Marcq v Christie, Manson & Woods Ltd.

If a painting is unsold at auction and returned to the prospective seller who is not in fact its true owner, is the auctioneer, who has acted in good faith and without notice, liable in conversion or bailment to its owner? This question arises on appeal from Jack J. who upheld a decision by Judge Hallgarten Q.C. made in the Central London County Court that the auctioneer was not liable.

Judge Hallgarten Q.C.’s decision was made on an application to strike out the claimant’s statement of case because it disclosed no reasonable grounds for bringing the claim. Conventionally such applications are decided on the assumption that the facts alleged by the claimant are true. In his judgment Jack J. refers to a few additional facts which were not pleaded by the claimant. We were told that this information was given to the judge orally at his request without objection from the claimant. However Mr Palmer, who appeared for the claimant below, complains that the judge should not have taken this additional information into account, although this is not one of the grounds of appeal. To avoid further controversy about this, the facts I set out below are only those which appear in the draft amended particulars of claim which were before Jack J.

The claimant is now and has at all material times been the owner of an oil painting known as The Backgammon Players painted by the Dutch master Jan Steen in or about 1667. The painting was stolen from the claimant’s London house over Easter 1979. Its theft was reported to the police and it was registered as stolen on the Art Loss Register before 1997. In or about July 1997 the defendants, Christies, obtained possession of the painting from a Mr Schuenemann for the purposes of selling it at auction on the terms of their conditions of business. Under this contract Christies catalogued and advertised the painting and offered it for sale at a public auction of old masters on 4^th July 1997. The painting was unsold and “thereafter Christies caused and/or procured and/or permitted” the removal of the painting from their London premises and its return to Mr Schuenemann.

Before Judge Hallgarten Q.C. and Jack J. the claimant was able to keep open the possibility of being able to allege want of good faith and notice against Christies although no such case had been pleaded. Both judges held that irrespective of where the burden of proof lay, the claimant had to plead any case he had on these issues. He was given a final chance to do this by Jack J’s. order which said:

Christies’ terms of business cover their contractual relationship with prospective sellers and buyers. Those relating to sellers include:.

Christie’s role as agent.

insurance under Christie’s Fine Arts Policy (explained below);

catalogue illustration;

a contribution to our general expenses if the Lot is not sold equal to 5% of the Insured Value

Unless we agree otherwise, the Lot will be automatically insured under Christie’s Fine Arts Policy for the amount that we from time to time consider to be its appropriate value.

We shall charge the Seller a sum to cover insurance, at the rate of 1% of …if the Lot is unsold, its insured value….

I should start by paying tribute to both judges’ judgments. They are models of industry and clarity.

Mr Palmer argued that Christies were strictly liable in conversion having regard to the extent of their encroachment on the claimant’s rights as owner of the picture. Jack J. correctly noted that there was no reported case in which a court has had to consider the liability of an auctioneer who had simply put goods up for auction and then returned them unsold to the would-be seller. After an extensive review of the authorities he concluded (para. 41):

He then went on to consider whether Christies’ terms of business, particularly clause 7(c), which prevents the seller from withdrawing the Lot, and 9(d), which gives Christies a lien, made any difference. Firstly he pointed out that auctioneers had always had a lien at common law and then said:

I do not consider that the fact that Christies took a right as against Mr Schuenemann to refuse to permit the picture to be withdrawn prior to auction can by itself, or if added to the other circumstances, convert what would not otherwise be a conversion, into one.

Mr Palmer had also submitted that by taking a lien coupled with a right of sale in clause 9(d) Christies received the picture as a pledge. This was conversion because section 11(2) of the Torts (Interference with Goods) Act 1977 says that:

The judge said there was a short answer to this submission. The circumstances in which Christies were entitled to a right of sale had never come about.

The judge dealt with the claim in bailment quite shortly. He records Mr Palmer’s submission as being that Christies were to be treated as the bailees of the claimant. They were in the position of a finder or an unconscious bailee and as such owed duties to the claimant.

The judge rejected these submissions because, like Judge Hallgarten Q.C., he could not accept that the law of bailment and conversion were quite different. He derived support for this view from a passage from Lord Goff’s judgment in The Pioneer Container(1994) 2 AC 324, 342 to which I will refer later.

