A Seller Should Have Reasonable Grounds for His Unqualified Authenticity Opinion. But How to Weigh Negative Facts?

Editor’s Note

This is Volume 4, Issue No. 2 of Spencer’s Art Law Journal. This issue contains three essays, which will become available by posting on artnet.com, starting in November 2013.

This first essay (A Seller Should Have Reasonable Grounds for His Unqualified Authenticity Opinion…) discusses whether a seller’s opinion based on “mixed” (positive and negative) facts needs to be qualified as “probably,” and whether the negative facts must be disclosed.

The second essay (Consigning Art Under New York’s Amended Arts and Cultural Affairs Law…) examines the new law on art consignment for artists and their estates, and, as well, raises issues for owners and collectors consigning art for sale.

The third essay (Lien Searches May Not Always Tell You Much…) addresses the use of lien searches to discover claims against art and the inherent limitations of these searches.

Three times a year, issues of this journal address legal issues of practical significance for institutions, collectors, scholars, dealers, and the general art-minded public.

— RDS

 

For inquiries or comments, please contact the editor, Ronald D. Spencer, at Carter Ledyard & Milburn LLP, 2 Wall Street, New York, NY 10005, by telephone at +1-212-238-8737, or at [email protected]

 

A SELLER SHOULD HAVE REASONABLE GROUNDS FOR HIS UNQUALIFIED AUTHENTICITY OPINION. BUT HOW TO WEIGH NEGATIVE FACTS? AND MUST THESE NEGATIVE FACTS BE DISCLOSED IF THEY ARE UNKNOWN TO BUYER?

• • •

Ronald D. Spencer

• • •

This essay examines whether a seller has reasonable grounds for his authenticity opinion—given that relevant factual grounds do not always point in one direction and, indeed, some may be strongly negative. Of course, in arriving at his opinion, the seller must balance these positive and negative facts while lending more or less weight to each. But does an opinion based on such “mixed” facts need to be formally qualified as “probably” or “likely”?  And, having reasonably arrived at an unqualified opinion, must the seller disclose the negative facts he considered (and, on balance, presumably found unconvincing)?  — RDS

• • •

Ronald D. Spencer is chairman of the Art Law Practice at the New York law firm of Carter Ledyard & Milburn LLP. He is expert in the legal aspects of art authentication issues and has written and edited, The Expert Versus the Object: Judging Fakes and False Attributions in the Visual Arts,(Oxford University Press, 2004).

• • •

An English Court Decides that a Seller Had Reasonable Grounds for its Authenticity Opinion
In 2005, an English Court of Appeal decided Taylor Lynne Thomson v. Christie’s,1 involving a 1994 London auction sale to Thomson, for almost £2 million, of a pair of Louis XV porphyry and gilt-bronze two-handled vases. In 1998, some art dealers suggested to her that the vases might not be Louis XV, but high-quality imitations (not forgeries) made in the mid-19th century worth no more than £25,000. Thomson brought an action against Christie’s on the ground that the vases were made in the 19th century, claiming that Christie’s owed her a duty of care which they had broken in not warning her of a risk that Christie’s judgment that the vases were made in the 18th century might be questionable or wrong.

Thomson said that Christie’s should have qualified their sale catalogue for the vases to describe them as “probably Louis XV” or a similar qualification because, at the 1994 sale date, there were facts known to Christie’s which should have led Christie’s to be cautious about their dating of the vases.  Thus, in addition to the existence of the 19th-century imitations, (Thomson testified that she would not have bought the vases had Christie’s told her of the existence of the 19th-century imitations) there was an absence of any provenance prior to a 1921 purchase by the grandmother of the seller, Lord Cholmondeley. As well, Christie’s had relied for its opinion that the vases were made in the 18th century upon the exercise of their judgment, based on only a visual inspection, that is, without any physical analysis of the materials utilized in the vases.

The Court of Appeal noted:
…Christie’s do[es] accept that, if there is material doubt as to the description or dating of a work of art offered for sale at auction, good auctioneering practice requires the auctioneer to articulate the doubt in suitable terms, for example, “probably Louis XV.”2
…It is difficult to define the degree of certainty which an auctioneer should have before he ascribes a date without qualification, and it is probably unnecessary for me to try to do so. It may be whether, having reviewed all factors, he finds he has sufficient positive basis for the view he has formed combined with the absence of matters which raise real rather than fanciful doubt by pointing the other way.3

The trial judge had found “on the strong balance of probability” that the vases (sometimes referred to as the Houghton urns) were made in the 18th century, and the Court of Appeal upheld the trial judge’s decision.

