Monthly Archive for July, 2013

INTRODUCTION

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

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

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

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

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

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

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

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

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

Occupier v. Owner

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

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

liability to visitors

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

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

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

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

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

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

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

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

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

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

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

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

(c)  the nature of the premises;

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

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

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

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

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

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

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

What Duty of Care Is owed To Trespassers?

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

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

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

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

Children

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

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

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

Liability For ADVISORY Services

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

The Legal Principles Relating To Advice

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

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

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

WAIVERS & Disclaimers

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

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

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

What are they?

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

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

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

What’s the difference?

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

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

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

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

Form

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

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

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

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

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

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

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

Characteristics

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

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

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

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

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

Can you do it?

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

The statute or constitution

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

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

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

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

Board Decision

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

Freelance work

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

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

For each organisation there are principally three issues:

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

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

(iii)           How will risk be handled?

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

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

Should You Do It?

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

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

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

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

Standard of care for professionals

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

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

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

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

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

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

Setting up the consultancy

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

Standard terms

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

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

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

Insurance

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

Doing the work

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

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

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

(ii)            qualify any opinion where necessary; and

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

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

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

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

ENDNOTES

30 march 2011

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

INTRODUCTION

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

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

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

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

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

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

Deductible Gift Recipient STATUS

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

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

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

Public Libraries, Museums and Art Galleries

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

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

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

(i) Available to the public

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

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

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

(ii)            In Australia

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

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

(iii)           Structure of the institution

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

(iv)           Management

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

(v)             Purpose of the institution

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

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

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

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

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

THE Cultural Gifts Program

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

Purpose and administration

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

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

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

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

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

How organisations apply to participate in the program

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

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

The Cultural Gifts Program from the donor’s view

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

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

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

Limitations on deductions

There are a number of limitations built into the system:

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

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

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

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

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

Further information

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

Cultural Organisations (that are not collecting organisations)

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

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

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

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

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

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

What is a ‘Gift’?[28]

Gifts have the following characteristics:

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

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

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

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

Gift types

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

(i)     Money

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

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

Type of gift:

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

Recipients

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

Valuation

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

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

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

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

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

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

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

Type of gift

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

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

It does not cover gifts made under a will.

Recipients

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

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

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

Type of gift

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

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

Valuation

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

(v)    Gifts made under the Cultural Gifts Program

Type of gift

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

Recipients

This gift type applies to the following DGRs:

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

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

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

Valuation

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

However, if the property was

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

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

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

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

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

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

Conditional gifts

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

Capital gains tax exemption

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

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

(vi)   Gifts made under the Cultural Bequests Program

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

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

Type of gift:

This gift type covers gifts of places included in:

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

Places included in these lists are:

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

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

Recipients:

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

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

Valuation:

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

SUMMARY OF CULTURAL ORGANISATIONS AND GIFTS

Cultural organisations[32]