Mr Palmer started his submissions by reminding us of the ways in which conversion has been defined in a number of cases over the years. In those cases however there is a recognition that definition is difficult and none is exhaustive. Thus in the latest case, Kuwait Airways Corporation v Iraqi Airways Co. (2002) UKHL 9 Lord Nicholls at para. 39 said:

Mr Palmer first submitted that any unauthorised possession of goods amounted to conversion with the possible exception of passive or minimal possession. But this submission flies in the face of a long line of authority which shows that possession of goods by an agent on the instructions of their apparent owner for the purpose of carrying out what have been described as ministerial acts such as storage or carriage does not amount to conversion. The possession in such cases is inconsistent with the rights of the true owner and is deliberate but does not encroach sufficiently on the owner’s title to the goods. This principle was stated by Blackburn J. in Hollins v Fowler(1874) LR 7 QB 757, 766-767 as follows:

Auctioneers do not fall within this statement of principle since they are not simply entrusted with the custody of goods but also asked to sell them. Mr Palmer submits that this makes all the difference since a sale necessarily encroaches on the true owner’s title. There is, he submits, no authority which compels this court to decide in favour of Christies in this case and other authority which supports his main argument which is that if one looks at all the circumstances of this case and in particular what he described as the penetrative, invasive and retentive rights which Christies assumed over the picture under their contract terms their conduct amounted to conversion.

It is convenient to start by referring to the auctioneer cases which Mr Palmer submitted we should put on one side as being decisions on their own facts.

In National Mercantile Bank Ltd. v Rymill (1881) 44 LTNS 767 the plaintiff was the owner of horses the subject of a bill of sale. The grantor of the bill sold the horses privately in the defendant’s auction yard and following the sale, on the grantor’s instructions, the auctioneer delivered the horses to the buyer. It was held that there had been no conversion. Bramwell L.J. said that the auctioneer:

In Barker v Furlong(1891) 2 CH 172 Romer J. decided that an auctioneer who sold and delivered goods to the buyer at auction was liable. In that case the executor plaintiffs were entitled to furniture which was sent to auction without their knowledge or consent. Some of the furniture was returned unsold to the would-be seller and no claim was made against the defendant auctioneer in respect of that furniture. But he was held liable for the furniture he sold. At pages 181/2 Romer J. said:

Consolidated Co. v Curtis & Son (1892) 1 QB 495 was another case of an auctioneer who sold and delivered goods the subject of a bill of sale. Collins J. held that an auctioneer who sells and delivers is liable because he is acting as more than a mere broker or intermediary. Earlier in his judgment however at page 497/8 he said:

In Willis v British Car Auctions (1978) 1 WLR 438 a car on hire purchase was sold and delivered by auctioneers on the instructions of the hirer. The main issue was whether the auctioneers’ liability was affected by the fact that the car had been sold under their provisional bid procedure. This court held the auctioneers liable. In his judgment Lord Denning said at page 442:

The report to which Lord Denning refers was prepared by a distinguished committee chaired by Lord Pearson. Commenting on National Mercantile Bank v Rymill at para. 41 they say:

It is clear … that there are many cases in which the existing law imposes liability in conversion upon an “innocent handler” of goods…. But it is not entirely clear which acts of a handler will, and which will not, attract this liability. It has been said that a merely ministerial handling of goods at the request of an apparent owner having the actual control of them is not a conversion and that a handling is ministerial where it merely changes the position of the goods and not the property in them.

Where the handler, having received goods from an apparent owner and without knowledge of any adverse claim, merely redelivers them to the same person, we consider that all the above tests can fairly be said to have been satisfied, and we think that the same applies where the handler delivers the goods at the direction of the apparent owner to a third party without knowledge of any adverse claim or that any question of title is involved. But difficulties arise where the handler has knowledge that a question of title is involved, as where the act he is required to do is to his knowledge in pursuance of a sale or other disposition by the apparent owner to a third party. In such a case, on the authority of National Mercantile Bank v Rymill no liability attaches unless the defendant himself effected the sale as agent for the apparent owner; and, although the facts of that case hardly satisfy the test propounded by Blackburn J (whether the act done by the defendant can be said to have changed no more than the position of the goods), we do not, on a balance of the conflicting considerations involved, recommend a statutory reversal of this decision.

