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A client recently had some important paintings to sell. She put one picture through a major auction house in the usual way.

She then had a couple of works which were less mainstream but far more valuable, as they were earlier works of the 19th century artist concerned.

One auction house she approached suggested that a private treaty sale may be more appropriate for these.

A private treaty sale is, as it sounds, where the auction house believes a better deal may be obtained for the client by putting the artworks concerned with specific buyers it has in mind. It is a matter of judgment as to what is best for a particular work.

It is a far more controlled process, targeting specific interested parties only. The upside is privacy and control, the downside is that the work is not marketed to the wider world, so the opportunity for an unexpected big price at auction is not there.

The client asked me to review the proposed Private Treaty Sale Agreement and I had to bring to her attention one particular point concerning what is often known in the art world as a ‘net return price arrangement’.

The auction house was granted the right to sell the pictures and a six-figure minimum sum was guaranteed to go to the client if the works sold. The buyer’s premium was also payable to the auction house – by the buyer, of course.

The structure of the agreement meant that the auction house did not, at any point, have to disclose the ultimate actual sale price to my client, the consignor.

We may well ask whether this non-disclosure is lawful, without the ‘fully informed consent’ of the consignor.

Dickinson case

The issue of secret commissions was explored in a well-known case a few years back, Accidia Foundation v Simon C Dickinson Limited (2010), which went all the way to trial at the High Court.

In that case there were a number of intermediary dealers, unknown to Accidia – a critical point.

In 2009 Lichtenstein-based Accidia appointed a dealer, Daniella Luxembourg, to find a buyer for a Leonardo Da Vinci drawing.

This dealer then, without Accidia’s knowledge, entered into an agreement with Simon Dickinson to sell the picture, under which Dickinson would be allowed to keep any profit if the sale price went over $6m (the deal would be done in dollars). The sale price finally achieved was $7m (£4.2m at the time), from which Dickinson received a $1m commission (£600,000).

However, the consignor Accidia only discovered these details when problems arose after the sale, and the case went to trial.

Upon all the facts becoming aired at the High Court, the judge decided that the dealers involved, as agents of and with responsibilities to the consignor, had important duties to that consignor. These included obtaining ‘informed consent’ and giving full disclosure of exactly what was going on. It is worth noting the judge also ruled that Dickinson was “entitled to assume that” the intermediary dealing directly with Accidia would have “explained the deal that they had made to their client, when it turned out that she had not”.

However, the judge did reduce Dickinson’s commission from $1m to $200,000 as a “just allowance I have determined for its services”.

Full disclosure

Coming back to the negotiations for my client, we eventually agreed the Private Treaty Sale Agreement with the auction house, but with some very fundamental alterations in the terms.

As perhaps you may imagine, the most critical was full disclosure of the final sale price.

Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.