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Mr. John Doe, a New York-based private collector and connoisseur of old masters, bought a Titian painting at a renowned auction house in Switzerland four years ago. Displayed amongst legitimate works and endowed with a vague but plausible explanation about its provenance, Mr. Doe had no doubt about the legitimacy of his acquisition.
He was outraged all the more when he received a letter, signed by a French lawyer, claiming that the painting was not legally his and that it had to be restituted to the rightful owner. Mr. Doe’s Titian was indeed looted from a Jewish family in France by the Nazis during WWII.
The fictitious case of Mr. John Doe is representative of many cases of looted artworks that found their way to the art market, where good-faith purchasers acquire them. It has been estimated that the Nazis have stolen more than 600.000 artworks between 1933 and 1945. Many of these have not yet been restituted to their rightful owners. Countries have, to different extents, enacted laws in an attempt to resolve this issue.
However, auction houses, art dealers, and collectors continue to play an essential role in the further circulation of looted artworks. James Palmer, the founder of Mondex
Corporation, which specializes in the recovery of looted artworks and other assets stolen during WWII, stresses that the trade with stolen art is the third-largest criminal business in the world, after arms and drug trafficking.
The legal implications for the unsuspecting buyer fall under the categories of both criminal and civil law and are highly complex, and the legal situation might vary strongly between different countries. In practice, the legal situation will also take on different traits, depending on whether Mr. Doe purchased his Titian from an auction house, an art dealer, or a private person.
A significant difference is the asymmetry of information between art dealers and auction houses selling to a private person, which usually does not exist in a sale between two private persons. Galleries and auction houses hold a position of power in the art market because good-faith buyers can often not evaluate and monitor their risk efficiently. Mr. Doe might therefore assume, by way of consumer protection law, that the auction house where he bought his painting had an obligation to sell the work with good title – but in reality, this is not quite the case.
There is one significant legal difference between auction houses and art dealers: Generally, but not always, art dealers are the work’s titleholders. They purchase a work before reselling it to their client on their own behalf. The art dealer has a direct financial stake in the work and is legally accountable to the buyer, which obliges him to pass good title to his client.
However, an auction house, like the one where Mr. Doe purchased his work, acts only as an intermediary between the consigner and the subsequent purchaser. The auction house does not convey the painting’s title and is not subject to the Uniform Commercial Code or similar European regulations. For this reason, the buyer has less legal protection if there is a problem with the chain of title.
However, even if auction houses have no legal obligation to get involved in the restitution procedure, they will, in practice, prefer voluntary settlements with the good-faith purchaser to avoid reputational harm. In this case, the settlement is not guaranteed to correspond to the actual price Mr. Doe paid for his Titian.
Image commercially licensed from Unsplash
It is important to discuss this problem from both perspectives. If John Doe had never learned from the French lawyer’s letter that his Titian was a stolen artwork, it could have been that a few years later, he decided to resell the painting through an auction house. In this case, he would be the bona fide seller of looted art. Auction houses tend to carefully navigate the interests of the seller and the buyer and go to great lengths to protect the seller’s identity, often to the detriment of the victims of Nazi looting, who strive to reunite with their family’s heritage.
If the victim’s claim for restitution is successful, houses will often choose to absorb losses, even though, depending on the jurisdiction, they could undo the sale legally, as there is a rescission clause in the sales contract. In the rare case of rescission, the seller would have to return the auction proceeds.
In major auction houses, like Christie’s or Sotheby’s, such measures will only be taken if the seller acts in a grossly negligent manner or commits deliberate fraud. Otherwise, the insecurities amongst bona fide sellers that their auction proceeds might be asked to be returned at any time would undeniably harm business.
Due to these auction house standards, buyers and sellers at an auction will, in most cases, not be confronted by local jurisdictions. Contrary to concerns with the chain of title regarding a purchase from an art dealer or a private person. Here the first question the parties will face is the choice-of-law. Since the application of one country’s jurisdiction over another may bring about very different outcomes, this question is highly sensitive and often vigorously contested between the parties.
In the case of Mr. Doe, if we switched the Swiss auction house for a Swiss art gallery, the choice-of-law would probably be between Switzerland or New York, where the buyer lives, and France, where the painting was stolen and where the victim’s heirs reside.
While Swiss law is perhaps the most favorable law for bona fide buyers, New York law is at the opposite end of the spectrum and protects the right of the original owners from whom the property was stolen to recover that property, even if it is in possession of a bona fide buyer.
French law is in between, but by nature, prefers the acquirer in good faith over the victims of despoliation. Every transfer of an artwork creates a new title, independent of the former, and possession often equals title for movable goods.
Contrary to auction houses, art dealers and private persons often don’t have the budget or the necessity to absorb losses in favor of their reputation. Therefore, alternative dispute resolutions outside the courts are rarer.
In either situation, one thing is for sure: in no other prominent international market do purchasers gamble comparably significant amounts of money on buying good title. Over the past decades, buyer sophistication decreased. When before, professional agents navigated their clients through the art market environment, today inexperienced and naïve buyers tend to bid and buy on their own behalf. At the same time, Art Law has only recently taken over archaic customs and practices in the art market. Still today, collectors are confronted with a great degree of opacity and unpredictability.
Simultaneously, a large part of the art market’s actors is unaware of their legal obligations. As auction houses are not incentivized enough, they often fail to do diligent title investigations and would, in some cases, conveniently leave out problematic provenance details to maximize their profits. As a result, many unclaimed looted artworks are traded yearly in the international market – which would not be the case if auction houses faced legal liability for such transactions.
Once collectors realize that they may be unknowingly contributing to the market of looted art by acquiring stolen goods, they might change their practice of blindly trusting provenance information in auction catalogs and gallery booklets. Professional provenance researchers, from companies like Mondex Corporation, can help a collector clarify the real history of an artwork they intend to acquire and ensure the acquisition of good title now, rather than realizing that what they are holding is a stolen artwork that needs to be returned to its proper owner.
