The Court of Appeal today handed down its judgment in Staechelin & Ors v ACLBDD Holdings Limited & Ors  EWCA Civ 817, upholding the decision of Morgan J at first instance. Jonathan Cohen QC and Ashley Cukier represented the successful Respondent de Pury & de Pury LLP, whose entitlement to a $10 million commission in respect of the sale of a Gauguin painting, Nafea faa ipoipo (“When will you marry?”) was confirmed by a unanimous Court of Appeal (LJJ Lewison, Lindblom, Rose).
The case made headlines across the art world last year when details of the sale of the masterpiece – to the Emir of Qatar, for $210 million – were revealed, for the first time, in the judgment of Morgan J ( EWHC 44 (Ch)), giving art observers a rare insight into dealings at the very top of the international art market, the secrecy of which is notorious. The 2015 sale of Nafea – painted by the artist in Tahiti in 1892 – made it one of the most expensive paintings ever sold.
Dismissing the Defendants’ appeal, Lewison LJ (delivering the judgment of the Court) confirmed that an agreed $10 million commission was payable to the LLP, holding Morgan J’s conclusion at first instance to be “unimpeachable”.
The judgment of the Court of Appeal is significant in several ways beyond simply its rare subject matter.
First, the Court has clarified and reaffirmed the law on breach of fiduciary duty and forfeiture of commission, making clear that “dishonesty is the litmus test” for forfeiture of commission, and dismissing the contention by the Defendants that the leading authorities on forfeiture, extending back to Keppel v Wheeler ( 1 KB 577), were inconsistent with the recent decision of the Court of Appeal in Imageview Management Ltd v Jack  EWCA Civ 63. In this regard, the allegation that Mr de Pury failed to pass on information to Mr Staechelin in respect of the sale (an allegation rejected by Morgan J at first instance) could not in any event have founded a case in forfeiture: a failure to pass on information “does not stand on the same footing” as a case of secret profit (cf. Imageview), and would not have disentitled Mr de Pury to the commission that the parties had expressly agreed in respect of the sale of Nafea.
Second, the Court has provided important guidance on the decision-making powers of trustees acting under a private trust. The Defendants had argued that where trustees act they must act unanimously; and that therefore even where the relevant trust deed contained a Majority Voting provision this did not entitle the majority of trustees to make a decision without consulting or informing all other trustees. This argument was also dismissed by the Court of Appeal. Noting not only the Majority Voting provision (at Article X of the Staechelin Family Trust Deed) but also the Exoneration of Third Parties provision (at Article III(E)), the Court drew the important distinction between the internal governance of a trust, and external legal relations between a trustee/trustees and a third party dealing in good faith with a trustee/trustees. Drawing an analogy with the ‘indoor-management rule’ applicable to persons dealing with companies (established by the House of Lords in Mahoney v East Holyford Mining Co  LR 7 HL 869, now crystallised in s.40(1) Companies Act 2006), the Court held that a reader of the trust instrument in question would find that a majority of trustees could bind the trust (and in this instance therefore did so bind); and even if that required the third trustee in this instance be consulted or informed of the prospective decision, the reader would be entitled to infer that that had been done. Noting the starting point in English law that when a trustee enters into a contract for the benefit of the trust he is personally liable, even where the counterparty knows that he is a trustee (Investec Trust (Guernsey) Ltd v Glenalla Properties ltd  UKPC 7), the effect vis-à-vis the trustees of the Staechelin Family Trust was that – absent any express contractual provision limiting or negativing personal liability – each of the three trustees was personally liable for the de Pury’s $10 million commission.