Art auction house suffers legal setback in dispute over double-purpose artwork

In a landmark decision, the High Court has determined that an auction house cannot claim litigation privilege over correspondence with experts about a painting's authenticity. The case, which has been dubbed the ENRC case, illustrates the challenges counterfeits bring to the art market and serves as a reminder of the importance of clear communication and legal protection in significant art transactions.

The auction house in question, Sotheby's, was tasked with selling a painting on behalf of Mark Weiss Ltd. The contract contained a clause allowing Sotheby's to rescind the sale if the buyer raised doubts about the painting's authenticity. After the sale, concerns about the painting's authenticity arose, and Sotheby's refunded the buyer. Subsequently, Sotheby's brought proceedings against the seller to recover the refunded amount.

During the proceedings, Sotheby's disclosed the existence of correspondence between itself and the experts, but claimed litigation privilege to withhold those documents from the seller. However, the High Court determined that the correspondence failed the 'dominant purpose' test. Both purposes—determining the painting's authenticity and preparing for litigation—were considered of equal importance, and neither was deemed "dominant" by the court.

Alan Sheeley of Pinsent Masons, who represented Sotheby's, stated that this case is one of two recent ones where the courts have taken a restrictive approach to litigation privilege. He warned that determining whether two purposes are of equal importance, so that privilege will not apply, or the litigation purpose is dominant, is highly fact-specific.

Sinead Esler of Pinsent Masons, who represented the seller, advised buyers to exercise caution, ensure any significant transactions are made by written agreement clearly recording any representations about authenticity and provenance, and consider whether the agreement should be in the form of a deed. She also suggested that both buyer and seller to any significant art transaction should obtain independent legal advice on the terms of that transaction.

Esler also warned that it may take years before a counterfeit is discovered, during which time the artwork may have several owners who may have a legal claim. She emphasised the increasing sophistication of counterfeits, making identifying a fake extremely difficult, even for experts in the field who may be divided on whether or not an artwork is authentic.

The ENRC case has been ruled to be of broader commercial significance, and it underscores the importance of clear communication and legal protection in the art market. Businesses cannot afford to be complacent about litigation privilege applying, and it is crucial for all parties involved in significant art transactions to seek legal advice and ensure proper documentation to protect their interests.