The recent case of Thwaytes v Sotheby's  EWHC 36 Ch placed the spot-light on the standard of care owed by an auction house to a consignor and whether the consignors' instructions to the auction house affected that duty. Boodle Hatfield LLP represented Mr Thwaytes in his negligence claim against Sotheby's.
In 2006 Mr Thwaytes consigned a painting, the Cardsharps, to Sotheby’s for further investigation. Sotheby’s advised it was a good 17th Century copy of the original by Caravaggio and the painting was sold at auction for a hammer price of £42,000 to Sir Denis Mahon, a leading Caravaggio scholar. Sir Denis Mahon later announced that he and others believed it to be by Caravaggio, and therefore worth far more. Despite this, Mr Thwaytes was not successful in his allegation that Sotheby's failed to adequately research the painting and to advise him that it had ‘Caravaggio potential’.
Whilst the court's decision is highly fact specific, it is clear that in Mr Thwaytes' case there was an inconsistency between what work Mr Thwaytes thought the auction house would undertake and that which they were in fact required to do by law. To avoid these potential pitfalls, in this article we set out some practical points that those selling artworks should consider both before consigning their goods to an auction house and once their items have been consigned.
Before consigning items to an auction house
Sale by auction is not the only method available by which to sell artwork and it may not be the most appropriate. One of the biggest risks at auction is that an item will sell for a low value or fail to sell at all. Failure to sell can have a significant impact on the reputation of an item and its future sale prospects. The other options are private sales or sales by a dealer. Private sales can be made directly to a buyer or through an art dealer, an auction house or an agent. It is worth considering all of the potential methods of sale at the outset and possibly taking advice from an independent source on most appropriate method, such as an art agent.
If a consignor has decided that sale by auction is the best means by which to sell their artwork, then they need to consider which auction house is right for them and their artwork. The potential value of an item may determine which type of auction house it is consigned too. Whilst it is not an absolute rule, works of art which have a high potential value are likely to be consigned to large auction houses, such as Sotheby's or Christie's, and less valuable works may be consigned to a provincial auction house. Certain auction houses are specialists in particular areas. An auction house will access the item in the first instance and determine whether to accept it on consignment.
It is important to note that not all auction houses are the same; different auction houses have strengths in different fields and also offer varying financial terms. Therefore, in order to obtain the best deal, it is advisable for a consignor to visit more than one auction house and be prepared to negotiate the financial terms of their consignment. Whether an auction house is willing to vary its standard financial terms will depend on a variety of factors, including the importance of the consignor (or their collection) and the value or importance of the item being consigned. In certain circumstances auction houses may offer incentives, such as advanced payment or minimum price guarantees, in order to secure the consignment of a piece of work or a possibly an entire collection. The details of such incentives are outside of the scope of this article. However, particularly when consigning potentially valuable items, it would be advisable to seek independent advice on the financial terms of the consignment and whether this represents the best method of sale.
Once an item has been consigned for auction
Providing information. As the law stands, leading auction houses (such as Sotheby's and Christie's) are held to a higher standard of skill and care than that of a provincial auction house. However, even when consigning items to a leading auction houses, a consignor should not rely entirely on the auction houses' ability to discover all of the relevant information that may help to sell an item. At the outset a consignor should provide the auction house with as much relevant information as they hold about the item. For example, information about provenance, such as the name of the previous owner, which may be significant and which the auction house may not otherwise discover.
It is important to consider the communications that a consignor has with an auction house in order that there is not a mismatch been the parties' understanding of the work that is being undertaken by the auction house. An issue arose in the case of Thwaytes v Sothebys as to whether a letter sent by Mr Thwaytes stating “As far as the Cardsharps is concerned this is going to be researched and studied with both infra-red and possibly x-rayed…” addressed to the person at Sotheby’s who had seen the painting at his home, constituted an instruction to Sotheby’s to undertake infra-red testing. The Judge found that it did not and if Mr Thwaytes had really intended to instruct Sotheby’s to carry out infra-red, he would have contacted the Old Masters Department where the painting was sent after leaving his home. In these circumstances, the Judge found that Sotheby’s were not under any obligation to either carry out infra-red analysis or to advise Mr Thwaytes that it should be carried out, even though Mr Thwaytes had stressed that he wanted to be sure of the painting’s status.
Although fact specific this decision highlights the importance of a consignor communicating their expectations and instructions explicitly, in writing, to the correct person. Consignors should keep notes of their telephone conversations and keep copies of all correspondence with the auction house, in case it proves necessary to demonstrate the instructions given in the future.
An auction house may recommend that certain technical research, such as the taking of x-rays, be undertaken. Alternatively, it may be that a consignor instructs the auction house to undertake such research. In either case, a consignor should be made aware that the auction house may pass on charges for certain types of research to their client and this should be discussed and agreed in advance.
Location. Large auction houses have sale rooms in various locations across the world and they are experienced in placing items in the right auctions and the right locations to maximise the potential sale price. These choices can have a significant effect on the amount obtained for an item, as demand for certain items and competition between buyers can vary. It is therefore important that a consignor discuss the most suitable auction and date to sell their item with the auction house before a decision is made.
Whether an item can be included in a certain sale will depend upon when it is consigned. For example, the leading auction houses hold sales of Old Master paintings twice a year, and for an item to be included in the next of those sales it will need to have been consigned in good time. It may be that a consignor would like to sell an item very quickly but the catalogue has been finalised or restoration needs to be undertaken before the item is ready for sale. Equally, a consignor should ensure that their item is not rushed into a sale, perhaps to fill a gap, without being given the appropriate consideration by the auction house. It is recommended that a consignor discuss deadlines in advance with the auction house to ensure that the item can be given due consideration but also included in the most favourable sale.
Following its examination and research of an item, an auction house will give the item a high and a low estimate, which is published in the auction catalogue as a guide for prospective buyers. In advance of the sale a consignor can confidentially agree a price below which an item will not be sold (known as the reserve). However, a reserve price cannot exceed the low estimate. It is essential that a consignor discusses the estimate with the auction house to ensure that they are happy with the reserve price.