Wednesday 15 August 2012

English Court grants injunction in transatlantic art dispute

On 7 August, in the case of Lord Edward Albert Charles Spencer-Churchill v (1) Faggionato Fine Arts Ltd (2) Gerard Faggionato (3) Jombihis Corp (4) Alberto Mugrabi [2012] EWHC 2318 (Ch), the English High Court granted an interim injunction preventing the sale of this painting by Jombihis Corp (J) without first giving notice to the previous owner of the painting, Lord Edward Albert Charles Spencer-Churchill (Lord Edward).
Museum Security (Broadway Meltdown) by Jean-Michel Basquiat

The background to the case is as follows. Until the end of 2011, Lord Edward was the owner of the painting. In 2010, Lord Edward instructed the second respondent, Gerard Faggionato (GF), an art dealer, to find a purchaser for his painting. At this time, Lord Edward claims, he specified that he did not want to sell to Alberto Mugrabi (Mugrabi), the fourth defendant. In late August 2011, GF informed Lord Edward that he had received an offer of $6 million for the painting. GF informed Lord Edward that the offeror was a Floridian collector. Lord Edward was unsure as to whether this was a good offer and so asked GF to consult auction houses to deduce the reasonableness of the offer – with regards to the likely sale price of the painting at auction. Subsequently, GF told Lord Edward that he had spoken to auction houses and their opinion was that the painting could be offered for sale at auction with an estimate of $4-6 million but with no guarantee. Therefore, advised Lord Edward to accept the offer, which he did.
It later transpired that:
  • There was no Floridian collector. The offer was actually from Mugrabi – the invoice for the sale was addressed to Jombihis Corp (J), which was a corporate vehicle used to hold art for AM's benefit;
  • GF had received secret commission from Mugrabi or J in connection with the sale; and
  • GF had not consulted auction houses as requested by Lord Edward.
Earlier this year, Lord Edward heard that the painting was to be sold at auction by Christie's New York on 8 May 2012, with a guide price of $9 million and a guarantee in place. On 4 May, Lord Edward's solicitors wrote to Christie's, GF and J advising them that Lord Edward would not prevent the proposed sale or dispute the title of any purchaser if escrow arrangements were put in place in respect of the net proceeds of the sale above $6 million. On the day of sale, however, Christie's withdrew the painting, amid concerns of the threat of litigation and rumours in the marketplace about the dispute.

On 3 July, Lord Edward brought proceedings on the basis that the painting remained vested in him because the purported sale was unauthorised and therefore void. This was followed, on 5 July, by inter alia an application for an interim injunction to restrain J from dealing with the painting until final judgment or further order.

The issues in respect of this application were, therefore, the standard oft-labelled American Cyanamid questions to be considered in respect of interim injunctions, namely: (i) whether there was a serious issue to be tried, and if so; (ii) where the balance of convenience lay.
On the first question, the Court said that there was no doubt that Lord Edward had a real prospect of success in his claim and that his point was an arguable one. Accordingly, there was a serious issue to be tried.

The Court then turned to the balance of convenience. In this respect, it noted the:
"...the position of both sides was "more than a little paradoxical:
(1) Lord Edward frankly acknowledges that his concern is only to maximise the amount of money that he received for the painting, yet seeks an injunction restraining J from dealing with the painting.
(2) J, on the other hand, disclaims any present intention to dispose of the painting...Yet despite this, J opposes the injunction sought, and is insistent that Lord Edward's cross-undertaking in damages should be fortified by security in the sum of $6 million."
But, whilst the Court acknowledged that there was force in J's submission that Lord Edward's claim was a money claim for the value of the painting and so its sale should not be prevented, it found that a sale in the current climate would have been unlikely to be at the best price reasonably obtainable if there were no dispute as to ownership. Therefore, damages would not have been an adequate remedy because of the obvious difficulties in valuing works of art. Further, Lord Edward had already been the victim of wrongful conduct by virtue of the secret commission given to GF. Accordingly, Lord Edward was entitled to protection against further possible wrongdoing.

However, the Court said that it was not appropriate to grant an unqualified interim injunction, and thus an injunction restraining J from dealing with the painting without first giving Lord Edward 28 days' notice of any proposed dealing was granted. In such a situation, unless J could satisfy Lord Edward that the proposed dealing was beneficial, Lord Edward would be able to return to court for an injunction preventing J from carrying the proposal into effect.

Already, this case has provided an insight into the exclusive and intriguing art market. I'll be certain to keep an keen eye out for further developments.

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