the institution. Even if he or she is on the board or council as a representative or nominee of a particular interest group, or has a particularly burning political, ethical or other position, the over-riding duty must be to the institution and the purposes for which it is established. A board member must not be compromised by promoting interests that are extraneous to those of the institution.

Duties of committee members of unincorporated associations

Because an unincorporated association cannot hold assets in its own right, any member that looks after property or money belonging to the association does so as a trustee on behalf of the association. A trustee must not place his or her own interests above the purposes of the trust because the trustee has a fiduciary duty to the objects of the trust. A trustee’s obligations are the most onerous of all. (Refer to the section “Duties of Trustees” below.)

Duties of management committee members of incorporated associations

The responsibilities of the Management Committee of an incorporated association will be set down in the relevant state legislation.

The Management Committee will be responsible for holding regular meetings, as well as an Annual General Meeting and the Public Officer of the association will be responsible for filing the association’s annual statement with the appropriate government department.

It is also important to remember that while the formation of an incorporated association does provide protection to member of the committee and the association from liability for debts incurred by the association, this is not unlimited. Individual committee members could be held personally liable for debts if they authorise expenditure without having reasonable grounds to expect that the debt can be paid.

The legislation governing incorporated associations also provides for the imposition of fines and other penalties if the committee members actions amount to fraud. This responsibility will not be imposed on members of the Committee who did not authorise or consent to the expenditure being incurred. However, if a Committee member ought to have been aware of the debt, for example if they are responsible for overseeing a particular area of the association’s operations and they fail to keep informed about that area, they could be held responsible for a debt, even if they did not know about it.

The duties of members of a management committee of an incorporated association under the common law are the same as those of the members of a Board of a company limited by guarantee (considered below). In several States the legislation has clarified the nature of these duties. It is essential that all members of a Management Committee are aware of their responsibilities under the relevant legislation, acquaint themselves with the rules governing the association and keep informed of the activities of the association and its members.

The checklists at the end of this chapter are applicable to all members of boards or management committees, regardless of the type of organisation.

Common Law – Fiduciary Duties of a Board Member

Board members are subject to specific statutory obligations as well as being subject to obligations at common law which are similar to the responsibilities of a company director under the Corporations Law.  The key common law fiduciary duties of the board can be summarised as follows:

Duty to exercise due care and diligence

This means making proper investigations and inquiries into matters relating to the management of the organisation, particularly in relation to its financial operations to ensure solvent trading. It is the board members’ duty to ensure that there has been adequate assessment of major risks which the organisation faces.  Risk management is not just about accounting controls, nor is it restricted to insurable risks. Risk management requires three conscious acts on the part of the Board:

• Identifying risks
• Procedures for handling risks
• Monitoring quality of management and performance against plans.

Board members are required to exercise the degree of care and diligence in performing their functions to the standard of skill that may be reasonably expected from a person of his or her knowledge and experience, and that which a reasonable person would exercise in a like position.

The duty to act with reasonable care and diligence requires all board members to:

• Possess a minimum objective standard of competency, including a basic understanding of the board’s business and its financial statements
• Regularly review the financial statements
• Keep informed of the board’s activities and generally monitor the board’s affairs and policies
• Attend board meetings regularly

Board members are entitled to rely on information or advice given or prepared by others such as management, professional advisers or board subcommittees where the reliance is made in good faith.

Duty to act honestly, in good faith and for proper purpose

Board members must exercise their powers and discharge their duties in good faith and for a proper purpose. A board member must act in the interests of the organisation as a whole and not promote his or her personal interest by making or pursuing a gain in which there is a conflict, or the real possibility of a conflict, between his or her personal interests and those of the board.  The key to this obligation is to avoid conflicts of interest between a board members private interests and the exercise of their duties as a Board member.

The duty not to make improper use of information or position.

Board members must not use their position or information gained through their position to gain an advantage for themselves or someone else or cause detriment to the board.

