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The debate surrounds the status of warranties of authenticity issued as part of the catalogue description and how far subsequent buyers of warranted works should be able to rely on that description.

The test case concerns what is now known to be a counterfeit painting firmly attributed to Jean-Michel Basquiat in a Christie’s auction catalogue and sold by them to New York’s Tony Shafrazi Gallery on February 23, 1990 for $242,000.

The following year Shafrazi sold the work at a loss to Italian collector Guido Orsi for $185,000.

The first signs of a problem arose in 2006, when the painting was rejected for an exhibition in Milan, at which point Orsi consulted the Basquiat Committee, an authentication body set up to verify the late artist’s work.

Court papers related that it was then he learnt that two members of the committee had advised Christie’s to withdraw the work from sale in advance of the 1990 auction, saying there was a problem with it.

Instead, the sale went ahead, with Christie’s giving a catalogue description that stated the painting had been “acquired directly from the artist” and issuing a limited warranty on its authenticity.

Christie’s deny knowingly selling a fake.

Orsi first decided to sue the Shafrazi gallery in Italy, but later dropped the suit, joining with Shafrazi in taking out an action against Christie’s.

Christie’s argued that Shafrazi had no claim because he had sold on the picture successfully before learning of the problem. And they said Orsi had no claim because the auction house had made no representations to him at all concerning the picture.

Manhattan Supreme Court Justice Herman Cahn dismissed Shafrazi’s claim on the grounds of fraud because, as Orsi had dropped his suit against the galley, they had effectively suffered no loss.

And because more than five years had passed since the auction – the time limit on liability for negligent misrepresentation, breach of contract, and deceptive and misleading practices – he struck those claims too.

However, he ruled that Orsi’s claims of fraud and fraudulent inducement could proceed, regardless of the lack of any direct relationship between him and Christie’s in the matter, and regardless of the auctioneers’ terms and conditions, as printed in their catalogue.

“If, as plaintiffs alleged, Christie’s fraudulently misrepresented the painting’s provenance, and published that misrepresentation in its catalogue, which Christie’s could reasonably anticipate would be relied upon by bidders at its auction, as well as subsequent purchasers, it may be liable to those who relied upon its misrepresentation,” the judge ruled.

Judith Bresler, counsel with New York legal firm Withers Worldwide, has made a special study of the case. She told ATG that key to the plaintiff’s case was that when the Shafrazi Gallery sold the painting to Orsi, it had been described as “purchased from Christie’s”.

“When dealers make statements in New York with respect to the authenticity or provenance of a work, it amounts to a warranty,” she explained. In this case, Shafrazi’s statement effectively linked Christie’s warranty directly to Orsi.

The judge agreed that since Christie’s were alleged to have published their catalogue “containing a fraudulent misrepresentation as to the authenticity of the painting, and that Orsi relied upon that misrepresentation”, there was a case to answer.

Ms Bresler also pointed to the significance of the judge applying the Uniform Commercial Code (UCC) to the claim. This is a provision under state law that allows for a consistent code of practice across different states. It is significant because it provides for the recovery of the current fair market value of the painting – around $2m – not just out-of-pocket costs, as is usually the case.

It was the first time Ms Bresler knew of a court applying the UCC provision as a potential measure of damages to the fraudulent sale of a painting.

The judge also noted that, if successful, Orsi could also be entitled to punitive damages of up to $5m. However, Ms Bresler said that to win the further claim, Orsi would have to prove intent to deceive and this would be extremely difficult to do.

Legal opinion in New York is divided over the merits of the case but, if Orsi were successful in his claim, Christie’s would have further recourse to the State Appellate Court.

The outcome could hardly be more important in the very state which is home to the global headquarters of the world’s two leading auction houses.

By Ivan Macquisten