The auctioneer cases and the report led Jack J. to the conclusion in para. 41 of his judgment that for an auctioneer to be liable there must be a sale in which he is sufficiently involved followed by delivery to the buyer.

Mr Palmer submits that this conclusion was too restrictive. An auctioneer, for example, will be liable in conversion for misdelivery (see Jackson v Cochrane (1989) 2 Queensland Reports 23 at pages 25/26 where the English cases are referred to). There is also a suggestion in Cochrane v Rymill (1879) 40 LTNS 744 (an earlier case where this auctioneer sold horses and carriages the subject of a bill of sale) that simply dealing with goods amounts to conversion. This was a case however where the auctioneer took the goods as security for a loan to the grantor. They were then sold and delivered at auction and the loan was repaid from the proceeds of sale. I do not see anything in this case which was subsequently distinguished on its facts in National Mercantile Bank v Rymill which justifies any more extensive liability for auctioneers than the later cases establish. Nor does the fact that an auctioneer may be liable for misdelivery.

Without reference to the particular facts of this case, I agree with the judges below that the authorities indicate that an auctioneer who receives goods from their apparent owner and simply redelivers them to him when they are unsold is not liable in conversion provided he has acted in good faith and without knowledge of any adverse claim to them. Although strictly the cases do not compel this conclusion they cannot simply be put aside as Mr Palmer suggests. The auctioneer intends to sell and if he does so will incur liability if he delivers the goods to the buyer. But his intention does not make him liable; it is what he does in relation to the goods which determines liability. Mere receipt of the goods does not amount to conversion. In receiving the goods from and redelivering them to their apparent owner the auctioneer in such a case has only acted ministerially. He has in the event merely changed the position of the goods and not the property in them. This I think is a just conclusion, although I realise it may be dangerous to test issues of strict liability in this way. Nevertheless I think it would be unduly harsh if auctioneers were to be held liable in circumstances such as these.

So I turn to the particular facts of this case. The first question is how relevant are the contractual terms agreed between Mr Schuenemann and Christies? They govern his (and any buyer’s) relationship with Christies but do not and cannot affect the legal position between the claimant and Christies. What Christies may do in exercising their contractual rights may impact upon the claimant’s title but the mere existence of those rights will not.

Mr Palmer argues that this analysis is contrary to authority. He relied on Smith v Bridgend County Borough Council (2002) 1 AC 336 where a company had plant on a site owned by the council. When the company got into financial difficulties the council were entitled to use the plant but entered into a continuation contract with other contractors which, on completion of the contract passed title to the plant to and allowed them to remove it from the site. The case principally involved issues about fixed and floating charges but the House also had to decide whether the council had converted the plant. Mr Palmer referred us to Lord Scott’s judgment at paras. 73–75 where he appears to have decided that the continuation contract itself amounted to conversion. But Lord Scott was in the minority. The majority judgment was given by Lord Hoffmann with whom Lords Bingham, Browne-Wilkinson and Rodger agreed. At para. 39 Lord Hoffmann said:

If the contract terms between Christies and Mr Schuenemann are irrelevant unless Christies’ exercise of their contractual rights impacted on the claimant’s title there is a simple answer to all or at least most of Mr Palmer’s main argument: there is no allegation that Christies exercised a lien or power of sale or any of their other contractual rights to the detriment of the claimant’s title; so his submissions based simply on the contract terms get him nowhere.

But lest this analysis is wrong I shall consider Mr Palmer’s submissions in more detail. Looking at the contract he says it permitted Christies to catalogue, market and expose the painting for sale. The seller was not allowed to withdraw it from the sale without Christies’ consent (clause 7(c)) and when it was unsold they were entitled to keep it for two months to try and sell it privately (clause 9(d)). All the while charges were being incurred for carriage, insurance and Christies’ expenses (clause 4) which they could require to be paid before the picture could be collected, and if they were not they could sell it (clause 9(d)). Such an intrusion on the claimant’s right to immediate possession of his picture amounts to conversion.

