Accidia Foundation v Simon C Dickinson Ltd.

Factual and Procedural Background

The case concerns a dispute over whether an art dealer, acting as an intermediary in the sale of a valuable drawing (the "Drawing") originally owned by the Claimant, could retain a secret commission of US$1 million. The Claimant, a foundation incorporated in Liechtenstein, had instructed an agent to sell the Drawing. The agent engaged the Defendant, an English art dealer company, to find a buyer. The sale involved three key agreements: one between the Claimant and the agent's Jersey company, one between the Defendant and the Buyer, and one between the agent's Jersey company and the Defendant. The Defendant sold the Drawing to the Buyer for US$7 million but only returned US$6 million plus commission to the agent's company, retaining the difference as commission.

The Claimant was unaware of the full sale price and the size of the Defendant's commission. The Defendant contended that a "net return price" arrangement was customary in the art market, allowing it to retain undisclosed commission. The Claimant challenged this, alleging breach of fiduciary duties and seeking recovery of the undisclosed commission. The Defendant denied acting as the Claimant's agent and argued that the Claimant ratified the sale agreements.

The litigation involved detailed examination of the contractual relationships, authority of the agent's company to enter into agreements, the nature of the Defendant’s agency, and whether the Claimant ratified the agreements. Witnesses included representatives of the Claimant, the Defendant, and related parties, with particular scrutiny of the roles and knowledge of the agent's principal and the Defendant's directors.

Legal Issues Presented

1. In entering into the Sale Agreement and the 9th August Agreement, was the Defendant acting as (a) principal; (b) agent for the Claimant; or (c) agent for the Buyer?
2. Did the agent's Jersey company have actual and/or implied actual authority from the Claimant to enter into the 9th August Agreement?
3. Did the Claimant ratify the Sale Agreement by receipt of payment or otherwise?
4. Did the Claimant ratify the 9th August Agreement or is it otherwise bound by its terms?
5. Is the Defendant liable to account as an agent or fiduciary of the Claimant for (a) the undisclosed commission of US$1 million and (b) compound interest on that sum?
6. If liable, can the Defendant deduct expenses and/or claim a quantum meruit for reasonable remuneration, and in what amounts?

Arguments of the Parties

Claimant's Arguments

• The Defendant acted as agent for the Claimant and must account for the full sale price.
• The Defendant was not authorized to retain a secret commission beyond the agreed maximum 10% commission payable to the agent's company.
• The agent's Jersey company lacked authority to enter into the net return price arrangement permitting the Defendant to keep undisclosed profits.
• The Claimant did not ratify the 9th August Agreement which allowed the secret commission, although it ratified the Sale Agreement.
• The Defendant breached fiduciary duties by retaining the undisclosed US$1 million commission.
• The Defendant should only be entitled to a reasonable allowance for skill and effort, not the full secret profit.

Defendant's Arguments

• The Defendant contended it was not acting as agent for the Claimant but rather for the Buyer or as principal.
• The net return price arrangement was a usual practice in the international art market, allowing the Defendant to retain commission above the net return price.
• The agent's Jersey company had actual or implied authority to enter into the 9th August Agreement and the net return price arrangement.
• The Claimant ratified both the Sale Agreement and the 9th August Agreement by accepting payment and retaining proceeds.
• The Defendant was entitled to proper remuneration for its services beyond the 10% commission paid to the agent's company.
• The Defendant’s conduct was not surreptitious or disreputable and it should be allowed to deduct reasonable expenses and commissions.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first determined the capacity in which the Defendant acted. It found that the Defendant acted as agent for the Claimant in entering into the Sale Agreement, as explicitly stated in the contract and its attached Bill of Sale. The 9th August Agreement was held to be a retrospective authorisation of the Defendant's sale to the Buyer, not a separate sale agreement. The erroneous statement in the 9th August Agreement that the Defendant acted as agent for the Buyer was a mistake and did not alter the Defendant’s actual agency role.

Regarding authority, the court analysed the agent's Jersey company's (LAL) authority under the LAL Agreement. The LAL Agreement granted LAL sole and exclusive agency to sell the Drawing at an agreed net price of US$5.5 million plus a maximum 10% commission. The court held that the LAL Agreement did not authorise any net return price arrangement permitting the Defendant to retain an undisclosed commission beyond this. The contract terms, including custody arrangements and the requirement for a contract directly between the Claimant and Buyer, were inconsistent with such an arrangement.

The Defendant’s argument that net return price arrangements were usual in the art market was rejected insofar as such arrangements lacked full disclosure to the principal. The court found no evidence of a universally accepted, reasonable, and lawful custom permitting undisclosed commissions without informed consent.

The court found that the Claimant ratified the Sale Agreement by retaining the sale proceeds and acquiescing to the transaction, particularly when the Defendant repurchased the Drawing from the Buyer with the Claimant’s knowledge. However, the Claimant did not ratify the 9th August Agreement, which allowed the Defendant’s secret commission, as ratification of part of a transaction does not imply ratification of a separate unauthorized agreement.

The Defendant was held liable to account as fiduciary for the undisclosed commission of US$1 million. The court considered whether the Defendant could deduct expenses or claim remuneration. Applying established equitable principles, the court allowed a just allowance for the Defendant’s skill and effort, valuing this at US$200,000 plus US$2,500 for restoration costs payable by the Claimant under the Sale Agreement. Other commissions and expenses claimed by the Defendant were disallowed.

The court rejected the Defendant’s conduct as surreptitious, noting that the Defendant reasonably expected the agent to disclose arrangements to the Claimant. Nonetheless, the Defendant failed to ensure the Claimant’s informed consent, resulting in breach of fiduciary duty.

Finally, the court ordered compound interest on the sum due to the Claimant from the date of the transaction, with further directions reserved for interest rates, exchange rates, and costs.

Holding and Implications

The court held in favour of the Claimant, concluding that the Defendant must account for the undisclosed commission:

JUDGMENT FOR THE CLAIMANT

The Defendant is liable as agent and fiduciary to account for the US$1 million secret commission made on the sale of the Drawing. The Defendant is entitled to deduct a just allowance of US$200,000 plus US$2,500 for restoration expenses, with the balance payable to the Claimant together with compound interest from 10th August 2007.

The decision clarifies that undisclosed commissions retained by agents without the principal’s informed consent are not permissible under fiduciary principles, even where market customs are alleged. It emphasizes the necessity of clear authority and transparency in agency dealings in art sales. No new precedent beyond the application of established equitable principles was set, but the ruling reinforces the protection of principals against secret profits by their agents.