‘Proving Breach of Fiduciary Duty or Accessory Liability by an Art Gallery, Dealer, or Auction House’

This is the title of one of my three essay for the Diploma in Art Law Course at the Institute of Art & Law in London, see the ‘Mediation of Art & Cultural Heritage Disputes’ page at www.carlislam.co.uk. ‘In determining whether a person is a fiduciary, it is first necessary to consider whether that person is in a relationship with another that falls within one of the recognized categories of fiduciary relationships. If it does not, it is then necessary to examine the factual circumstances of the relationship to determine whether there are sufficient hallmarks of a fiduciary relationship to enable the court to conclude that the relationship is indeed fiduciary. Once it has been recognized that the defendant is a fiduciary in a fiduciary relationship, it is necessary to consider the nature and ambit of the fiduciary duties to which he is subject. Outside of the paradigm settled cases, the content of fiduciary duties is flexible and fact-sensitive. In that context, it is therefore necessary to examine with some care what is the precise content of the particular fiduciary obligations arising in the specific circumstances of the individual case. Fiduciary duties only subsist as long as the fiduciary holds the office or position that gives rise to them.’ (My article – ‘Breach of fiduciary duty claims and the quiet fiduciary thesis’, published by Oxford University Press in ‘Trusts & Trustees’, March 2019). There is a link to the article of the ‘Publications’ page at www.carlislam.co.uk. Breach of FD, third party (including accessorial liability), and equitable remedies are discussed in my book the ‘Contentious Trusts Handbook’, published by the Law Society in 2020. In the essay I will also discuss accessorial liability arising from breach of the self-dealing rule by an executor/beneficiary who purchases a work of art e.g. a painting by/owned by the deceased testator (which is an estate asset) at an undervalue, and who then consigns it for sale, and the equitable remedies available to restrain a sale. This along with ‘Freezing Orders’, will also be discussed in the 2nd edition of my book, the ‘Contentious Probate Handbook’, which I am writing for publication by the Law Society in 2024.

‘Matrix of Ethical Principles as a Tool in Mediating a Cultural Heritage Dispute.’

In my essay ‘Mediating Cultural Heritage Disputes’ (NB the working draft appears on the ‘Mediation of Art & Cultural Heritage Disputes’ page at www.carlislam.co.uk), I am developing a ‘Matrix of Ethical Principles’ which include the following principles extracted from ‘DCMS Guidance for the Care of Human Remains in Museums’, as these principles appear to have a wider application to the deaccessioning and repatriation of cultural property held in museums generally. At the Institute of Art & Law Training Day on Saturday, I will ask – ‘As a tool for starting the Mediation conversation/engine -what generic ethical principles can a Mediator invite the participants to discuss at the start of the Mediation Day in order to identify both common ground and constraints?’

The Ethical Principles set out in the Matrix in my essay are:

·       ‘Non-Maleficence – doing no harm’

Avoiding doing harm wherever possible to an individual, a community or the general public, e.g. by not taking an action that would cause distress to a particular community.

·       ‘Respect for diversity of belief – respect for diverse religious, spiritual and cultural beliefs and attitudes to cultural property – i.e. tolerance and respect.’

This requires demonstration of humility and modesty regarding one’s own opinions, and the showing of respect for individuals, cultures, groups and communities. Decision-makers must be seen and heard to give consideration to the cultural and historical backgrounds, beliefs and values relevant to all parties concerned. E.G. it would require a museum to recognize and respect that a community may place a particular cultural value on cultural property that is not shared by others.

·      ‘Respect for the value of research and science.’

·      ‘Solidarity – furthering humanity through co-operation and consensus in relation to cultural property.’

The principle of solidarity recognizes that we all have a shared humanity and an interest in furthering common goals and tolerating differences that respect fundamental human rights. Mutual respect, understanding and cooperation promote solidarity by fostering goodwill and a recognition of our shared humanity. This principle emphasizes the importance of rising above our differences to find common ground, co-operation and consensus. It would be reflected, for example by seeking to find a consensus in relation to competing claims over cultural property that all parties can accept.

·       ‘Beneficence – doing good, providing benefits to individuals, communities or the public in general.’

Beneficence would dictate that your actions have good outcomes wherever possible. This might include advancing knowledge that is of benefit to humanity, for example, by using human remains for scientific research, or respecting the wishes of an individual for example, by returning the remains of their relative for the burial.


The exercise of:

(a)     following the original asset; and

(b)     then tracing that asset into a substitute,

are distinct processes. The goal of tracing is to identify substitutions. Substitutions locate the value of the original assets in the form of the substitute. What is being traced is not the physical asset itself but the value inherent in it.


(a)     tracing is completed; and

(b)     the value inherent in the original asset is identified in its proceeds,

the question which then arises is what claims to those proceeds can be made. Tracing enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. It does not affect or establish his claim.  The content of the claim will depend on various other factors. Therefore, there is nothing inherently legal or equitable about tracing. Consequently, the rules of tracing must be the same, whatever:

(a)     the basis of the claimant’s claim to the original asset; or

(b)     the content of the claim he eventually makes to the substitute.

There is a distinction between tracing at:

(a)     common law, which adopts a ‘materialistic’ approach; and

(b)     in equity, which adopts a more ‘metaphysical’ approach, which allows tracing into a mixture of money, whereas the more rigid, ‘physical stance’ of the common law does not.

To ground an equitable proprietary claim, an equitable ‘proprietary base’ is required. (Christopher Clarke J. In OJSC Oil Company Yugraneft (in liquidation) v. Abramovich [2008] EWHC 2613 (Comm), at [349]). A beneficiary under an express, resulting, or constructive trust clearly has an equitable proprietary right. Such a right may arise as a result of there being a vitiating factor, such as misrepresentation or mistake. But an equitable proprietary base may also arise under other circumstances such as proprietary estoppel.  The governing principles were stated by Lord Millett in the leading case of Foskett v. McKeown [2001] 1 AC 102.