Duties of directors of companies limited by guarantee

1.    Introduction

The responsibilities of a company director are the same, regardless of whether the company is profit making or a non-profit organisation. This point was made clear by the National Safety Council Case (Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115), a case that struck fear into the heart of every person sitting on the Board of an arts organisation. There, the elderly, respected Chairman lost his savings, his reputation and his health as a result of the actions of the chief executive when he was found liable as a director for an extraordinary amount of debts incurred without his knowledge.

In recent years the courts have become much stricter in imposing liability on ‘passive’ directors, directors that through ignorance or inactivity fail to carry out their duties properly. Board members or directors can no longer say they “didn’t know”. The courts have held that board members or directors should have known. If you take on the responsibility of board membership, you must take an active interest and care in the operation of the company. You cannot just let others look after business. If you do, you are inviting personal liability.

Directors of companies that fail to carry out their duties may lose the protection of limited liability and become personally liable for debts incurred by the company. A member of a board has a duty to keep informed about the operations of the company and must have adequate skills to cope with the demands of the company management. It is no longer sufficient to simply do one’s best and hope for the best.

2.    Duties Of Directors, Board Members, And Management

It is generally true that directors and employees enjoy very limited liability for losses incurred by their company. However, the Corporations Act does lay down a number of situations in which the corporate veil may be lifted to expose the individual not only to prosecution and penalty but also to a personal civil liability. In considering the following paragraphs it is important to note that the legislation defines “officer” to include the directors, secretary or executive officer of the corporation and anyone from whom those people customarily take direction. It is also important to note that a breach of any of the next four duties can result not only in a court order prohibiting you from managing a corporation; it can also expose you to civil penalties up to $200,000.

i.         The duty of honesty: An officer of a corporation must act honestly in the exercise of his or her powers and duties.
ii.        The duty to take reasonable care and be diligent: People are often invited to join a board merely for their famous name. However, as one judge put it, “a director is not an ornament, but an essential component of corporate governance.” [43] They run grave risks if they do not actually read the board’s documents, attend its meetings and diligently oversee the operation of the company. It is no answer to say that “I was too busy to get to meetings”, or “I don’t understand figures”. Board membership is not appropriate for those wishing to lend their name to a cause but not intending to be involved personally. Those people make good “patrons” but their membership of boards does not assist control of the company and exposes them to potentially enormous liability.

This was made enormously clear in the recent Centro Property Group litigation.[44] This is the most important case on directors’ duties for some time and it is worth quoting a key passage in which Justice Middleton said:

‘The case law indicates that there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor. There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt.

 All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4). Such a reading and understanding would require the director to consider whether the financial statements were consistent with his or her own knowledge of the company’s financial position. This accumulated knowledge arises from a number of responsibilities a director has in carrying out the role and function of a director. These include the following: a director should acquire at least a rudimentary understanding of the business of the corporation and become familiar with the fundamentals of the business in which the corporation is engaged; a director should keep informed about the activities of the corporation; whilst not required to have a detailed awareness of day-to-day activities, a director should monitor the corporate affairs and policies; a director should maintain familiarity with the financial status of the corporation by a regular review and understanding of financial statements; a director, whilst not an auditor, should still have a questioning mind.

  A board should be established which enjoys the varied wisdom, experience and expertise of persons drawn from different commercial backgrounds. Even so, a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise. A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise.’ [45]

The judge made it very clear that the directors could and should have made enquiries of the financial statements as part of their duty. If they had been aware of the relevant accounting standards they would have recognised the errors in the financial statements. This case shows that if directors are to exercise their duty of care competently, they must be financially literate.[46]

The directors’ duty of care also requires that they take a diligent interest in the company’s affairs and exercise an enquiring mind. This does not mean that they have to get their decision right, rather that they go about the decision-making process in an engaged and competent manner.

iii.         The duty not to make improper use of information acquired as a result of your position with the corporation. A board member or an employee owes primary loyalty to the well being of the organisation. Thus, information learned as a result of one’s position in the company must be applied to benefit the company and personal interests must take second place.
iv.         The duty not to make improper use of your position. No director or employee is allowed to make improper use of their position to gain personal advantage, or to advantage anyone else, or to disadvantage the corporation.
v.         The duty of a director to disclose conflict in contracts. It is important to emphasise that it is both common and permissible for directors to have conflicts of interest. However, the Corporations Law demands that a director, who is in any way interested in a contract or proposed contract, must declare that interest. This must be done in a meeting of the board as soon as is practicable after the relevant facts are known.