The Court of Appeal seemed to accept Christie’s submissions that:

1. The existence of a 19th-century revivalist fashion was a reason for caution, but not a reason for doubt.

2. It is obvious to any buyer, whether expert or not, that attributions as to date are matters of opinion and judgment.

3. Christie’s could only have a duty to disclose matters which Christie’s knew or should have known and which would have materially affected their confidence in their own opinion.

The Thomson trial court judge was quoted with approval in a subsequent case, Avrora Fine Arts v. Christie’s,4 which neatly summed up the Thomson core issue:

The representation is not simply that the urns were Louis XV, because that is a matter of opinion. The representation is that was Christie’s opinion and that Christie’s had reasonable grounds for that opinion.

The Court of Appeal thus decided that Christie’s had reasonable grounds for its opinion that the vases were made in the 18th century (about 1765) and therefore Christie’s was correct to describe them in its sale catalogue without any qualification such as “probably 18th century.”

I cannot be certain that the Houghton urns were made around 1760 to 1765, but I think it likely. The evidence establishes the position somewhere between certainty and more likely than not. If a figure must be placed on it, I would put it in the region of 70%.5

And further, said the Court of Appeal:

…Christie’s at the time of the sale…were reasonably entitled to hold, the certain and definite opinion that the Houghton vases were 18th century and correctly described without qualification as “Louis XV”; that there were no real rather than fanciful doubts pointing the other way, and that Ms. Thomson’s 11 reasons did not raise any real doubts.6

Degree of Certainty Required for an Unqualified Authenticity Opinion

Thomson is one of the few court decisions to examine in depth the degree of certainty required of experts before they render an unqualified opinion on authenticity. Thomson expressed this in terms of lack of “material doubt” concerning the description of a work of art, reviewing “all factors” and finding a “sufficient positive basis…combined with the absence of matters which raise real rather than fanciful doubt by pointing the other way.” Of course, this is rather a common sense and familiar way of arriving at opinions on most issues. And, in Thomson, a 70% to 80% likelihood allowed Christie’s to avoid the qualifier, “probably.” But, of course, a 20% to 30% chance of being wrong is a significant risk for a buyer, and, in effect, allows for the existence of a fair number and weight of factors which would not support or, indeed, be contrary to, a positive expert opinion.

These kinds of odds of being wrong (say, one chance in four or five) bring to mind the New York case, Dawson v. Malina,7 in which a federal district court in New York considered the standard to be applied in determining whether a seller’s warranty of Chinese ceramics as being from a certain historical period had been breached by the seller. The buyer plaintiff argued for a standard that would require the seller to establish by a preponderance of the evidence (the usual evidentiary rule in civil matters) the art was unqualifiedly of the period to which they were attributed by the seller. The seller argued for a standard that would require the buyer to conclusively establish, by a preponderance of the evidence, the art was not of the period. The Dawson court thought it would be “unjust for the Court to adopt the strict standard proposed by the buyer.” Instead, the court adopted a “middle ground,” to wit:

Whether plaintiff Dawson has established by a fair preponderance of the evidence that the representations made by [seller] Malina were without a reasonable basis in fact at the time the representations were made.

This Dawson formulation of the standard required to prove a breach of warranty of authenticity is similar to the Thomson analysis because both formulations allow for an unqualified opinion about, or representation of, authenticity even though all of the factual elements upon which the opinion is based do not necessarily support the expert’s opinion/representation, and, indeed, some might be contrary to the opinion.

Duty to Disclose Doubts or Negative Information

An additional, and quite interesting, aspect of Thomson is Christie’s duty to disclose facts, which it knew or should have known, and which would have materially affected Christie’s confidence in their own opinion. Thomson’s main argument advanced at trial was that the vases were 19th century, although “it shaded off on occasions towards a case that there were material doubts whether the vases were truly 18th century”8 so that even if Thomson could not establish that the vases were made in the 19th century, there were numerous features about the vases which raised doubts about their true origin, history and age, such that Christie’s had a duty to disclose these doubts. In effect, even though Christie’s was not obliged to qualify its sales catalogue description by the use of the word, “probably,” Christie’s nevertheless had a legal duty to disclose facts that did not support its opinion or raised doubts about the grounds for its opinion.

