German auction house Lempertz liable for breach of duty of care

The painting titled "Rotes Bild mit Pferden" (Red Picture with Horses) had been consigned by the sister of Beltracchi's wife. She had asserted that the painting had been in her family's possession for decades and that it formed part of her late grandfather's art collection. The work was allegedly painted in 1914, and a painting carrying the same title had been recorded (without an illustration) in an exhibition catalogue in 1920. A label was affixed to the painting's reverse side, bearing the words: "Sammlung Flechtheim" (Collection Flechtheim).

Lempertz studied the painting and conducted historical research. Lempertz contacted Heinrich Campendonk's son, who informed Lempertz that the work had been painted by his father. Lempertz also tried to contact the leading expert on Campendonk's work, but failed to connect with her.

Based on the information given by the seller-consignor, the recording of the work in the 1920 exhibition catalogue, the historic research and the quality of the work, the painting was included in Lempertz' November 2006 auction catalogue and praised as a masterpiece created at the height of the artist's career. The picture graced the front cover of the auction catalogue. Lempertz gave the painting an auction estimate of between € 800,000 to € 1,200,000. The painting ultimately sold for € 2.9m (incl. buyer's premium).

After the sale, the buyer of the painting commissioned scientific testing. During the investigations, traces of a pigment were found that could not have been applied at the purported creation date (1914). Further investigations revealed that the labels on the reverse side had been doctored and that the purported provenance did not add up. The painting turned out to be a modern forgery.

The buyer rescinded the sales agreement and sought a refund of the purchase price from Lempertz (the seller- consignor probably failed to offer a reliable form of recourse). The buyer further demanded that Lempertz take back the painting. Lempertz argued that it could not be held liable to pay back the purchase price, and claimed this was a matter between the seller and the buyer, rather than Lempertz.

The Cologne court refuted Lempertz' arguments. The court held that an auctioneer like Lempertz must duly act in accordance with the interests of potential buyers. The fact that the auction house is technically not the seller, is irrelevant. The auction house must comply with its own standard of care as a "prudent merchant".

The court furthermore held that the seller-consignor of the painting committed fraud by providing false information about the painting, and that the auction house was instrumental in selling the forgery. The auction house, however, has its own responsibility in this respect, the court held. It was Lempertz who drew up the catalogue description, who praised the work as a masterpiece, who implied that the painting had a flawless provenance and who erronerously noted that the work had been illustrated in a 1920 exhibition catalogue. The auction house had not commissioned external expertise, nor scientific testing, while further checks were warranted.

The court held that Lempertz' failure to conduct further checks in this case was not excusable. Valuable paintings that are praised as masterpieces must be examined properly. The auction house cannot rely solely on internal historical research; seeking external expertise is obligatory. That would have revealed the true nature of the painting. In the event an auction house fails to conduct proper checks, or if it fails to issue a proper catalogue description, the auction house can be held liable in the event the work is revealed to be a forgery.

Time to "pay the piper". Particularly knowing that the seller- consignor will not likely provide recourse.

It is understandable that the court emphasizes that catalogue descriptions must have a reasonable basis in fact, and that prospective buyers may rely on the catalogue description. It is also understandable that the court held that one may expect a considerable standard of care from a highly renowned auctioneer such as Lempertz.

It is however remarkable that the Cologne court did not explicitly deal with the disclaimer set out in the auctioneer's terms of sales, i.e. in the event an auctioned work turns out to be a forgery, Lempertz will (a.) reimburse the commission it earned on the sale, and (b.) will make best efforts to pursue the seller-consignor through the courts in attempt to redeem the remainder of the purchase price. Perhaps the court interpreted the disclaimer differently, or refused to apply the disclaimer in these circumstances.

The lesson learnt here is that auction catalogues have a prospectus-like function, and auction houses can be held accountable for the information contained therein. Evidently, the standard of care to be met will vary from case to case. Where priceless works are involved, technical investigation seems a prerequisite. The fact that this type of enquiry may be costly and time-consuming, is something that auctioneers and sellers-consignors will have to take into account.

Lempertz does not agree with the judgment and has announced that it will lodge an appeal.

Link to the judgement