This does not prevent that person from speaking to the subject of the contract or even voting on it. It merely provides the other directors with the context from which the person speaks. The directors can give those comments the weight that they deem appropriate in the declared circumstances.

Often, of course, when a potential conflict of interest arises it is most appropriate for that director to offer to leave the room until the issue is decided. The other directors may then accept that suggestion or invite the interested person to remain. That, however, is a matter of etiquette not law. All that one need do is declare the interest.

“Interest” is interpreted very broadly. It may arise through board membership, employment, consultancies, family connections, investment, and so on. To lessen the repetitious intrusion of such declarations into the business of the board, a director may give a general notice of interest to the effect that he or she is an officer, director or member of a specified corporation or firm and is therefore to be regarded as interested in any contract which may be made with that corporation or firm.

For this reason, it makes good sense for all board members to disclose, at the first board meeting after each Annual General Meeting, all current employment, directorships or memberships. It is interesting for the other board members, it saves the tedious interruption of board business by directors making repetitive declarations of interest, and it lessens the risk of receiving a $1,000 fine or three months imprisonment. If it is discovered that a director has not disclosed a conflict of interest, the contract may be voidable by the company.

3. Liability Of Directors And Employees To Pay Company Debts

As a general rule, incorporation protects the individuals from personal liability. If the company goes to the wall, its directors and employees may walk away with their reputations in tatters but their bank accounts intact.

However, if a person fails to act honestly or act with reasonable care and diligence, or makes improper use of either information or position, the corporation can sue that person and recover any profit that any person made, and any sum that the corporation has lost as a result of the failure.

(i)            The Statutory Position

Section 592 (1) of the Corporations Act states that if -

“(a)     a company incurs a debt, whether within or outside the State; and

(b)     immediately before the time when the debt is incurred there are reasonable grounds to expect that either -

(i)        the company will not be able to pay all its debts as and when they become due; or

(ii)        if the company incurs the debt, it will not be able to pay all its debts as and when they become due; then any person who was a director of the company, or who took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are 2 or more such people, those people are jointly and severally liable for the payment of the debt.”

The legislation goes on to provide a defence for defendants who can prove that such debts were incurred without their implied authority or that they could not have had reasonable cause to suspect that the company would not be able to pay its debts when they came due.[47]

The Corporations Act provides both civil and criminal sanctions for the breach of this section. If criminal proceedings are commenced the defendant is liable to a $5,000 fine or one year in prison, or both. If civil proceedings are started, the directors and senior employees and any other persons involved with the management of the company may be held personally liable for the company’s debts.

1. (ii)          Implications

The duties imposed on directors and other officers can have serious implications for all cultural organisations, for nearly all live according to the hazardous and uncertain principles of government funding. Quite simply, most public cultural organisations in Australia lose money and depend for their continued existence upon subsidy. The danger is that one year’s funding does not guarantee a grant the next. Nor can the organisation assume that the level of grant will remain as high, let alone increase with inflation or in line with an expansion of program needs.

For years, the directors and management of such organisations have accepted this position and blithely entered on-going commitments on the assumption that there would always be public money available at (at least) the same level as the previous year. Now, with this imposition of personal liability and the increasingly restricted budgets available to funding bodies, such assumptions are dangerous.