These doubts, as noted above, were chiefly the following three:

1. There existed no provenance prior to the 1921 purchase in France by the grandmother of Christie’s auction seller, Lord Cholmondeley

2. Christie’s was relying very largely upon the exercise of its judgment following (only a) visual inspection

3. The existence of 19th-century imitations

With respect to provenance, the Court of Appeal noted that the Getty Museum had a similar pair of urns with little or no provenance information, but a Getty curator of Decorative Arts with an excellent reputation had described the Getty urns as c.1765–1770. The Court of Appeal stated:

Absence of provenance before 1921 was a reason for caution. It was surprising that there was no secure earlier record of any of the six [similar] vases in either the 18th or 19th century, if they were indeed 18th century. But there was evidence of securely dated 18th-century pieces which had no real provenance—it applied to 117 of the 214 French decorative objects in the Getty Summary Catalogue of 1993.9

With respect to the “doubt” arising about the visual inspection by Christie’s, that is, without any material analysis such as metallurgical evidence of the bronze lion-head mounts and their gilding, or the porphyry stone, the Court stated that Christie’s reliance upon visual inspection “was well understood” and there was “no evidence or probability that Ms. Thomson was so naïve that she needed to have this commonplace point made to her.”10 And, finally, the Court states:

The [trial] judge’s findings as to the date when the vases were made took account of extensive metallurgical and other scientific evidence put together for the purpose of these proceedings. Ms. Thomson does not suggest that Christie’s should have acquired information of this kind before the auction. It is not relevant to any question whether Christie’s was in breach of duty.11

With respect to the existence of 19th-century copies or imitations, as a result of a 19th-century revivalist fashion, the Court agreed with Christie’s that:

The possible existence of 19th-century imitations was a reason for care, but did not, in the case of the Houghton vases, raise a real, rather than fanciful doubt. Christie’s was not obliged to express fanciful doubts to Ms. Thomson.12

The Thomson Court standard for (negative) factual information that the seller had a duty to disclose was that “real,” as opposed to “fanciful,” doubts had to be disclosed. Fanciful doubts suggested only a need for “caution” on Christie’s part in describing the urns, but did not require Christie’s to disclose such fanciful doubts. The above-noted three items of (negative) factual information (imitations, visual inspection, and provenance) contributing to “doubt” are information which reasonable due diligence by the buyer could or should have discovered and therefore, did not have to be disclosed by Christie’s.

Thus, Thomson stands for the somewhat surprising proposition that, even if a seller’s authenticity representation is properly made, any material negative information known to the seller, which a buyer’s due diligence could not reasonably have discovered, must be disclosed as well.

Can the Seller Remain Silent? That is, Must All Relevant Negative Facts be Disclosed?

Many court decisions and tort treatises state that there is “no affirmative duty of disclosure between parties dealing at arm’s length.” Silence, as such, i.e., mere nondisclosure, does not constitute a breach of duty.13 The harshness of this rule has been mitigated by limitations and exceptions that have gone a long way toward swallowing up the rule—but not yet all the way.14 One important exception (the so-called “special facts” doctrine) to this rule is where the seller has superior information, not reasonably available to the buyer.15

It may be helpful in this regard not to generalize about the vendor-purchaser relation. There would seem to be a distinction between the relationship, on the one hand, of two experienced business men, consummating a sale and purchase and the relationship, on the other, of salesman and customer in a large retail store. To the former, the description “arm’s length” seems to be appropriate, and there is little ground for reliance, except to the extent of warranties and of unequivocal representations of fact. But in the latter, it may be doubted whether it is ever possible for the parties to achieve equality of knowledge. And while the customer may be held to act at his peril in relying on statements which he should recognize to be customary “sales talk,” it can be argued that he relies, and justifiably so, on the salesperson not to remain silent as to material facts of which he knows the purchaser is ignorant.16

An important point is the degree of “difficulty,” shading sometimes toward impossibility, of the buyer’s discovering the negative information for himself. That is to say, should the duty of discovery be placed on the buyer who could presumably learn of the defect or negative information if he were more diligent or commissioned a thorough expert investigation.17 An art dealer (an “art merchant” in Uniform Commercial Code terms) selling to a non-dealer collector will usually, but not always, have more general art-related knowledge than the collector, and is almost always more knowledgeable about the specific piece being sold. On the other hand, collectors contemplating the purchase of high-end art often retain expert art advisors to assist in purchasing from the art merchant in an effort to narrow this dealer-collector knowledge gap.

