Scope of the Auction House Authenticity Guarantee: Sub-Agency Contracts and Interpretation of the 'Generally Accepted View'.

AuthorGould, Emily

Sotheby's v. Mark Weiss Ltd, Fairlight Art Ventures LLP and Mark Adrian F Weiss

This case concerned the sale by Sotheby's through private treaty of a painting alleged to be by the Dutch Golden Age painter Frans Hals. The sale contract contained an 'authenticity guarantee' allowing for rescission of the sale and return of the purchase price in the event that Sotheby's determined the painting to be 'counterfeit'. When the guarantee was invoked by the buyer on the emergence of evidence appearing to undermine the attribution, Sotheby's refunded the purchase price and sought reimbursement from the sellers, Mark Weiss Ltd (and its director and sole shareholder, Mark Weiss) and Fairlight Art Ventures LLP. Weiss settled with Sotheby's shortly before trial, but proceedings continued against Fairlight. The High Court found in favour of Sotheby's, determining that it had acted in accordance with the contractual framework between the parties in rescinding the sale and returning the purchase price to the buyer. Fairlight appealed the decision on a number of grounds, including, broadly, that the relationship between the various parties involved had been mischaracterised and that the conditions for the 'authenticity guarantee' had not, in fact, been met. The appeal was dismissed by the Court of Appeal which found no basis on which to interfere with the decision of the High Court.

The Facts

The facts of the case were relatively straightforward: in 2011, a painting described as: "Frans Hals, 'Portrait of a Gentleman, half-length, wearing Black', signed with monogram lower right: FH ..." was consigned for sale to Sotheby's by Mark Weiss Ltd, a fine art dealership ('Weiss', of which Mark Weiss, also a party to the action in the High Court, was a director and the sole shareholder). The painting was co-owned by Weiss and Fairlight Art Ventures LLP, an investment vehicle ('Fairlight'). Sotheby's duly sold the work by private treaty for US $10,750,000 (plus buyer's premium) to EPC Nevada LLC ('Nevada', a company owned by Richard Hedreen).

The contract of sale contained an 'authenticity guarantee', allowing for rescission of the contract and return of the painting should Sotheby's determine it to be a 'counterfeit . When a major forgery scandal began to emerge in 2016 focused on the person from whom Weiss and Fairlight had purchased the painting, Giuliano Ruffini, (1) Sotheby's suggested the painting be re-examined. The ensuing investigations, which uncovered synthetic pigments not in use in the seventeenth century, prompted Sotheby's to determine that the painting was a counterfeit. On request by Nevada, Sotheby's promptly returned the purchase price and the painting was handed back to the auction house.

Sotheby's then looked to Weiss and Fairlight for reimbursement and commenced legal proceedings against them in February 2017 when this was not forthcoming. Weiss ultimately settled shortly before the High Court hearing in April 2019 (in the sum of US $4,200,000). Fairlight held its ground, but its defence found no favour with the High Court, which held that Sotheby's was right to have refunded the buyer in the circumstances. It had been "reasonable and rational" (2) for Sotheby's to determine the painting to be a counterfeit, and the auction house had acted "in accordance with the contractual framework" in providing the refund. (3) Fairlight appealed the decision on a number of grounds. Whilst the appeal was unsuccessful, some of the matters addressed in the Court of Appeal's judgment are of wider significance for the art world.

The Contractual Framework

Before analysing the grounds of appeal, it is worth clarifying the basic structure of the sale and purchase transaction which reflects the typical arrangements for auction house private treaty sales. The High Court helpfully referred to the two key agreements as Contracts 'A' and 'B'. Contract A was the agreement between the sellers and Sotheby's by which the sellers appointed Sotheby's as agent, granting it the exclusive right to offer and sell the painting by private treaty. (4) This agreement incorporated the 'authenticity guarantee' (5) to be provided by Sotheby's to the purchaser (on a non-assignable basis for a five-year period). Under the terms of that guarantee, should Sotheby's determine that the painting was a 'counterfeit' (defined as an 'imitation intended to deceive'), the seller agreed to rescind the sale and return the purchase price to the buyer.

Contract B was the purchase agreement between Sotheby's (as agent for the seller) and the purchaser, Nevada. This agreement contained the authenticity guarantee from Sotheby's in favour of Nevada, in broadly the same terms as set out in Contract A, but with an important qualification: that it would not apply if, at the date of the agreement, the description of the painting (i.e. with the attribution to Hals) "accords with generally accepted views of scholars and experts ..." (subsequently referred to by the Court of Appeal, rather prosaically, as the 'GAV [or 'generally accepted view'] Proviso').

It was Sotheby's case that Nevada's claim for the return of the purchase price was justified and the auction house had acted properly in acceding to that claim, in accordance with the provisions of Contracts A and B. Fairlight challenged this view from many angles which the High Court distilled into ten points of contention, four of which were carried through into Fairlight's appeal.

The Grounds of Appeal

The first two grounds of appeal, and indeed much of the discussion in both the first instance and appeal hearings, focused on the relationships between Weiss and Fairlight, and between those...

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