For example, no publicly funded organisation should employ staff for a fixed term of more than a year without ensuring that the contract is conditional upon continued and adequate funding. Otherwise, if funding is cut off, there is a real (if remote) possibility that the board members may find themselves personally liable for paying staff salaries. Leases on premises raise similar problems. [48]

Part of the difficulty lies with policies of funding bodies. They all warn client groups that on-going funding is not guaranteed and some have warned of the onerous liability under the Corporations Act. Aware of this potential danger, funding bodies will generally put an organisation on notice or review before cutting off funding. Similarly, the introduction of triennial funding has considerably reduced this danger for many organisations.

Cultural organisations, large or small, can only exist because of the generosity of thousands of people who donate their time, expertise and efforts as board members. In order to protect these people from personal liability should that funding be suddenly cut or sharply decreased, funding bodies should set out in their funding guide-lines that organisations who receive administrative or core funding may expect that (whilst funding can never be guaranteed) such organisations may expect phasing of reductions in funding over, say, three years. Of course, the funding body would have to retain the right to “terminate with sudden and extreme prejudice” but such a guide-line would protect those thousands of volunteers who now have good cause to worry about their personal liability in the event that funding is suddenly discontinued.

Section 592 of the Corporations Act also has the important effect of making the decision-makers in the group more aware of the need for reasonable, attainable, well-budgeted and tightly administered programs. If an incorporated body takes on a huge project and hocks itself up to the hilt in the unreasonable belief that things will work out – and things don’t – the creditors will be looking for their money. If the company can’t meet the debts, one can be sure that the creditors will look to the people who were in control when the company incurred the debt. Culture has become a multi-million dollar industry and as with other industries, programs must be financed, debts must be paid, loan repayments must be met and losses must be recovered. It cannot be reasonably assumed that public money will be available to bale one out. The days are long over when ailing art organisations were allowed to suffer a long and quiet death. Now, the end is quick, the noise is often excruciating and the legal consequences for directors and senior management can be dire.

4.    People Forbidden To Be Involved With Company Management

These may be summarised (only slightly inaccurately) as the poor, the criminal and the insane.

i.         Insolvency. Persons who are bankrupt or whose affairs are under the control of an administrator, cannot in any way be involved with the management of a corporation without the leave of the court. This includes being a director, promoter or manager of a company.

ii.         Prior Conviction. There are considerable limitations upon people who have been convicted of a serious offence in connection with the promotion, formation or management of a corporation; or any offence involving serious fraud; or any number of specified offences under the Corporations Act or similar legislation.

iii.         Insanity. Persons who have been legally declared insane are not permitted to be company directors. (Just because you think they should have been declared insane is not quite enough.)

These people may not, without leave of the court, be involved in the management of a corporation for five years from the date of conviction or release from prison (whichever is the later). If they wish to take part in management during this period, they must obtain the leave of the court.

 Duties of trustees

The duties of a trustee are none the less perhaps the most onerous of all duties imposed on people of responsibility in relation to organisations. They include the following duties:

i.         To know and understand the terms of the trust.

ii.         To obey the terms of the trust. One can only depart from the terms of the trust if directed to do so by all beneficiaries, or the court.

iii.         To adhere to and carry out the terms of the trust. Only if a statute or the court allows non-adherence, can one avoid this obligation. If it is necessary to not carry out the strict terms of the trust, the trustees should approach the court for a declaration, for otherwise, non-adherence to the terms of the trust will be at the peril of the trustees.

iv.         To act impartially between the beneficiaries. One cannot favour one beneficiary over another, unless the trust document provides such a power. Sometimes an act will turn out to benefit one beneficiary more than another. This is not a problem for the law does not expect the trustees to be psychic. Their duty is considered in the circumstances that prevailed at the time when the act was done by the trustee.

v.         To act gratuitously. Trustees are not, as a matter of course, entitled to be paid for their labours. If the trust deed provides for such payments, they are permissible but there are very few exceptions to the general rule and trustees should take legal advice before assuming that they fall within an exception.