Mr Palmer referred us to three cases which he said supported these submissions by analogy. The first of these was Saleh Farid v Theodorou (C.A. unreported 30^th January 1992) where the first defendant had entered into an unauthorised sale and leaseback of the claimant’s car to secure a loan. The second defendant finance company admitted that they had converted the car even though they had not physically possessed it. Their involvement had “rendered them parties to the deprivation of the plaintiff’s title to the car”. I do not see how this case helps Mr Palmer. Although they had not been in possession of the car the finance company had admittedly been parties to the first defendant’s conversion. The car was worth very substantially more than the amount it had been “sold” for and in any event had been pledged as security for repayment of the loan.

The second case Michael Gerson (Leasing) Ltd. v Wilkinson (2001) QB 514 CA also involved an unauthorised sale and leaseback to a finance company. The question was whether the finance company could rely on section 24 of the Sale of Goods Act 1979 which protects buyers in good faith and without notice if the goods or their documents of title have been delivered or transferred to the buyer. Lord Justice Clarke at para. 30, with which the other two members of the court agreed, said that the effect of the sale and leaseback was that the goods must be taken to have been delivered to the finance company because otherwise they could not have leased them back. At para. 36 he said it made “commercial sense to hold that such arrangements involve a transfer of constructive possession to the finance company” as the purchase of goods was commonly financed by sale and leaseback contracts. Mr Palmer says that this case shows that there may be a sale without actual delivery and by analogy offering (“hawking or touting” as he put it) for sale should also be considered as the equivalent of sale and delivery. I am perfectly prepared to accept that an auctioneer may be liable if following a sale his delivery of the goods to the purchaser may be constructive, but I think the analogy which Mr Palmer seeks to make is impossible. Offering something for sale is not a sale; nor does it involve any delivery, constructive or otherwise.

Mr Palmer’s third case was Moorgate Mercantile Co. v Finch & Read (1962) 1 QB 701 CA. There the hirer of a car on hire purchase lent the car to the second defendant who used it to smuggle watches. He was caught and the car was forfeited by Customs. The court held that the second defendant had converted the car because what he had done would in all probability have resulted in the owners being deprived of it. He was to be taken to have intended the likely consequences of his conduct. Mr Palmer says that this case shows that you can convert goods by exposing them to risk and that is what Christies did by offering the picture for sale. I do not think this case, the result of which is entirely unsurprising, justifies any such conclusion. The car was converted when it was forfeited and the defendant was held liable because that was the natural and probable consequence of what he had done.

I turn then to the terms themselves. First is what Mr Palmer called “the sealed maze” which may give Christies possession of the goods for a substantial period of time. He submits that a right to subtract and enjoy a substantial possessory portion from the claimant’s overall possessory right without his consent amounts in effect to a non-statutory exception to the nemo dat principle.

I think the simple answer to this point is that the duration of Christies’ possession is of itself of no consequence. Mere possession, for however long, is immaterial. It all depends upon what else, if anything, Christies do and if that encroaches on the claimant’s title. If, for example, the claimant had made a demand for the return of the picture which Christies refused they would be liable. But if such a demand was made by Mr Schuenemann and Christies, relying on their terms, refused, this would be of no consequence to the claimant.

The fact that Christies catalogued and offered the picture for sale and did so for reward adds nothing to the claimant’s case; that is an auctioneer’s business.

At common law an auctioneer has a lien over the goods for his costs and commission (see Williams v Millington 1 HBL 81). Under clause 9 (d) the seller is not entitled to collect his goods until all outstanding charges are met. As I have already said, in this case it is not alleged that Christies exercised any lien or similar right under clause 9 (d) over the picture. The need for such a right to be exercised was made clear by Millett J. in Barclays Mercantile Business Finance Ltd. v Sibec Developments Ltd. (1992) 1 W.L.R 1253, 1257-8 when he said:

If the lien was exercised in response to a demand for the picture by the claimant there is no doubt that this would amount to conversion. In Loeschman v Machin (1818) 2 Stark 311 Abbott J. said:

The other case about lien to which Mr Palmer referred was Tear v Freebody(1858) 4 CBNS 228 in which the surveyor to a parish was found to have taken possession of the plaintiff’s materials so as to obtain an unfounded lien over them. This was therefore the overt assertion of a lien against the owner of the materials which not surprisingly was held to amount to conversion and so takes the matter no further.

