THE NEWCASTLE ART GALLERY FIASCO - "THE WHITELEY SCULPTURE" BY ALLAN MORRIS

THE WHITELEY SCULPTURE

THE CULTURAL GIFTS PROGRAM

It has been claimed that the Newcastle Art Gallery Foundation, the Art Gallery Director and his manager, Wendy Whiteley and her advisors and by inference the Brett Whiteley Foundation, made deliberate and considered arrangements to disguise the transfer of the sculpture  Black totem II  from Wendy Whiteley’s  ownership to Newcastle City Council, via the Cultural Gifts Program, purporting it to be an unconditional gift when it was not.
Some understanding of the nature of the gift and the rules that apply in such circumstances might help to clarify
the situation.

The federal government’s Cultural Gifts Program provides for the value of works of art donated to a qualified public institution to be a tax deduction for the donor.

 The program was established in 1978. It is administered by the Ministry for the Arts. On its website it states:

The Cultural Gifts Program encourages Australians to donate items of cultural significance from private collections to public art galleries, museums, libraries and archives.

It does so by offering tax incentives to benefactors. To date, works to the value of $680 million have been donated to institutions across the country.

The program requires donors to have clear title to the works and the donor and recipient are required to get two valuations from independent valuers approved by the program.

To qualify for the program the works must be donated voluntarily and unconditionally. The Ministry if Arts  website  that describes the programs raises the issue of conditionality in two places.

The Tax Office may vary or disallow the deductible amount when the gift is given with conditions that prevent or delay the institution having clear title, custody and control of the art, or which invoke benefits to the donor other than the allowable tax concessions.

and

The Commissioner of Taxation may also disallow a deduction if the donor receives any advantage of a material nature as a result of the gift (such as fees or discounted entry or membership fees).

 It is obvious from the above that the concern relates essentially to direct or indirect financial benefit to the donor and/or the retention of some kind of control over the work.

Tax ruling 2005/13 para 41 states: Only advantages or benefits that are material will disqualify a transfer of property from being regarded as a gift.

Looking further at the Tax Office rulings it is clear that the material aspect of the benefit is absolutely crucial for the donation to be considered for disqualification. To breach the rules the donation must elicit a material benefit to the donor or an associate. An “associate” can be defined as someone through whom the donor can access the benefit such as a close friend or a family member.

The key issues that would be taken into account in determining this matter would seem to be:

1.     Is there a material benefit to the donor, either direct or indirect (via an associate)?

2.     Is there a legally enforceable arrangement between the donor and the recipient?

3.     Is there a restriction on the control of the work?

4.     Were the donor and recipient acting on professional advice?

Newcastle Art Gallery Foundation (NAGF) had been negotiating to purchase the sculpture for some time with the expectation that it would be funded partly from Section 94A Development Contributions as part of the Gallery’s redevelopment, and partly from donations. When the extension was cancelled this left negotiations in limbo. Lowensteins Arts Management, perhaps Australia’s leading taxation advisers in art management, advised Wendy Whiteley (their client) to donate the work to the Gallery through the Cultural Gifts Program and that the Newcastle Art Gallery Foundation could make a donation of $350,000, which they had already budgeted for the acquisition of the sculpture, to the Brett Whiteley Foundation (BWF) as an expression of appreciation.

The Brett Whiteley Foundation is a not-for-profit body administered by the Art Gallery of New South Wales and chaired by a partner in accounting firm Deloitte Australia. Wendy Whiteley is one of five directors of the foundation. Directors receive no remuneration.

 The sculpture, initially valued at more than $700,000 was eventually valued at $850,000 by two independent Commonwealth approved valuers.

This donation would not be a contractual matter nor was it enforceable.  It could not be considered conditional because NAGF could choose not to pay it. The NAGF considered the matter at Board level, and the Board  were advised by their honorary lawyer that this proposal did not conflict with its constitution, trust deed or its objectives.

It also considered the wider ramifications of building a strong and active relationship with the BWF.

The Board requested that the Chairman consult with Lowensteins, which he did. In an email dated  3 September , 2013, he reported to the Board that Lowensteins’ representative had advised Wendy Whiteley that “the process proposed was totally transparent and within the letter of current tax law”.

So while there was a loose arrangement between NAGF, Wendy Whiteley, the Newcastle Art Gallery and the Brett Whiteley Foundation, there is no way that the Foundation was anything other than morally obliged to donate to the Brett Whiteley Foundation.

The clear understanding was that:

1.     Wendy Whiteley would receive no material benefit from the donation to the Whiteley Foundation either direct or indirect.

2.     The donation was not compulsory nor could it be enforced.

This very clearly means that the transaction did not transgress the rules laid out in the Federal  Ministry of the Arts guidelines nor was it in conflict with Tax ruling 2005/13. It was on this basis that the Foundation donated $100,000 to the Brett Whiteley Foundation and they may well donate more in the future.

It is absolutely clear that there is no legal contract between the Newcastle Art Gallery Foundation or anybody else over this matter. There was no “deal” as has been claimed by the Council and no backdoor attempt to circumvent the rules. When the Chairman of the Foundation is quoted as saying in an e-mail that the Foundation is at arms length from the transaction he means exactly that. The Foundation was not a direct party to the matter nor is it legally obligated in any way by the donation of the sculpture.