vi.         To not profit by the trust. The trustee may not use the trust property for their own benefit

vii.         To pay the trust property to the right persons. It is this obligation that strikes fear into many trustees. It is really only an extension on the duty to comply with the terms of the trust. The trustees will be personally liable for such errors unless they can show that they acted honestly and reasonably and that in the circumstances they should be excused.

viii.         To properly invest trust funds. Legislation specifies the places in which trust moneys may be invested. These are usually secure investments such as the major banks. Not all building societies qualify, and investment in institutions such as property trusts, shares, in other speculative ways of maintaining the fund are restricted

ix.         To keep and render proper accounts. If the treasurer of the trust is not an accountant (or someone with those skills) the trustees would be well advised to either retain one professionally, or invite one onto the Board. Even if the trust uses an accountant, the trustees are not absolved from all responsibilities. One cannot escape one’s responsibilities by simply putting them onto someone else’s shoulders.

x.         To exercise reasonable care. Trustees must act with the same care and diligence as an ordinary prudent businessperson. It is an objective test. Otherwise a normally careless or lazy person would be excused when a normally careful and skilful person would not. This is a high onus, for the courts have long held that ordinary prudent business persons take a very great care when investing or using other people’s money and would not take the same sorts of risks with the money of others as they might with their own.

The court has the power under the Trustee Act to relieve a trustee from liability so long as the trustee has acted in good faith, honestly, reasonably and, in the discretion of the court, it is fair that the trustee be excused.

“Blessed Be The Chair”: Dealing With Problem Board Members

The successful management of a Board is a learned skill. There are many publications that deal with the proper conduct of meetings and a Chair of a Board should find one that suits the organisation and use it as a resource for setting up and conducting effective meetings. However, there will also be occasions when a Chair or organisation has to deal with ‘problem’ Board members and it is a good idea to consider how an organisation can set itself up so as to avoid difficult members becoming entrenched on an organisation’s Board. The ‘types’ described below do not form a closed list, rather they are meant to provide some ‘warning signals’ to members of organisations and Chairs to assist in recognising that the needs of the organisation will not be met by allowing Boards to become hijacked by members who are not fully committed to the needs of the organisation. Whilst the tone is flippant, the underlying messages are grave.

Ghosts

Ghosts are those who don’t turn up to meetings or functions at which Board members should be expected to attend. A poor attendance record often either indicates that a Board member is not committed to the organisation, is too over-committed to contribute as a Board member, or has a problem with something within the Board – but is unable to express it. It is the job of the Chair to keep an eye out for this pattern, make contact with the member and find out what is happening. This must be non-confrontational but direct. Handled properly, this will have the effect of either facilitating the Board member’s return to the flock as a positive, contributing member or will facilitate an early resignation. Either result is good.

If this does not work, rather than moving to expel an individual Board member, it may be less contentious to move an amendment to the Constitution tightening up the attendance requirements. Then, failure to attend a prescribed number of meetings without leave of the Board and the member is automatically deemed to have resigned.

Sometimes, for intra-Board political reasons, certain members will stay away from meetings thus causing paralysis of the affairs of the organisation by denying the Board a quorum. If this cannot be dealt with through negotiation, the Chair (or the requisite number of directors/members) should call a general meeting of members. Failure to act, refusal to act, deadlock, repeated failure of quorum, are all matters that the membership have a right to consider and in which they have a right to intervene. Although the general meeting of members cannot overrule or interfere with an exercise of conferred powers by the directors, it can interfere to exercise power where the directors are unable or unwilling to do so. Accordingly, if the membership is dissatisfied with the attendance of its Board members it can call a general meeting and vote upon the removal of that director.

Back-slappers

These are people whose sole contribution to the proceedings of the Board is to move motions of thanks or congratulations. They never ask the tough questions. They need to be loved and that is not a need that contributes to an energetic exchange of ideas, their contribution to the organisation will remain limited.

