UK: Duty Defining Terms May Be Subject To UCTA, But In This Case Were Reasonable

Last Updated: 18 September 2012
Article by Mark Alsop

Avrora Fine Arts Investment Limited v Christie, Manson & Woods Limited [2012] EWHC 2198 (Ch)

Avrora was the corporate vehicle of a rich Russian who was a prolific purchaser of art. Avrora bought a painting at a Christie's auction, which was described as "Odalisque" by a Russian artist, Kustodiev. The painting was so described in the catalogue, with the description being "based upon careful study" and representing "the opinion of experts". As is standard with auctions, the buyer had to pay Christie's a buyer's premium on top of the auction price. Doubt was subsequently cast about the attribution. Avrora sued Christie's for breach of warranty, negligence and misrepresentation.

The conditions of sale included the following:

  • An express warranty for five years that the painting was the work of the named artist. This was described as a limited warranty.
  • Apart from the limited warranty Christie's gave no representation, warranty or guarantee or assumed any liability of any kind in respect of the painting with regard to, inter alia, attribution.
  • All statements were statements of opinion and were not to be relied on as statements of fact. Such statements did not constitute a representation, warranty or assumption of liability by Christie's. Christie's was not responsible in any way for errors and omissions in the catalogue and all property was sold "as is" without any representation or warranty of any kind.
  • The buyer's sole remedy was cancellation of the sale and refund of the original purchase price, including buyer's premium.

The Court (Newey J) found, on the evidence, that the painting was probably not by Kustodiev (but that Christie's were not negligent or guilty of misrepresentation in making the attribution). Christie's was therefore in breach of warranty and Avrora could cancel the sale and recover the price in accordance with the limited warranty. On the matters of negligence (i.e. negligent misstatement), misrepresentation and the reasonableness of the exclusion clauses under UCTA, the Court decided as follows:

  • Exclusion of negligence. Although the terms did not mention negligence, they were clearly designed to cover all liability except for breach of the limited warranty. The terms as drafted prevented a duty of care arising, since they made it clear that Christie's was not assuming responsibility (i.e. they successfully defined Christie's responsibility as not including a duty of care). [The claim for negligence failed therefore unless the duty defining clause operated as an exclusion clause and failed the reasonableness test under UCTA.]
  • Exclusion of misrepresentations. Christie's did make implied representations, despite the term stating that all statements were statements of opinion, and not of fact. Since Christie's was giving its opinion as well as a warranty, it impliedly represented that it had reasonable grounds for holding that opinion. Christie's had argued that because it was giving a warranty, there was no need to imply a representation. The Judge rejected this. The giving of a warranty did not necessarily include the expressing of any opinion. But if the person giving a warranty was to be taken to have expressed an opinion, the Judge did not see why the giving of the warranty should preclude any implied representation that the giver has reasonable grounds for that opinion. [Here, therefore, the duty defining clause did not work as Christie's made an implied representation which fell to be assessed for reasonableness under UCTA.]
  • Application of UCTA. Christie's had argued that the terms limited the basis on which Christie's provided its services and that the limited basis meant that there was no exclusion of liability to which UCTA applied. The Court reviewed the case law and said that the distinguishing factor in duty-defining clauses was whether the terms amounted to a genuine allocation of responsibility as between the parties or were an attempt "retrospectively to alter a character of what has gone before" or "to rewrite history or part company with reality". In the Judge's view, the terms did "part company with reality" in so far as they negated the assumption of responsibility. The reality was that Christie's had taken responsibility for the attribution of the painting. It had stated its opinion; it gave a warranty to that effect and indicated that its reviews reflected research, plus it intended to charge the buyer a premium. The terms did not, therefore, operate to limit the basis on which Christie's was providing its services, so UCTA applied and the terms had to satisfy the test of reasonableness – under S2 of UCTA for negligence and S3 of the Misrepresentation Act for misrepresentation.
  • Reasonableness under UCTA. The Court decided that the terms were reasonable. Perhaps the most important reason (although it was only given as the first of several reasons) was that Avrora was not in the position of being left without a remedy – it was entitled under the warranty to cancel the sale and recover what it had paid (including buyer's premium). It was reasonable for Christie's to exclude negligence as otherwise it might be negligent even though there was a correct attribution. Avrora was under no economic imperative to deal with Christie's if it did not wish to. In any event it had some familiarity with Christie's terms and could reasonably have been expected to know of them. It was true that Avrora was required to pay a buyer's premium, but upholding the disclaimer would not mean that this had been paid for nothing. Apart from anything else, Avrora received the benefit of the warranty. If Christie's were liable for negligence, it might find itself in the position where it had to pay compensation but could not recover the picture.

Comment

This case demonstrates the important of ensuring that clauses limiting liability do not exclude all remedies available to the other party. In the Regus v Epcot case, for instance, which concerned serviced office premises which were not as good as they should have been, an exclusion clause was upheld where the occupier was entitled to an abatement of the service charge (but nothing else). Here there was a full refund available.

Christie's is considering whether to appeal – presumably in respect of that part of the decision as relates to the effect of their terms on negligence and statements of opinion. The auction industry in particular will await the outcome with interest.

In the Ampleforth case below, there was the common limitation of return of fees paid, but this was held to be unreasonable because that in no way matched the exposure which the project manager agreed to accept through insurance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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