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Conformity examined

Published on 13 November 2017 at 00:00

On 18 October 2017 the Court in Amsterdam ordered the seller of a collection of paintings to pay substantial damages to the buyer.

 

The court ruled that the seller must pay the buyer the difference between the amount paid for the collection and the value appraised by the court expert. A claim for lost profits was rejected.

 

A brief summary of the facts

In 2012 Mr. X was the owner of a collection of paintings. In previous years Mr. X had had his art collection appraised with some regularity. The value of the collection, according to these appraisals, lay somewhere in the millions.

 

In 2012 Mr. X’s business got into financial problems. The business had a debt of about 3.5 million euros owing to a financier. After discussions with the financier it was decided that Mr. X would sell him his art collection. The collection was valued at more than 3.7 million euros based on an appraisal report of an appraiser of Mr. X from March 2013. With the purchase price part of the debt owing from the ailing company to the financier would be paid off. The financier could sell the collection and in this way recoup the purchase price.

 

At the beginning of 2014 Mr. X and the financier reached agreement on a purchase price of 1.6 million euros for the whole collection. In the purchase agreement Mr. X guaranteed the financier that there were no circumstances that could have a negative impact of any kind on the valued worth of the collection and that the information given by Mr. X was correct, complete and not misleading.

 

The financier stipulated that the collection must be sold in the market; Mr. X would deal with the sale which must be finalised within a couple of years. When the sale stalled, the financier stepped in. At the beginning of 2015 he had the collection valued by his own appraiser. The results were disastrous. The expert reported that the majority of the art works were fake. Subsequently the financier commenced proceedings against the seller of the art collection in an attempt to undo the purchase agreement.

 

The financier also complained to the Federatie TMV (the Dutch Federation of Certified Appraisers, brokers and auctioneers in movable assets) about the appraisers who had valued the collection in 2012/2013. Apparently the Federation stated that the complaint was justified. The Federation said that the appraisers should have reported that no thorough investigation had been done into the authenticity of the works.

 

The Proceedings

In the proceedings before the court the financier demanded annulment or at least dissolution of the purchase agreement with Mr. X. The financier stated that he had been misled and deceived by the transaction.

 

The court ruled that the financier had not proved the alleged deceit. Further the court ruled that annulment or dissolution was not possible as the parties had ruled out this possibility in the contract.

 

According to the court the financier was entitled to damages. The valuation from March 2013 formed the basis of the sale plan. The collection of paintings should have been delivered. Mr. X had not made any reservation about the authenticity of the works. Furthermore, if the paintings were fake, that would be a reason that could negatively have impacted on the appraised value and could also be a breach of the guarantee that was given. The court considered that if a work is to be called fake there must be considerable certainty about this because in general it cannot be said with absolute certainty whether a work is the work of a particular artist.

 

The court appointed an expert to judge the authenticity of the works and their value. In December 2016 the court expert reported to the court that a third of the collection was not authentic and that the value of the collection was about 900,000 euros.

 

The court adopted the conclusions of the court expert. The court considered that with the sale of “fake” works the breach by Mr. X was a given. That made the seller liable to pay damages. Further the court ruled that the financier could assume that the paintings transferred to him had a value around the purchase price of 1.6 million euros. Now that this had not happened the court ruled that Mr. X was liable to pay damages being the difference between the agreed purchase price and the actual value of the collection.

 

The claim for lost profits was however denied. The court took the view that the financier had not been motivated by profit. After all it was the intention that the financier, through selling the paintings, would only recoup the purchase price paid by him.

 

By the way it can be reported that Mr. X was not considered personally liable. The court ruled that it had not been proved that the owner (as a private individual) had misled the financier or as a director had made a serious mistake.

 

Comment from Oostwaard

In itself the judgment of the court is understandable. The court assumed that the will of the parties was primarily aimed at finding a solution to a financing that had gone wrong. According to the court the transaction was not so much aimed at making a profit. The result was that the financier was entitled to be compensated up to the amount of the purchase price that he had paid. The claim for lost profits was denied. We have to assume that this will have become apparent from the underlying procedural documents and the evidence. By deciding that the issue was about the agreed value of the total art collection, the court avoided having to determine the damage for each fake painting. Actually it did not matter whether a work of art was fake or not. It was merely a comparison between the agreed purchase price and the real value. The expert appointed by the court might therefore have been able to make his work easier and more limited by valuing the whole collection.

 

 

 

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