Celebrities and socialites

Board members must be workers. Famous names and social members will often not be able to put in the time the organisation needs. Whether they are male or female, socialites can open doors to power and money but contrary to popular myth, socialites are not necessarily very good fundraisers. The socialites worth having on the Board are those who are there for the organisation rather than merely to be admired.

Sleepers

How many Board members do you know who attend every meeting and yet contribute to nothing substantial to the discussion. Sometimes the sleeper is really only timid or overly cautious about expressing their opinion, or they may just feel that they are too new to the Board. A good Chair must direct specific questions to a sleeper to help them and thus assist the Board to have the benefit of the member’s talents. If that doesn’t work, the Chair should consider discussing their role on the Board with them, and encourage them to reconsider the nature of their commitment to the Board.

Bullies

Bullies need to get their own way. Bullies are not good listeners. Bullies are good tellers. If you have a bully on the Board you will need a very strong and judicious Chair. The Chair must control the time allowed to bullies yet make them feel that they have been heard. Reflective, summarising techniques are often useful to achieve this. Above all, the Chair must ensure that the other members of the Board are not intimidated and have a proper chance to express their own views – even if they are contrary to those of the bully. The Chair must make the other Board members safe.

If the bully is the Chair, the Board, and thus the organisation, is in real trouble. Many of the Board’s most talented people will eventually resign and the Chair will attract either friends or martyrs to the Board. After a while, nobody of outstanding talent will be bothered to offer themselves for election to the Board and the organisation is well on the way to being, at best, a private club.

Lifers

Lifers are members who have been on the Board too long. Every Board member has a “use by” date. Board membership is about determined, devoted, energetic commitment to the organisation and its goals. You maximise the effort by having people commit themselves to a finite term of effort.  At the end of their period they should leave with regret; tired but still committed. It is time for new persons, with new skills, new ideas, new energies.

Although they can never admit it (because they will never recognise it), Lifers are on the Board for their own purposes, to satisfy their own needs. The organisation is a mere instrument. The Constitution should always provide for rotation of membership. Because a ‘lifer’ is so apparently selfless in their contribution to the organisation, the least offensive way of dealing with them is to ensure that the Constitution provides for a maximum number of consecutive terms of appointment.

Some organisations have rotation of Board membership but then allow departing members to immediately stand again for reappointment. This is a sham. You must build a wall, not merely a revolving door. The Constitution should provide for a maximum term (three or five years is often a good guideline), and must provide that the member has a compulsory rest period of one or two years before being again eligible for re-election.

Martyrs

Martyrs are professional sufferers. They are a source of discontent within a Board because they never feel that they have been heard, that the Board doesn’t follow their suggestions, that their efforts on behalf of the organisation are unrecognised. They are negative in a passive way. They complain outside the walls of the boardroom and in this way, can be very destructive.

Secret Agents

These are people with hidden agenda. They can make life difficult for even the most experienced Chair and can be very destructive on any Board. You might pick that there is a hidden agenda through their comportment, through the person’s choice of language or tone of voice. You might not pick it at all. You deal with secret agents by either ignoring what you perceive to be their hidden agenda or bringing it out into the open. Two secret agents make a conspiracy. This can only be tackled by confrontation.

A wise Chair will often take the secret agent aside and have an informal chat about things and determine whether there is something of significance for the organisation going on. If the Chair is the secret agent, it is going to take a very forthright Board member to raise it – but raise it you must. No hidden agenda is threatening when it is revealed and can be openly discussed by the whole Board.

Talkers

Talkers are infuriating. They often have a very good point to make, but chatter on and on and on and on. Detail, circumstances, exceptions, lead up, let down. They are often intelligent and well meaning but just have no idea when to close their mouth. You don’t want to hurt their feelings but after a few meetings you are prepared to kill them. If you feel that way, it is likely that most of the other Board members do too. Any good Chair will be able to cope with talkers. They must be given a fair opportunity to express their views, but their time must be firmly limited.

