Sellers and buyers need to know who’s who
The case reveals the casual approach to the legal concept of agency—but who acts for who is a fundamental question when it comes to transferring ownership, and also when deciding to whom duties are owed
By Paul Howcroft. Comment, Issue 220, January 2011
Published online: 06 January 2011
The recent English High Court case of Accidia Foundation v Simon C. Dickinson Ltd (see related story) has lifted the lid on arrangements between dealers in private treaty art sales.
How could it be that a seller was led to believe that a Leonardo Da Vinci drawing had been sold for $6m and then, by chance, discovered a year later that the purchaser had paid $7m? Secrecy and a lack of transparency is the key to such abuses and for them to go undetected.
Central to this happening is the anonymity of buyer and seller. It is said to be a common preference of both, but one wonders how often dealers decide to tell the seller that the buyer wishes to remain anonymous and vice versa. After all, buyers need to know as much as possible about the provenance of what they are buying. Possibly the refined and superior world of art dealing, with its clubbish air of gentlemanly dealing, intimidates sellers and discourages questions.
When dealers enter into arrangements and “understandings” with each other, they do so in their own interest and are unlikely to see any advantage in the buyer and seller knowing the details. Accidia had been told by its “sole and exclusive” agent, Luxembourg Art Ltd, that it had involved Simon C. Dickinson Ltd (Dickinson) to assist in finding a buyer, and Accidia believed that Luxembourg Art would share its commission with Dickinson. It did not know that Dickinson was to be a further link in the chain, permitted to sell at any price above $6m and keep the difference. Meanwhile, the buyer was given to understand that he was purchasing from Dickinson as the seller’s agent.
The case reveals the casual approach to the legal concept of agency—but who acts for who is a fundamental question when it comes to transferring ownership, and also when deciding to whom duties are owed. Dickinson entered into a post-transaction form of agreement with Luxembourg Art in which Dickinson was incorrectly stated to be the agent for the buyer. At the same time, it then entered into a sale agreement with the buyer, wrongly claiming to be agent for the seller.
Anyone who claims to be an agent, or assumes the role of agent, should remember that an agent owes strict “fiduciary duties” to its principal. It has to act in the best interest of the principal and, subject to anything agreed to the contrary, it has to hand over all monies received. Although Accidia had not authorised Dickinson to sell, and although Dickinson was not able to pass legal title, Accidia chose to ratify the transaction. By that legal device it retrospectively deemed Dickinson to be its agent and required Dickinson to account for its unauthorised “commission”.
An interesting feature of the case was the lack of any documents recording the basis of payments by Dickinson from the proceeds of sale to third parties, including the buyer’s adviser. There was also no document recording the net return price agreement between the dealers, as claimed by Dickinson. Failure to record or note commercial agreements and payments in writing inevitably gives rise to suspicion and invites disputes.
So what should a seller do? Certainly ask to see the contract to be made on his or her behalf by the agent before it is signed. If the sale appears to be to another dealer acting for an unspecified buyer, then the seller should be wary that there could be a net return price arrangement in place, said by Dickinson to be a common practice in the art market.
In turn, dealers need to make sure that their arrangements are properly recorded and that the seller understands and authorises those arrangements, including those between dealers. In particular, the seller needs to know the ultimate sale price and who is to get what from the proceeds. The court held that Dickinson had been “unwise” for not checking that the seller had authorised the arrangement. As a result, it had to pay a heavy price.
The writer is a solicitor and a partner at Fladgate LLP, which acted for Accidia
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