This contest had much publicity, including a report in ATG No 2422.
Briefly, Sotheby’s conducted a private sale of a ‘Frans Hals’ painting consigned to it by MWL, whose backer was Fairlight, for $10.75m, to a purchaser, ‘Nevada’.
Subsequently Sotheby’s assessed the painting to be a ‘counterfeit’ under its terms and conditions, and paid Nevada back the $10.75m, and then turned its turrets on MWL, who did a deal with Sotheby’s, paying up $4.2m, while admitting nothing.
Sotheby’s then knocked on Fairlight’s door for their contribution. Fairlight dug in their heels, Sotheby’s sued them and off the matter travelled to a High Court trial, at huge time and expense for all concerned.
There are many facets of legal interests in this case, but, to the trade, perhaps the most interesting is the operation in practice of the Guarantee given by Sotheby’s, namely, that if they determine that the painting is “counterfeit”, ie “(an imitation intended to deceive)”, then Sotheby’s will “rescind the sale and the Owner will return the purchase price…” - to the purchaser.
This guarantee term formed part of both the consignor’s contract with Sotheby’s, and Sotheby’s separate onward contract with the purchaser.
The Guarantee goes on to say that the offer is only available on condition that the Purchaser “provide Sotheby’s within five years from the date of this Agreement, written evidence raising doubts as to the authenticity or attribution of” the painting. Also, the offer to rescind does not apply if the “description … accords with the generally accepted views of scholars and experts or indicates that there is a divergence of such views….” Within the guarantee there is also provision enabling Sotheby’s “to consult independent expert evidence “on whether [the painting] is “counterfeit”.
Fairlight, or at least their Counsel, threw everything that they could possibly reasonably think of, and more, at this in an effort to show how and why this guarantee clause did not bite here, on the particular facts, and why therefore they did not have to pay up on it to Sotheby’s, who had decided that they did have to pay up to the purchaser.
It was Sotheby’s who raised doubts as to the authenticity themselves, with their own expert, and chose to inform Nevada about these doubts. Fairlight said therefore that Nevada hadn’t raised the point and therefore that ‘the purchaser’ did not “provide Sotheby’s within five years…” with the report because it was Sotheby’s who provided it. All Nevada did was to ‘return’ the report, received from Sotheby’s. The Judge’s response: “With respect, I regard the proposition as hopeless.”
In similar vein Fairlight argued that the report which Sotheby’s engaged was not ‘written evidence’ because it was not ‘independent expert evidence’, implying in some way or other that Mr Martin, the expert engaged, was not entirely objective, or independent of Sotheby’s. Again, the Judge dismissed this one pretty swiftly, deciding that, having read the report and heard the scientist involved under cross examination in the witness box, he was well satisfied, commenting that Mr Martin worked “conscientiously and expertly and with professional integrity”.
Fairlight’s Counsel kept going: it was common ground between the parties that the Determination, by Sotheby’s, had to be “rational … and could not be capricious or perverse.” Fairlight argued that it “had to be reasonable too…”. Was there an opening here?
The Judge was having none of it and said “it amply met those requirements”. There was much more, and the Judge dismissed this much more in equally short sentences.
What the Judge did say of interest was that the “question is simply whether the Determination (by Sotheby’s that the painting was counterfeit)” was “reasonable and rational and not capricious or perverse, or in bad faith”. He made the point that the Determination “might not ultimately be correct”. And that “there is also room for views that the Painting is not counterfeit and those views too would be reasonable and rational and not capricious or perverse.”
He did not “need to reach a view on the question of whether the Painting is in fact by Frans Hals”.
And, indeed, went on to say that: “It is positively desirable that I do not do so where to do so is not necessary, as that could have collateral impact on the value of the Painting.”
So, the overall effect is that as long as Sotheby’s acted in good faith, the clause worked, and indeed judgment was given against Fairlight.
Finally, as the Judge concluded: “This Judgment does not determine whether the Painting is by Frans Hals.”
Is it? Who knows?
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.