The Diary Afflicted

There are some Board members who simply don’t have the time to come to meetings – or if they do, continually have to leave early to fulfil other commitments. Their good will is overcoming their good judgment. They want to help and be supportive but they view their other commitments as more pressing.

It is the Chair’s task to have a quiet word with such people. They are doing neither themselves nor the organisation justice. They need to rationalise their priorities so that they can contribute their skills with the profundity that they deserve and the organisation requires. Something is going to have to go. It might be the board member.

The Conflicted

Board members owe their primary responsibility to the company. They must put their duty to the company ahead of their own interests and those of any other organisation (including their employer). Even if they are appointed as staff representatives, once they sit down at the board member they must put the benefit of the company ahead of the staff interests. In such a case, they are there to ensure that the board is informed as to the employee’s view. It is not to bring discord into the board room. (To make this clear, if the staff or some particular interest is to have a specific place on the board it is much better to describe the person as the ‘nominee’ rather than the ‘representative’.)

If a director has a conflict of interest on a particular issue, that conflict must be disclosed. The chair will ensure that the declaration is noted in the minutes and will determine whether it is appropriate that the director be allowed to speak, to vote, or even to remain in the room. It may sometimes be appropriate to allow the conflicted person to express a view but it is rarely appropriate to permit them to vote on an issue upon which they are conflicted. Usually, the safest course is to have them leave the room.

Management Checklist

CHECKLIST FOR BOARDS AND MANAGERS OF NON-PROFIT ARTS ORGANISATIONS IN AUSTRALIA

 (Issued by and available from the Australia Council. The Checklist is reproduced here with kind permission.)

 1.         SETTING OBJECTIVES

1.1        Do the board and senior management review and set company objectives once a year?

1.2        Are these objectives adequately documented to ensure that staff and other people with an interest in the company can find out what they are?

1.3        Does the board ensure that the company measures its performance against these objectives?

1.4        What steps are taken to ensure that adequate long-term planning is carried out?

1.5        Are the results of all performance reviews adequately documented and included in the company’s annual report?

1.6        Are these results communicated to all funding bodies?

1.7        Does the board actively promote excellence in reporting by entering its annual report in yearly competitions – for example, that run by the Australian Institute of Management?

2.         CORPORATIONS LAW

2.1       Have all board members and all managers received a copy of the booklet The Corporations Law and the Arts published by the Australia Council?

2.2       Has the board identified which managers should be classified as “officers” under the Corporations Law?

2.3       Has the company’s chairperson made sure that all board members and all managers participating in the administration of the company’s affairs are aware of their responsibilities under the Corporations Law and accept them?

2.4       Have duty statements been issued to individual members and to senior staff?

2.5       Has the board considered the adoption of specific skills criteria for board membership?

2.6       Have all members of the board and all senior managers read the company’s Memorandum and Articles of Association?

2.7       Does the board invite relevant managers to attend board meetings for items dealing with their area of responsibility?

2.8       Does the board maintain records of attendance by board meetings for items dealing with their area of responsibility?

2.9       Does the board actively encourage open membership of the company?

3.         ORGANISATION AND MANAGEMENT

3.1       Has the board reviewed, within the last twelve months, the company’s structure, especially the duties and responsibilities of all senior staff?

3.2       Within the last six months have board members reviewed their duties and responsibilities to ensure sufficient checks and balances exist to guard against misuse of company funds or manipulation of information going to the board or funding authorities?

3.3       Do the board and senior management take an active interest in the company’s industrial relations?

3.4       Do both a member of the board and a member of senior management have skills in this area?

3.5       Is the company observing all awards relating to both full-time and part-time employees?

3.6       Do the chairperson and/or a board nominee meet regularly with the staff?

3.7       Do the artistic director and the administrator have regular meetings with the staff?

3.8       Is independent legal advice sought before any significant or controversial decisions are taken?

3.9       Does the board ensure that stocks held by the company are regularly checked?

4.         FINANCIAL MANAGEMENT

4.1       Does the board member with qualifications and experience in finance advise the board on financial matters and, in particular, the monitoring of financial reports?