For a discussion of the governing principles and proprietary remedies which are available to beneficiaries against the trust property or its traceable proceeds, see paragraph 8.8 of my book the ‘Contentious Trusts Handbook’ published by the Law Society in 2020.

Where, as in Tang Ying Loi v. Tang & Others [2016] the fiduciary has treated the trust fund as his personal bank account, even if he repays the money to the estate, the principal still has the right to elect and
trace into anything else the fiduciary purchased with that money which is now of higher value, e.g. another property/shares. The judgment in that case is discussed in my article ‘Electing between equitable remedies’ published in Trusts & Trustees by Oxford University Press – to which there is a link on the ‘Publications’ page at www.carlislam.co.uk.

A judge who puts a claimant to an early election before making a finding about breach (i.e. at trial), would appear to be acting in excess of their case management powers.

‘Does the Without Prejudice rule apply to Mediation in a tax appeal?’

The without prejudice rule is founded partly in public policy and partly in the agreement of the parties. In appropriate circumstances, the without prejudice rule will apply in tax proceedings, see The Leasing Number 1 Partnership; The Leasing Number 2 Partnership [2015] UKFTT 601 (TC).’ In that case, Judge Robin Vos stated at [74] to [77], ‘in litigation generally, it is accepted that ADR proceedings constitute, at the very least, some form of without prejudice discussions. … It is equally clear that without prejudice material (subject to certain exceptions) cannot be allowed in evidence in any proceedings relating to the dispute in question (see Unilever v the Proctor & Gamble Co [2000] 1 WLR 2436). The general rule therefore is that material arising from any ADR process cannot be used in relation to subsequent proceedings before the Tribunal. [Furthermore] Robert Walker LJ in Unilever [at 2446B] [stated] that: “one party’s advocate should not be able to subject the other party to speculative cross examination on matters disclosed or discussed in without prejudice negotiations simply because those matters do not amount to admissions”….’ I am not aware of any authority to support the legal proposition that as a matter of public policy, and by way of any statutory exception to the general rule, the WP rule does not apply to ADR in a tax appeal. Consequently, subject to any agreed contractual carve-out in HMRC’s ‘Mediation Principles’, HMRC is subject to the rule of law and must apply it in their decision-making processes. Furthermore, paragraph 28 of the Chancery Guide 2022 (‘Revenue List’) states:

‘… [T]he proposed claim [may] be brought in the Revenue List …. by way of Part 7 or Part 8. The general provisions of the Civil Procedure Rules, Practice Directions and this Guide apply to claims issued in the Revenue List.’
It therefore appears that:
(i) An interim order can be granted to stay the hearing of an application in the Revenue List for Mediation.
(ii) Part 36 applies, consequently the WP rule applies to structured Part 36/Calderbank Offers made in Mediation whilst proceedings in the Revenue List are stayed.

Even though the CPR does not apply to proceedings in the FTT, based upon the policy of the court underlying the application of the WP rule, can the FTT consider a Part 36/Calderbank Offer at the conclusion of a trial? If they can, that would open a door to the making of structured offers/proposals in the Mediation of a tax appeal, that: (i) are protected by the WP rule; and (ii) have teeth, for the benefit of both parties.

Mediation in Art Authentication & Misattribution disputes

ADR may result in a better outcome all round because:
·       Judges generally lack connoisseurship in the field of art and art auction sales.
·       It is necessary to determine authenticity in order to prove and quantify loss.
·       This requires a reconstruction of the authentication process.
·       When deciding whether an attribution is accurate, or whether the auction house was diligent, courts use a preponderance standard.
·       In deciding questions of art authenticity judges rely on expert evidence, but do not have the requisite skill and knowledge to evaluate and critically assess such evidence. ‘Judicial conviction is based on expertise, experience of life and knowledge of human nature as well as intuition and feelings. Therefore, judges like experts, can determine authenticity based on rational considerations to only some extent. Furthermore, judges endorse the experts’ approach of judgement by eye. Such an approach is out of the judge’s competence.’ (‘The Sale Of Misattributed Artworks And Antiques At Auction’, by Anne Laure Bandle (2016), Edward Elgar, p.292).   
·       Consequently, ‘a judge’s lack of connoisseurship can result in decisions that do not assess the authenticity of the given art object, but rather the merits of their respective experts, both by considering the strength of their reputation and expertise and their performance in cross-examination. Thus, it may occur that instead of rendering a judgement based on the experts’ arguments substantiating a specific attribution, the judge decides that the specific expert is more eminent and established and therefore that expert’s attribution prevails. … The courts’ approach in attribution disputes can encounter incomprehension not only by the parties directly involved in the case, but also by the art market. … Overall, in authentication at court, the problem arises that judges do not understand the complexities associated with attribution in the art market.’ (‘The Sale Of Misattributed Artworks And Antiques At Auction’, by Anne Laure Bandle (2016), Edward Elgar, p.295).
·       Where the Mediation is structured as a co-mediation involving e.g. an art historian as an ’expert facilitator’ [‘E’], the Co-Mediators can help the participants obtain a more subjective appreciation of the merits and commercial value of their respective positions, because E knows how to interpret art expert evidence in light of art historical methodology and market rules, whereas in deciding whether the burden of proof has been discharged, a judge must apply the CPR, i.e. the procedural rules of the court.
See my essay, ‘Mediating Authenticity & Misattribution Claims’ on the ‘Mediation of Art & Cultural Heritage Disputes’ page at www.carlislam.co.uk.