I turn finally to consider the submission that Christies received the picture by way of pledge because of the lien and the right to sell contained in clause 9(d).

Halsbury’s Laws of England 4^th ed Reissue Volume 36 (1) at paras. 101, 103 and 104 states:

Mr Palmer relied on the Australian case of A.N.Z. Banking Group v Curlett (1992) 10 ACLC 1292 where customs agents refused to deliver up goods which they were holding because they had not been paid by their customers. Their contract entitled them to a “special and general lien and pledge for monies due” over all goods which came into their possession. The bank who had a charge over the customer’s assets argued that this was not a pledge. Ormiston J. in the Supreme Court of Victoria held that it was and in doing so rejected the bank’s arguments that pledge was confined to securing a loan or other advance, that the debt had to exist at the time the goods were deposited and that the deposit had to be for the sole purpose of securing the obligation in question.

I have no difficulty in accepting these general propositions. But the first question is, whether looking at the contract as a whole, the parties have intended that the goods should be pledged. In ANZ the clearest indication of the parties’ intentions was to be found in the contract which expressly pledged the goods. There is no such expressed intention in the instant case. The deposit of the picture with Christies was for the purpose of their selling it as agents for Mr Schuenemann. If one asks whether it was also deposited for the purpose of providing security for some future debt I think the answer must be no. The court should be slow to infer such a purpose because otherwise any custodian who takes a lien over goods with a residual right to sell (as most do) would be a pledgee. Some may wish to provide expressly for this, but it should not be readily inferred from contract terms such as clause 9 (d).

Those terms themselves provide a further reason for saying that there is no pledge here. Assuming that it is possible to spell out a pledge simply from the right to sell, clause 9(d) only confers that right if an unsold Lot is uncollected 90 days after the sale or 35 days after notice to collect has been given. There is no right to sell before this time and no general right attaching to all goods as there was in ANZ. Looking at the language of section 11 (2) of the 1977 Act I do not think it can be said that Christies’ receipt of the picture from Mr Schuenemann was a “receipt of goods by way of pledge”. At the time of receipt Christies had no power of sale whatsoever.

In para. 24 I concluded that generally an auctioneer who has acted in good faith and without notice is not liable in conversion if he returns unsold goods to the prospective seller. For the reasons I have given I do not think the particular facts of this case make Christies liable to the claimant in conversion either.

The draft amended particulars of claim allege that Christies were in breach of their obligations “as a bailee of the claimant or as a person owing the obligations of or equivalent to those of a finder, or as an involuntary or unconscious bailee”. As such Christies are alleged to have had a variety of duties which Mr Palmer summarised in his final submissions to us as follows:

Mr Palmer supports these submissions with a broad plea to the merits of the claimant’s case. His picture has been stolen. It has passed through the hands of international auctioneers who should at least have to explain why they did not discover it had been stolen. Auctioneers should have a strong interest in the provenance of high value portable items and not simply rely on their client’s word. Such standards are now expected as, for example, The Return of Cultural Objects Regulations SI 1994/501 and The British Art Market Federation Code 2000 show.

The critical question is whether any relationship of bailor and bailee or the like existed between Christies and the claimant. Such a relationship undoubtedly existed between Christies and Mr Schuenemann. But how can it be said to have existed with the claimant of whose interest in the painting Christies were wholly unaware?

Mr Palmer relied on a number of cases to say that it could. First he referred us to three cases of gratuitous bailment: McCowan v McCullogh(1926) 1 DLR 312 where a man mistakenly took the plaintiff’s suitcase from a train, Mitchell v Ealing London B.C.(1979) QB 1 where the council stored the plaintiff’s goods after they had evicted her and City Television v Conference and Training Office Ltd.(2001) EWCA Civ 1770 where the defendants came into possession of equipment stolen from the plaintiffs. Next we were referred to two cases of what Mr Palmer called constructive bailment where the interest of the owner was reasonably foreseeable: Southland Hospital Board v Perkins (1986) 1 NZLR 373, where a hospital were held to be bailees of a deceased patient’s ring and Heffron v Imperial Parking Ltd. (1974) 46 DLR (3d) 642 where the owners of a parking lot were held to be bailees of the contents of a car which was stolen from the lot. Then we were referred to Parker v BA Board (1982) QB 1004 where the rights and obligations of a finder were considered. After this flurry of citation Mr Palmer submitted that there was no case since the war in which someone in the position of bailee or the like had not been found subject to some duty.

