Art fraud is a major problem when the sums in question run into millions, so due diligence and legal safeguards are essential.

A recent shocking case of art fraud in France underlines how due diligence on art sales and purchases is vital. With some fine art works commanding stunning figures and making the headlines, it is easy to see how fraud can be a big problem. With this in mind, Robert Ryall, joint head of SA Law's commercial litigation and dispute resolution department, explores the issues. The editors are pleased to share these thoughts and invite readers to respond. Email tom.burroughes@wealthbriefing.com

Just this month, an auction at Christie’s set a new record for a private collection, with pieces from the Rockefeller’s collection raising $646 million on the first night. It’s clear the art world is booming, with auctions like this continuing to break records and push prices sky high.

However, there’s a darker side to the art world – a thriving underworld full of fake pieces and false promises. The number of forged artworks on the market cannot be underestimated – recently, experts at the Terrus museum in Elne, France, discovered that 82 of the 140 works displayed were worthless fakes. This discovery was made after it was spotted that one of the paintings included buildings which were actually constructed after the artist’s death. This shocking discovery has led to experts fearing that many museums and galleries around the world are unwittingly displaying fakes, with it reported that around 20 per cent of artworks are probably forgeries. Unsurprising really, when you hear about famous forgers such as Elmyr de Hory, a Hungarian artist who sold over 1,000 fake paintings which convincingly imitated Picasso, Modigliani and Matisse.

This sort of news understandably makes those thinking about investing in artwork feel nervous. With so many incredibly high-quality fakes floating around, it can be difficult (not to mention time-consuming and costly) to prove a work is genuine, but of course this process is often necessary as it can be the difference between actually owning a million-pound work of art, or a worthless canvas.

In the case of Thomson v Christie Manson & Woods Ltd, Christie’s was sued over the accuracy of their description of a "pair of Louis XV porphyry and gilt bronze two handled vases." The Claimant, having successfully bid £1.75 million for the urns, contended that they were actually of a later date and therefore worth drastically less. Ultimately, after a bitterly contested court case the court held that, on the balance of probabilities, the urns were probably correctly dated by the auctioneers.

Whilst a victory for the auctioneer, this case demonstrates the difficulties and risk around inaccurately determining the origin of art works and ornaments, even for the experts.

Sometimes legal issues can also arise when an artwork is genuine - there are doubts as to the seller’s ownership or legal right to sell it. For example, has a painting been previously stolen such that the vendor cannot pass good legal title for the piece. The rightful owner is entitled to the return of the art piece leaving the innocent purchaser with nothing but an empty space on their wall. The Art Loss Register comes into play here - an international database which captures information about alleged lost or stolen artworks which is used by experts to check pieces’ provenance.

If you find yourself in possession of art that you later learn has been stolen, all is not lost. The first step is to find out who actually holds legal title by consulting the Register. You may find that the original owners are happy to sell their interest in the piece and this isn’t necessarily as expensive an exercise as it sounds. A client-purchaser who discovered their new piece of art (worth some few hundred thousand pounds) had been previously stolen from its owners during World War II by the Nazis was able to buy out the original owner’s interest for a fraction of the piece’s worth.

Legal disputes in the art world are fairly common, as evidenced by the news that The Hague will soon open its Court of Arbitration for Art. This is the first court of its kind - a specialist body devoted to dealing with art disputes and run by the Netherlands Arbitration Institute and the non-profit Authentication in Art. This new court just goes to show how frequently art disputes arise and the need for technical and legal expertise.

However, whilst art remains a specialised field, many of the legal issues are similar to other disputes. By way of example, a client purchased an expensive piece for €950,000 ($1.124 million) as part of a syndicate. They later found themselves pursuing a breach of contract claim after their fellow investors failed to pay them their share of the profits from the €4.1million onward sale. It is noteworthy that the piece’s incredible increase in value appeared to be attributable to the extensive provenance assessments undertaken by the investors following purchase.

Thankfully, there are legal mechanisms to protect buyers of art - both individuals and galleries - from being stuck with a forged or stolen work of art. This is essential, as for many galleries their reputation rests on their ability to source high-quality, genuine works – if word gets around that a gallery has sold a fake their standing in the art community would be ruined.