Grossman LLP | <strong >Appeal Filed In Ongoing Legal Dispute </strong ><strong >Over A Fake Old Master Painting</strong >
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  • Appeal Filed In Ongoing Legal Dispute Over A Fake Old Master Painting
    Over the last few years, we’ve been following (see herehereherehere, and here) legal developments involving a rash of apparently forged Old Master paintings that have been discovered on the European art market.  This month, one litigant has indicated its intent to appeal a UK court’s decision regarding who should bear the brunt of the financial fallout from one of those fakes.

    Last Year’s Ruling: London Court Orders Consignor To Repay Sale Proceeds to Sotheby’s
    This case involves an allegedly fake Frans Hals painting that was sold through Sotheby’s in a seven-figure private sale in 2011.  Shortly after that sale, however, experts began expressing concerns about the authenticity of another work (a purported “Cranach”) from the same source as the Hals.  Sotheby’s arranged to have the Hals tested by prominent forensic expert Jamie Martin (founder of Orion Analytical, which has since been acquired by Sotheby’s), who in 2016 determined that the “Hals” contained anachronistic pigments and was therefore inauthentic.  In response to this news, Sotheby’s took the work back from the 2011 buyer, and gave that buyer (an American collector named Richard Hedreen) a full refund.  Sotheby’s then turned to the consignors—London art dealer Marc Weiss, and his client, David Kowitz, a hedge fund founder and art collector, acting through his entity Fairlight Ventures—to recover the $10.75 million that they had received as proceeds from the 2011 sale. 
    Weiss and Fairlight continued to believe that the Hals was authentic, and refused to return the money, prompting a lawsuit by Sotheby’s.  Weiss settled with Sotheby’s on the eve of trial, but Fairlight continued to litigate.  And in late 2019, Sotheby’s won; the court ruled that the agreement between the consignors and Sotheby’s permitted the sale to be rescinded under the circumstances. 
    The Appeal
    Earlier this year, Fairlight indicated its intent to appeal that ruling, and this month, the parties argued the appeal.  A key issue on appeal, according to press reports, is how to define the parties’ relationships to one another in the 2011 sale.  Fairlight is reportedly arguing that it was not a “partner” to Weiss in the transaction, but merely provided financing, and that Sotheby’s was a “sub-agent” appointed by Weiss—thus, Fairlight urges, it is not bound by the terms of the consignment contract and should not be obligated to refund the sale proceeds.   
    Meanwhile, Criminal Proceedings Against Alleged Forgery Conspirators Have Stalled
    While this civil dispute continues to play out in the UK court system, there have been movements toward the criminal prosecution of two individuals who are alleged to have masterminded the entry of this and several other forgeries into the art market.  Last fall, EU arrest warrants were issued for Giuliano Ruffini, an art dealer and collector who sold the works in question, and for Lino Frongia, a painter who is suspected to have assisted in actually creating the fakes.  But The Art Newspaper recently reported that neither suspect has yet been transferred to France to face that criminal investigation; both men have successfully contested the warrants in the Italian courts.  
    Legal Implications of Multi-Party Art Deals
    This case serves, of course, as a reminder that forgeries are always a risk on the art market, and that even purchasing from a prominent and respected dealer or auction house is no guarantee that a buyer might not end up with a well-executed fake.  For that reason, everyone involved in a transaction needs to understand how the sale contract accounts for and allocates that risk—and what the financial implications might be if a work later turns out to be inauthentic.  In many cases, these legal disputes must allocate a significant financial loss to one or more parties who did not know there was anything wrong with the artwork—while criminal proceedings against actual suspected wrongdoers play out on an entirely separate timeline, if at all.  
    It’s also important to understand that there is often no “final” ruling on the authenticity of a work.  As in this case, a court’s decision may hinge on issues of contract, sale, tort, or agency law, but may not need to actually decide whether an artwork is really authentic or not; and in fact, U.S. courts generally disfavor making such a determination, preferring to leave that up to the art market, academics, and experts.  
    Additionally, Fairlight’s appeal is interesting because it highlights the practical reality that many art transactions today are far more complex than just one buyer and one seller.  In addition to one or more intermediaries, there Is often a consortium or group operating together on the buyer-side or the seller-side of a deal.  Here, while Marc Weiss apparently signed the contract with Sotheby’s, it is clear that Fairlight and Weiss were acting together with regard to this painting.  Weiss has now settled out of the suit—and Fairlight and Sotheby’s disagree over the nature of the Weiss-Fairlight relationship, and thus whether and how Fairlight should be bound by the Sotheby’s contract at issue.  Parties involved in art transactions should seek legal advice and strive for clear contracting to clarify not just their dealings with “the other side” of a sale, but also their dealings with “their own side,” i.e., those with whom they are cooperating and coordinating.  If you are buying (or selling) a work in cooperation with others, it a partnership or joint venture, an agency relationship, a consignment or sub-consignment, something else?  Agency and partnership law can vary from jurisdiction to jurisdiction—and as this fake “Hals” shows us, how parties define their relationships, structure their deals, and draft their contracts can have important implications if an unexpected complication arises down the road.  
    UPDATE 11/24/20:
    Today, The Art Newspaper reported that the UK appellate court has already issued its ruling, upholding the lower court’s decision in its entirety.  On the agency issue, the court concluded that Weiss and Fairlight were both “committed as principals to the consignment of the property to Sotheby’s,” and therefore both could be held liable for the return of the sale proceeds in the event of Sotheby’s rescission.
    ATTORNEY: Kate Lucas
    CATEGORIES: AuctionForgeries