It should also be understood that all funds dispensed by NAGF arise from their own fund raising and from donations.  There is no access whatsoever to ratepayers funds.

NEWCASTLE CITY COUNCIL

Without discussion or explanation Art Gallery Director Ron Ramsey and his superior, Judy Jaeger, were suspended by the General Manager in November 2013. The Manager then announced the appointment of an independent investigator to examine matters. At that stage there was no information made available to anybody, including Ramsey and Jaeger, as to the reasons for their suspension.

Subsequently, the General Manager formed the view that they had acted wrongly in negotiating the acquisition of the Brett Whiteley sculpture. Ron Ramsey had already effectively been made redundant the previous month by a restructure of council that deleted his position.

In late January 2014 the General Manager contacted the NAGF seeking details of donations, acquisitions etc for the previous five years.  Apparently no explanation was given as to why these were required.

In mid-February the General Manager convened a meeting at  which PWC Legal provided a briefing for the Foundation Board. Apparently PWC Legal formed the view that the Gallery may have breached the guidelines applied to the gifting of cultural works in a way that may impact its designated gift recipient (DGR) status. They also formed the view that if the Foundation had breached its deed of trust because of its contribution to the BWF, it may also lose DGR status. This would deny tax deductibility to donors to the Foundation.

(A report of the General Manager’s view of PWC findings was subsequently leaked to Newcastle media along with some emails).

The Foundation offered to respond to the matters raised within twenty four hours but the Council, on the advice of the General Manager resolved on the same evening to suspend all dealings with the Foundation. It is has not been possible to find anyone who has actually seen a report, on PWC  Legal letterhead, detailing their complete view and recommendations and the basis for them, nor has their been any visibility of the brief issued to PWC.

What has been seen suggests that PWC Legal’s view was that the transaction may have breached the conditions applying to cultural gifts on the grounds that it was conditional. They do not attempt to demonstrate how Wendy Whiteley gained a material benefit from the transaction. Nor do they explain how an informal and unenforceable arrangement can be a “condition”.

Tom Lowenstein has stated publicly that the transaction was lawful. PWC Legal has made no attempt at rebuttal. Nor has PWC Legal made any public comment on the matter.

Judy Jaeger and Ron Ramsay

THE DISMISSALS

It seems that Jaeger and Ramsey were dismissed for negotiating a gift that may have jeopardised the

Gallery’s DGR status:  a claim that has not been determined by the only body that can do so, the Australian Taxation Office.

It is further claimed that they should have advised the Council of the implications of the transactions when the fact is that if the transaction is not in breach of tax laws then there are no “implications” and therefore nothing to report.

The idea that they and the Foundation “covered up” the matter is clearly not the case because  one Newcastle City Councillor, as a Board member, was privy to the entire Boardroom discussion. Even though Board discussions are confidential, the minutes   of all meetings are distributed to Board members and therefore available to Council via their representative.

The only conclusion that can be drawn is that Jaeger and Ramsey were denied natural justice, they were convicted of an offence and punished without recourse to a Tax Office determination on the matter. Their “trial” will take place after their “execution”.

WHAT THE HECK HAS ALL THIS BEEN ABOUT?

It is extremely difficult to understand what Newcastle Council set out to achieve here. The planned restructuring involved making the two council staff positions redundant but Judy Jaeger and Ron Ramsey then spent three months suspended on full pay.

At the same time at least two consultants were used (the independent investigator and PWC Legal that we know of) and it is impossible to ascertain how much Newcastle ratepayers’ money has been spent on this exercise. The Council could have saved the costs of redundancy payments for Ramsey and part of the contract obligations for Jaeger.

It is very likely that the overall cost of this affair is greater than the savings in money terms. However the cost of the collateral damage in this matter is absolutely colossal.

Firstly there is the clear inference, totally untested, that all of the participants from the Foundation board right through to the Brett Whiteley Foundation have engaged in a process to deceive the Australian Taxation Office. That is called tax fraud.

Secondly there is the assault on the character and reputation of Judy Jaeger and Ron Ramsey, two individuals whose reputations for professionalism and excellence far exceed any of those involved in their persecution.

Thirdly there is a disgusting attack by inference and even in the particular of the Chairman and the Board of the NAGF. Some of these people have volunteered their services to the city for two decades or more, contributed considerable time, energy and money in support of our Art Gallery have had this thrown in their face in a spiteful and vindictive way without even the opportunity to defend themselves.

Finally, and most crucially, the other victim of this escapade is the Art Gallery itself and its standing in the national and international community. The relationship with the Brett Whiteley Foundation is at least fractured if not completely destroyed and it is difficult to imagine donors of art works looking to Newcastle in the future in the light of how Wendy Whiteley has been treated.

Novocastrians are renowned for their sense of fair play and we should all be outraged at what has been done in our name by our elected representatives on Newcastle City Council and their servants. The treatment meted out to Judy Jaeger and Ron Ramsey would be a disgrace to any employer let alone one representing the ratepayers of Newcastle. The smearing and besmirching of innocent people far and wide must not go unnoticed and the deliberate downgrading of our cultural institutions must be reversed.

 This matter must not be allowed to die and with the help of our community it will not.