But this begs the question: duty to whom? None of these cases sheds light on the critical question in this case. Christies were not a gratuitous or involuntary bailee. There was no doubt as to what they were bailees of and they were not finders. They believed they were bailees for reward of Mr Schuenemann and no-one else.

Support for the view that a bailee must have some knowledge of the existence of his bailor is to be found in the Pioneer Container where at page 342 Lord Goff said:

Mr Palmer rightly submits that the House of Lords was not concerned with the position of a bailor who sub-bails the goods without the owner’s authority. Nevertheless the statement emphasises the obvious, which is that if you are to owe duties to someone else you should know or at least have some means of knowing of his existence. We have not been referred to any authority to the contrary.

Mr Palmer placed considerable reliance on the decision of Staughton J. in AVX v EGM (unreported 1/7/82). In that case the defendants had agreed to the return of defective spheres of solder which they had manufactured for the plaintiffs. By mistake, as well as returning the defective solder in one box, the plaintiffs returned twenty-one boxes of capacitors which were as the judge said “ finished goods which could not, by any stretch of imagination, be said to look remotely like solder spheres”. The defendants set about scrapping the capacitors in the mistaken belief that they were their own property and mixed them with the rejected solder spheres so that it became uneconomic to retrieve them. The judge held that they were liable as unconscious bailees whose duty before dealing with the goods was to “use what is in all the circumstances of the case a sufficient standard of care to ascertain that they truly” were their own goods.

On the facts of that case I should have thought that there would have been no difficulty in establishing negligence without invoking any relationship of bailor and bailee. A person, who destroys goods which are self-evidently not his in the mistaken belief that they are, must be liable. In the instant case Christies asserted no personal rights of ownership over the picture and after it went unsold simply returned it to Mr Schuenemann from whom they had received it in the first place. So I do not think that AVX is authority for the proposition that an agent who receives goods from someone who is their apparent owner and later returns them to him owes any duty to their true owner to investigate title in the absence of anything to put him on enquiry.

Mr Palmer’s proposed duty has far reaching implications, not only for auctioneers but also for other custodians such as warehousemen and carriers whose position has been clear since the decision in Hollins v Fowler. Mr Palmer tried to allay our concern about this by saying that in many cases it might not be reasonable for such agents to have to make enquiries about their customer’s title. But this illustrates the problem. In what circumstances, for example, should a warehouseman who is asked to store a high value portable item have to make his own enquiries about his customer’s title and what enquiries should he have to make of whom?

If of course there are circumstances which should put the agent on enquiry then a positive case of negligence on conventional grounds can be alleged. But no such case is or, on the assumed facts, could be made here. I do not accept that the law of bailment or something akin to it can be stretched so as to found a duty of the kind alleged. Quite apart from anything else the law of conversion, which attaches strict liability in certain circumstances, has been developed over the years to provide the remedy, if any, in cases such as these. Now to invoke different principles from the law of bailment is not justified. Auctioneers such as Christies must of course take care to avoid dealing with works of doubtful title since they will be strictly liable if they sell on behalf of anyone other than the true owner, but that is not a policy reason for making them liable when they do not sell and simply return the goods to their client in good faith and without notice of the true owner’s interest.

For these reasons I think the Judges below were right to conclude that the claim in bailment failed.

I would therefore dismiss this appeal. There were no reasonable grounds for bringing the claim in conversion or bailment and Judge Hallgarten Q.C. and Jack J. were right to strike out the claimant’s statement of case.

The appellant’s notice says that Jack J. should not have ordered the claimant to pay all Christies’ costs, but this point was not pursued by Mr Palmer, rightly in my view because there was nothing in it.