4.2       Does that person attend all board meetings?

4.3.      Does the person responsible for preparing the financial statements for the board attend that part of a board meeting at which finance is discussed?

4.4       Does the administrator personally check all financial reports before they are distributed to the board?

4.5       Is the person who prepares the financial statements free to discuss with the board any matters relating to the accounts?

4.6       Is a standard format used for all financial reports?

4.7       Does the board receive:

(a)          monthly financial statements prepared on an accrual basis of accounting?

(b)      monthly cash flow statements?

(c)      all reports on a timely basis?

4.8       Does the board receive a standard written report from the administrator highlighting any items of exception in the financial statements?

4.9       Is a regular comparison made of budgeted income and expenditure with actual income and expenditure?

4.10      Does the board take appropriate action if actual results differ significantly from budget?

4.11      Does the board ensure that revised estimates are prepared for the balance of the year (to reflect actual income and expenditure to date) for each board meeting?

4.12      Are detailed budgets prepared for all activities?

4.13      Does the board insist that:

(a)    feasibility studies are carried out and tabled with the board showing how all capital will be paid before any final decisions are taken?

(b)    at least three quotes are obtained from potential suppliers before considering any major capital expenditure?

4.14      Does the board ensure that actual capital expenditure is compared with budgeted capital expenditure on a regular basis?

4.15      Are detailed work papers prepared and kept by staff to support figures in all financial statements prepared for the board?

4.16      Are all questions asked at a board meeting properly answered or, if not, carried through to the next meeting?

4.17      Does the board ensure that the investment of company funds at call or otherwise with an institution is in line with company policy?

4.18      Does the board ensure that the company has an adequate system of internal control over all financial transactions and the control of company’s assets?

4.19      Does the chairperson meet at least twice a year with the company’s external auditor?

4.20      Does the board review all management letters from the external auditor?

4.21      Is the board satisfied with the quality of financial information provided for board meetings?

4.22      Has electronic data processing been considered/introduced by the company?

5.         LIAISON WITH FUNDING BODIES

5.1       Have all members of the board and management read the most recent conditions of grant from funding authorities?

5.2       Are all board members and senior staff aware of what the funding bodies expect from the organisation?

5.3       Do the full board and senior management meet representatives of funding authorities once a year to discuss mutual plans and problems?

5.4       Does the company’s chairperson make contact at least twice a year with a nominated person in all funding authorities?

5.5       Is the tenor of those discussions reported to the board?

5.6       Has the board considered periodically inviting representatives from funding bodies to a routine board meeting for discussion?

5.7       Have the company’s chairperson and the board member responsible for monitoring the company’s financial affairs:

(a)    read the accounting questionnaire presented by the Australia Council?

(b)    taken appropriate action to ensure that its completion will not adversely affect the company’s ability to receive further funding?

(c)    ensured that any specific conditions relating to finance in the conditions of grant will be complied with?

6.         MARKETING AND PUBLIC RELATIONS

6.1     Does the board ensure that the company maintains a high public profile in order to attract audiences and private support?

6.2     Do individual board members:

(a)    attend all first nights, openings and other important functions and take an active interest in the company’s operations, especially the less prominent activities such as workshops, theatre-in-education programs, training schools, play readings, etc?

(b)    make sure that they are known to senior and middle management?

(c)    familiarise themselves with the location and state of repair of all premises used by the company?

6.3       Do the individual board members take an active interest in helping to promote the arts by:

(a)    inviting parliamentarians, local council members and potential corporate sponsors to performances, exhibitions, or other events?

(b)    personally seeking private support from individuals and others?

(c)    taking stock of how much other board members have raised for the company through their personal endeavours?

6.4          Does the board have a member skilled in marketing?

6.5          Does the board monitor marketing growth rates and similar measures?

6.6          Has the board considered using unsold seats to promote the company’s interests or social objectives, such as increasing access for the unemployed?

 

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