Victory in the Court of Appeal case of Staechelin & Ors v ACLBDD Holdings Ltd & Ors [2019] EWCA Civ 817 came at a heavy price. The multi-year litigation exposed the fact that the Gauguin painting behind the dispute was worth far less than was rumoured at the time of its record-breaking sale.
This post discusses the litigation and offers three practical tips to avoid costly disputes in high-end art transactions.
Background
The case concerned an 1892 painting of two Tahitian women entitled Nafea faa ipoipo (‘When will you marry?’) by the French post-Impressionist, Paul Gauguin. The painting was acquired by a Swiss art-collector in 1917 for 18,000 Swiss Francs. Ownership was transferred later into the Rudolf Staechelin Family Trust. The Claimants / Appellants were three trustees of that Trust, whose collection also featured paintings by Matisse and Picasso.
Nafea faa ipoipo by Paul Gauguin. Kunstmuseum Basel, Image: Martin P. Bühler
The Defendants / Respondents were a Channel Islands holding company and a UK-based partnership run by the art dealers, Mr and Mrs de Pury.
The de Purys were close friends of both Mr Staechelin (a retired Sotheby’s executive) and Mr Bennett, who purchased art works on behalf of the Emir of Qatar.
For several years, Mr de Pury tried to get Mr Staechelin to sell his Gauguin to Mr Bennett. Initially, Mr Bennett offered $230 million. When Mr de Pury put the offer to Mr Staechelin, there was confusion over Mr de Pury’s commission. Mr Staechelin thought the Qatari royal family would pay Mr de Pury but Mr de Pury expected pay from the Staechelins.
Mr Staechelin counter-offered $260 million via Mr de Pury. The Qataris went off the sale until around a year later. In that time, Mr Bennett explained, the market had taken a down-turn. The new Emir was less keen on Impressionism. They were now prepared to offer a maximum of $210 million. At a meeting with two of the trustees, Mr de Pury’s commission was agreed at $10 million if the sale proceeded.
At this point, cracks surfaced. Mr Staechelin wanted the sale to proceed without Mr de Pury’s involvement and cut off communication with his erstwhile friend. Mr Staechelin got Mr Bennett to write an email denying that he ever made an offer of $230 million. The implications of this were twofold. Firstly, the email suggested that Mr de Pury had lied about the earlier offer in order to inflate his commission – something which could be used against him if he brought a claim against the trustees for his fee. Secondly, if the painting was not sold to the Qataris, Mr Staechelin was seeking to dampen any perceived drop in value.
To complicate matters further, the other trustees then accused Mr de Pury of conspiring with Mr Bennett to conceal from them the previous higher offer of $230 million.
On 10 September 2014, the painting sold to the Qataris for $210 million. The Trust refused to pay Mr de Pury’s commission fee.
The High Court trial
Mr and Mrs de Pury and their companies brought a claim for commission against the three individual trustees. Nobody covered themselves with glory at the trial. Both Mr Staechelin and the de Purys were found to have given unsatisfactory and inconsistent evidence (see §§ 18 to 21 of the trial judgment).
Mr Justice Morgan concluded that Mr de Pury was entitled to a commission fee of $10 million for his work in the sale. In doing so, he found that Mr de Pury was not in breach of fiduciary duty for failing to alert the trustees to the fact that Mr Bennett’s email was a lie. The Judge rejected the trustees’ argument that Mr de Pury should be deprived of commission because he allegedly concealed an earlier, higher offer of $230 million from them.
The Court of Appeal
On appeal, the Claimants / Appellants had to show that the trial Judge’s factual findings were ‘plainly wrong’ or irrational. Unsurprisingly, they failed to do so.
While the trial Judge made critical findings about Mr de Pury’s evidence, that did not mean that he was bound to reject all of it. Both sides had given unreliable testimony. As Lord Justice Lewison observed at § 55:
In that situation it was for the judge to do his best with the material available. Any trial judge will have been faced with the task of trying to do a jigsaw puzzle when some of the pieces are missing; and many of the others do not precisely fit together.
The Court of Appeal rejected the trustees’ arguments that Mr de Pury should have been found in breach of fiduciary duty and also rejected their contention that they were not personally liable to Mr de Pury. The trial judge’s conclusions were upheld.
An avoidable dispute?
So how could the parties have avoided this litigation (and in all probability, hundreds of thousands of pounds in legal costs)? Here are several practical suggestions that may be useful in fine art transactions of significant value:
1. Get everything in writing. It’s a lawyer’s truism but it can make a major difference where disputes arise between the parties. If the seller and the agent had agreed the commission fee and the terms of payment in writing it is unlikely that this matter would have been litigated at all. Similarly, when a party makes an offer to purchase an art work, requiring them to put it in writing can avoid costly disagreements or misunderstandings later on. As James Petts, a barrister colleague at 36 Art advises:
Any bespoke transaction of high value where there is a promise to do something in the future should preferably be governed by a written agreement, and, in a case of very high value and/or complexity, a bespoke professionally drawn written agreement.
2. Use alternative dispute resolution. Disputed art transactions can benefit from specialist dispute resolution services. One of the by-products of litigation in the high-end art-market is its reputational impact, not only on the parties but also on the art work itself. At the time of sale, the painting was rumoured to have sold for $300 million. The High Court judgment exposed the fact that the sale was for $90 million less than was widely believed, and that its value had diminished in negotiations. By contrast, dispute resolution such as by negotiation or mediation can help to keep matters confidential and protect the value of the art. James suggests that adding an arbitration clause to any sale agreement can make a practical difference:
…there is great value to participants in art transactions in agreeing that any dispute regarding a sale should be dealt with by a confidential arbitration process…
Combinations of mediation and arbitration clauses are also an effective option where appropriate and careful thought should be put into including these in sale agreements.
3. Avoid conflicts of interest. One of the surprising features of this case is that the seller expected the agent acting on his behalf to be paid commission by the buyer. (Just imagine if an estate agent was paid commission by property buyers, not sellers. It would incentivise agents to breach their duties [in confidentiality and loyalty] to sellers in order to satisfy buyers and maximise their commission). This is not unheard of in the high-end art market where agents in private sales frequently rely on ‘handshake’ agreements and can make secret profits by playing one party off against the other. This approach inevitably gives rise to conflicts of interest between the principals and their agents which may leave both exposed to costly disputes and litigation. This is something that art and business consultant and member of the Art Due Diligence Group (‘ADDG’), Pandora Mather-Lees, has seen elsewhere:
In one deal I have seen up 4-5 people expecting their cut from a potential sale and proposing different ways to make that happen which complicates the chain and the transaction… Using corporate [Special Purpose Vehicles] and shell companies located in tax havens by which to trade art also obfuscates the process and the due diligence not to mention any future litigation. ‘‘Referral’ fees for introductions are also a cause for dispute and I have seen many individuals being circumvented as parties attempt to go direct to the Principal.
At 36 Art, part of the ADDG, we are on hand to provide expert assistance with fine art transactions and dispute resolution services covering art, cultural property and antiques. Contact us here.