Another important point concerning the rule of non-liability for “mere nondisclosure” is the nature and importance of the undisclosed negative information.

The second Restatement of Torts has tried to formulate a rule embodying this trend [mandating more disclosure] by requiring one party to a business transaction to disclose to the other, before the transaction is consummated, “facts basic to the transaction” if the former knows that the other is about to act under a mistake as to such facts “and that the other, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect a disclosure of those facts.” Facts “basic to the transaction18 are those that go to its essence (for example, the character of the thing sold), and the concept is narrower than materiality, which covers also facts that are important only as “inducements to enter into” the transaction.19

In the context of the sale of a painting or sculpture, one might well doubt, for example, that seller’s failure to disclose a lack of a listing in a catalogue raisonné, or a lack of a complete and accurate provenance of the piece, would qualify as “basic to the transaction,” as opposed to being material facts, important only as “inducements to enter into” the transaction.

A Dealer Meeting His Contractual Warranty Standard—Having a Reasonable Basis in Fact—Should Not Have a Duty to Meet a Higher Tort Standard—Disclosing All Material Negative Facts

The Dawson decision described above establishes the standard an art buyer must meet in order to rescind his purchase based on the claimed breach of the dealer warranty of authenticity—that is, at the time of sale, the dealer did not have a reasonable basis in fact, for the dealer’s representation. By way of example, a “reasonable basis in fact” might consist of 10 factual elements, eight of which support authenticity more or less strongly, while two factual elements are negative. Dawson suggests that, so long as the seller has been reasonable in taking into account the nature and weight of the two negative elements, the seller has not breached his representation of authenticity.

By contrast with this contractual obligation under a warranty, if the dealer also has a tort law duty to disclose the two negative elements and does not do so, the dealer’s mere non-disclosure or silence would be a tort, and entitle the buyer to rescission or damages for misrepresentation. But to hold the dealer liable in tort would undermine the Dawson contractual warranty standard the dealer was able to meet. In short, requiring disclosure of negative material facts which are not “basic to the transaction” would allow rescission of the sale where the dealer had met his burden under his contractual warranty. This does not appear to be a sensible result.

New York, NY
October 2013

(The assistance of Katherine A. Mirett, Esq. in the preparation of this essay, is gratefully acknowledged)

Ronald D. Spencer
Carter Ledyard & Milburn LLP
2 Wall Street
New York, NY 10005
Email: [email protected]
Website: www.clm.com

Notes

1 2005 EWCA Civ. 555; Case no. A2/2004/146 & 1470.
2  Court of Appeal, para. 73.
3 Court of Appeal, para. 74.
4 2012 WL 2923015 at page 22.
5 Court of Appeal, para. 71, quoting the trial judge approvingly.
6 Para. 78 Court of Appeal.
7 463 F. Supp. 461 (S.D.N.Y. 1978).
8 Para. 93 Court of Appeal.
9 Court of Appeal, para. 46.
10 Court of Appeal, para. 16.
11 Court of Appeal, para. 8.
12 Court of Appeal, para. 85.
13 Vol. 2 Harper, James & Gray On Torts, Section 7.14 (3rd ed. 2006).
14 Harper, James & Gray, page 556.
15 Under the “special facts” doctrine, a duty to disclose arises “where one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.”  Beneficial Commercial Corp. v. Glick Datsun, 601 F. Supp. 773 (S.D.N.Y. 1985); But see Chiarella v. U.S., 445 U.S. 222, 248 (1980) (stating “This Court has never so held.”). It is curious that, while some courts have applied the special facts doctrine to impose a duty of disclosure on the seller, no corresponding duty is usually placed on the buyer where the buyer has knowledge of facts, not reasonably discoverable by the seller, which render the property much more valuable than the price being asked.
16 Goldfarb, Fraud and Nondisclosure in the Vendor-Purchaser Relation, 8 W. Res. L. Rev. 5, 43-44 (1956).
17 Goldfarb, page 19.
18 Restatement (Second) of Torts §551, Comment j (1977).  The Reporter stated that the advisers were unanimous in wishing to limit [§551(2)(e)] to (facts ‘basic to the transaction’) and concluded, [t]he law may be moving in the direction of requiring disclosure of (‘material’ facts) but it is not yet sufficiently clear to justify more than ‘basic.’  Restatement (Second) of Torts §551, at 166-167 (Tent. Draft No. 10, 1964).
19 Harper, James & Gray, Section 7.14, pages 565-566.