Fraud and ADR in Culture, Media & Sports Disputes

One of the cases mentioned in Murray Rosen KC’s Podcast on “Art Disputes in Times of Pandemic” (14 July 2020) was SatFinance Investment Ltd v Philbrick & Others [2020] EHHC 1261 (Ch), a decision of Chief Master Briggs delivered in the English High Court on 26 May 2020 during the Covid-19 lockdown.

The claims in that case centred on the wonderful 1982 painting Humidity by Jean-Michel Basquiat, the New York artist who died tragically aged only 27 in 1988. The Claimant alleged a double fraud – as regards the true price of the painting in which it had invested and as regards its unauthorised use as loan security. It failed in its attempt to serve English proceedings out of the jurisdiction on the Fourth Defendant lender in New York, because England was not the appropriate forum – the English “anchor” defendants having disappeared so that there would be no trial here as against them. A key point was the relevance of the facts known by the time of the application to set aside service, to the position when permission to serve out had initially been granted.

This case provoked some musings in the podcast as regards the use of alternative dispute resolution – arbitration and mediation – in art and similar disputes, and whether they are or might be more viable than English court proceedings for dealing with international fraud-related claims. There was a time not so long ago when fraud claims were generally considered unsuitable for arbitration rather than court proceedings, which would not be stayed on arbitration grounds. But as fraud – or allegations of fraud – seemed to become more-and-more pervasive in international commercial disputes, and arbitration clauses became more broadly drawn, so they were interpreted and applied to allow arbitration of fraud claims. Thus the English Arbitration Act 1996 and more recently Henry Schein Inc v Archer & White Sales 139 S Ct (2019) 524 in the United States Supreme Court.

Those experienced in mediation also know that, with expert handling, almost every type of dispute can be settled, including fraud claims, at least where the parties genuinely wish to settle rather than merely to use mediation as a delaying or attritional tactic. Of course, if a fraud allegation is well-founded, the fraudster may have no wish or ability to settle; and the more hostile the allegations, the more difficult might the mediation prove. But fraud is rarely that simple, especially when third parties are involved – such as lending banks whose security is under challenge: the lengthy Macmillan v Bishopsgate Investment Trust litigation, as against Credit Suisse, following Robert Maxwell’s mysterious demise on 5 November 1991, springs to mind.

So returning to the SatFinance Investment proceedings, might mediation or arbitration have been a preferable route as against the New York lender at least, rather than attempted English court proceedings?  Both forms of ADR would have been private – to a greater or lesser extent – and perhaps with hindsight, cheaper, quicker and more effective – provided of course both sides agreed on the process. With third parties, by definition, there is no dispute resolution agreement already in place before the claim arises. And in culture, media and sport, when direct negotiation fails, parties often jump to litigation without full consideration of other alternatives. Whether it’s a hit or a miss, a successful production or the wipe-out of an investment, all too often, the writ tends to come before disputes reality is recognised.

Jurisdictional problems in international disputes are of course nothing new, and substantial artwork-centred and kindred cases so often now have trans-national aspects. Investment fraud is of course not the most common context – an even more recent example in respect of a family dispute is Golubovich v Mirimskaya, in which, on 28 July 2020,  HHJ Stephen Lloyd dismissed a jurisdiction challenge to London proceedings brought by a Russian oil tycoon against his ex-wife as regards a reportedly £14 million art collection. My question is whether, not least given those complications in court proceedings, ADR deserves to be more widely used in all types of culture media and sport cases, ranging from fraud to more conventional ownership issues.

Murray Rosen KC is an arbitrator and mediator in commercial, and culture, media and sports disputes. Among other things,s he is a member of the Court of Arbitration for Sport in Lausanne and the Court of Arbitration for Art in The Hague.

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Murray Rosen KC

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