Priceless works of art seized

Three priceless works of art, on loan from state-owned galleries, remain in custody in Vienna, and Czech curators are shocked and saddened to find themselves in the middle of a business deal gone bad between the Czech Health Ministry and a blood plasma company. Worse, the unprecedented seizure of artwork, a state asset, to force payment of an arbitral award has upended, destroying collaborative projects between Czech national galleries and exhibitions abroad.

An ongoing legal dispute between the Czech Health Ministry and Diag Human, a blood plasma company, is as long as it is bizarre. Of 18 open bilateral investment treaty (BIT) arbitration cases that involve the Czech state, this is the only one to be handled by the Health Ministry, which did not respond to requests for comment. Such cases are typically handled by the Finance Ministry, specifically by a legal team within the ministry.

These legal complexities only add to the bewilderment and concern of Czech curators, however, who immediately recalled all artwork on loan to exhibits abroad, with the exception of those in the United States and Canada, where curators believe treaties will protect artwork from seizure.

One of the paintings being held in Austria is "The Dancer," by Vincenc Beneš, an "exceptionally rare" piece from the artist during his Cubist period, said Tomáš Vlček, director of modern and contemporary art for the National Gallery.

"But even as valuable as this painting is, I don't think it could repair the conflict between Diag Human and the state," he told The Prague Post. "This is just an act to make this problem more pressing, and the artworks are unfortunately the victims. We as a culture are victims."

The other two works seized include "Two Women" by Emil Filla and a bronze statue by Otto Gutfreund called "The Embrace," on loan from the Moravian Gallery in Brno.

The Vienna gallery refused to let bailiffs remove the works, so they sit in the gallery's storage, caught in legal limbo. The Czech National Gallery immediately sent its restorators to examine the works for any damage, of which they found none.

"It's the case that if something happens, we need to have a diary ... that shows the date and condition it was in," Vlček said.

Down the hallway from Vlček's office, National Gallery curator Olga Uhrová spread out files of artwork that were returned within recent days from exhibits abroad, including the National Gallery's only Manet, which had been on loan to an exhibit in the Musee D'Orsay in Paris.

"It's very, very sad," she sighed. "It's a terrible situation. Now it's maybe not possible to lend paintings next year or even longer. We want to support a Delacroix project that's in Madrid and Barcelona, also one on Egon Schiele in Vienna at the Leopold Collection. But what now? It's bad for everybody."

Uhrová has spent the past week telephoning and writing countless e-mails, apologizing to galleries and explaining the situation. It's a frustrating task, she said, because it's really only something lawyers can understand at this point.

'PR disaster'

Even lawyers who have followed the case in the media, however, said they are confused by the unfolding legal drama. The only lawyer with knowledge of the details, Diag Human's Jan Kalvoda, did not return e-mail and phone calls requesting an interview. The petitioners, however, and not the courts, are the ones who describe and request which assets they would like seized in order to enforce payment - the BIT version of garnishing wages. Some state assets are immune, including military and diplomatic assets.

"I'm not aware of any international treaty that would prohibit enforcement by seizing artwork," said Luděk Chvosta, an attorney at White & Case in Prague. "The enforcing party is the one which describes which assets should be seized, where they are located, they must prove they are owned by the other party - in this case, the state - and they must explain their actual value. That would be the common procedure."

Of this particular case, Chvosta would only say he found it strange it was not being handled by the experienced team at the Finance Ministry and, furthermore, "it does not seem to have been properly handled."

"Nobody really knows who is handling this, and it's sort of a disaster," he said. "It's a disaster from a PR standpoint."

It also remains unclear at what stage the legal dispute is at, something Chvosta said is of crucial importance but has yet been unexplained. In 2008, an arbitration award ordered the Czech state to pay 8.9 billion Kč to Josef Šťáva, the Czech-Swiss citizen who recently owned Diag Human and claimed damages from the blood plasma investment deal that fell through. The Czech Health Ministry appealed that award, but the Vienna court that ordered the seizure of art agreed with Diag Human's claim that the appeal was invalid. The Health Ministry maintains the dispute is ongoing, however, and therefore enforcing the award is premature.

Passing the buck

But the principals in the fight have shifted, as Šťáva announced June 1 that he sold the claim to a group of international investors, a sale he was able to make after the Vienna, and now French, courts' decisions solidified the claim.

"In the instance where several international legal rulings have confirmed that according to Czech and international law the final findings from August 2008 are legal and unavoidable, the claims of Diag Human against the Czech state are a routine debit instrument. That position has been further supported by the statements of Austrian and French courts," the company said.

Such a sale is not uncommon, and in fact is growing in popularity, Luke Peterson, editor of International Arbitration Reporter, told The Prague Post.

"Sometimes with these awards someone has spent a lot of money to prosecute the case, and when you win, you can't collect, so you become desperate to unload this asset at a discount and walk a way with a percentage," he said. "These funds that specialize in doing that are often a little bit publicity-averse."

A related phenomenon, he explained, is vulture funds: the buying of defaulted bank loans from banks that had lent to developing countries.

"Then they'd go around seizing artwork or maybe Swiss bank accounts," Peterson said. "It's the same kind of dynamic, but rather than a debt, it's an arbitration award."

Claire Compton can be reached at
ccompton@praguepost.com