Fladgate recovers secret profit in art dealing case

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Fladgate LLP has worked with Wolfgang Berger Rechtsanwaelte Austria on behalf of Accidia Foundation, based in Liechtenstein, in a dispute concerning the sale of a Leonardo da Vinci drawing known as Madonna and Child with St Anne and a lamb in August 2007.

Proceedings were brought against the well known art dealers Simon C Dickinson Limited for a secret profit of US$1m, after Accidia discovered, a year after the sale, that the drawing had been sold by Dickinson for US$7m. Accidia had been led to believe by its own dealer, Luxembourg Art Limited, that it had sold the drawing for just US$6m.

Unknown to Accidia, Luxembourg had entered into a ‘net sale price’ agreement with Dickinson, whereby Dickinson had been allowed to sell the drawing at any price over US$6m and keep the difference. The agreement allowed Dickinson to keep the buyer’s identity and the price achieved secret. Meanwhile, Accidia had been given to understand that Dickinson was merely helping Luxembourg to find a buyer and assumed that Dickinson would share Luxembourg’s commission, which was US$500,000.

In selling to the New York buyer, Dickinson wrongly claimed to be Accidia’s agent. Accordingly, Accidia ratified the transaction, retrospectively making Dickinson its agent and requiring it to pay over its unauthorised profit.

In the High Court on Friday 26 November, Mr Justice Vos found in favour of Accidia and ordered Dickinson to account for its profit, with compound interest. He did however allow Dickinson to keep US$200,000 and £2,500 for its effort and expense in achieving the sale.

It was claimed by Dickinson that such ‘net return price’ arrangements between dealers are common practice in the art market, whereas Accidia argued that no reasonable sellers would ever agree to such an arrangement, if they knew about it. In a judgment that is likely to have considerable repercussions in the art world, Mr Justice Vos considered that Dickinson had been “unwise” for not checking that the ultimate seller knew about and understood the arrangement. It meant that Dickinson was “personally exposed in the way that this litigation has demonstrated”.

Fladgate litigation partner Paul Howcroft advised Accidia, assisted by James Dixon, and counsel instructed for Accidia were John Martin QC of Wilberforce Chambers and Richard Edwards of 3 Verulam Buildings.

Paul Howcroft commented: “The case makes clear that where two dealers enter into a ‘net return price’ arrangement, the dealer who sells to the buyer must ensure that the seller, not just his dealer, has understood and authorised the arrangement. If not, the selling dealer risks having to pay his profit or commission to the seller.”

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