Trade let down by court ruling

Decision on auction houses’ liability for fakes finds in favour of buyers—but only on a technicality


German auction buyers beware. Salerooms in the country have almost no liability when works bought at auction turn out to be fake or miscatalogued, provided that due diligence checks have been undertaken and that there is no proof of intent or gross negligence. Protection for buyers is only marginally stronger elsewhere, although both Sotheby’s and Christie’s, for example, offer a five-year warranty on works they sell that are subsequently proved to be inauthentic (although the terms and conditions are carefully worded in their catalogues).

A German federal court decision in October, which was expected to establish legal guidelines that would put more responsibility on the auction houses when they are found to have sold fakes, has left many in the trade dismayed. Although the court found in favour of the buyer, it did so only on a curious technicality—and this despite the fact that the German art market needs clear ground rules now more than ever. The discovery in Munich last month of a hoard of paintings that may have been looted by the Nazis, and the revelations that Cornelius Gurlitt, in whose apartment the art was found, previously sold works at auction, is the most recent case to highlight the need for greater regulation.

Very strange decision

The federal case on which many in Germany had pinned their hopes was brought to court by a Swiss collector who bought a statue of the Buddha, purportedly from the Chinese Sui Dynasty (581-618), at the Michael Zeller auction house in Lindau for €20,000 in 2009. The buyer began to doubt the statue’s authenticity and had it examined, but when his doubts were confirmed, the auction house pointed to its terms and conditions, refusing to reimburse the money he had paid for the statue or the costs of having it examined. The buyer then sued. At the beginning of October, the federal court ruled in favour of the buyer, on the basis that the clause exempting the auction house from liability is ineffective because it does not take into account damages arising from injury to life, body or health. It therefore violates a clause of the German civil code, which holds that all people and organisations must be accountable for losses arising from these situations.

German auction houses, which are facing a growing number of legal claims, are disappointed by the court’s reasoning. Dieter Loehr, the lawyer representing the German federation of art auctioneers, says it is a “very strange” decision. “The consequences will only extend to auctioneers having to expressly state that damages to body or health are excluded when liability is curtailed in their terms and conditions.” Loehr says he will advise his clients to amend their terms and conditions accordingly. Andreas Heilig, an auctioneer at Nagel in Stuttgart, calls the decision “nonsense”, adding that the growth of the art market and the subsequent rise in court cases have made auction houses more vigilant. But he acknowledges that some are less conscientious. “When most of the liability lies with the consignor, it influences the quality of the job done by auction houses. Where the law is stricter, they are more careful,” he says.

Long-standing precedent

The federal court’s judgment complies with decades of German rulings that have largely exempted auction houses from liability. This legal pattern was established with the so-called “Lake Constance auction judgment”, a federal court ruling in 1980 that also involved the Michael Zeller auction house. In that case, the court ruled that an auction house’s terms and conditions can exclude its liability for fakes as long as it has carefully examined the work. Since then, the Lake Constance ruling has served as the starting point for numerous judgments in the lower German courts and has been cited in nearly every court decision.

Another case, which is currently being fought in a Munich court by a consignor, might help to establish guidelines for auction houses’ legal responsibilities. In 2009, the Rehm auction house in Augsburg estimated a “Persian carpet” at €900. It sold for €19,700. A few months later, the carpet was consigned to Christie’s London, where it was catalogued as a “Vase carpet”, created in the Iranian city of Kerman in the 17th century. According to the item’s description in the catalogue, it was also thought to have been in the collection of Comtesse de Béhague (1870-1939). The carpet had an estimate of £200,000 to £300,000 and sold for an eye-watering £6.2m. The collector who had consigned the carpet to Rehm then sued the auction house for damages.

During the case, which is now in the appeal stage, the upper regional court in Munich tested the legal obligations of the auctioneer. According to Hannes Hartung, the collector’s lawyer, the court is examining which legal duties should apply to smaller auction houses such as the Augsburg firm, which does not have the ability of its larger counterparts to research lots. Since the auctioneer was aware before the sale that at least 20 dealers were interested in the carpet, Hartung hopes the court will decide that auctioneers must inform consignors when they are unable to provide an accurate estimate for a lot and, in those cases, recommend external specialists for guidance on pricing and attribution.

Appeared in The Art Newspaper Archive, 252 December 2013