A recent judgment from the Royal Courts of Justice in London casts light on an extremely rare but always serious danger faced by major auction houses, namely a large buyer failing to pay for the coins he or she buys.
Sheikh Saud Bin Mohammed Bin Ali Al-Thani is a member of the Qatar royal family and lives part-time in London. The facts, as presented in court by Justice Haddon-Cave in his judgment dated Nov. 9, 2012, were that the sheikh bought coins totaling $19,766,214 at the “New York Sale XXVII” held on Jan. 4, 2012, by Baldwin’s and Dmitry Markov, and failed to pay anything whatsoever toward that debt, despite letter reminders, “tea at the Dorchester” with Baldwin’s management, and “the best efforts of the British and Qatari ambassadors.”
It turned out that the sheikh had also run up substantial debts to Sotheby’s ($42 million) and Bonhams (£4.3 million), and also “amounts unknown” to various other auction houses. The court concluded, “It is clear that the Sheikh has repeatedly bid in auctions, or made purchases, in circumstances where he knows he cannot, or will not, pay or honour his obligations.”
Still trying to bid
Noting that the sheikh has continued to try and bid with auctioneers to whom he owed substantial sums of money, the court stated:
“This pattern of behaviour is both unexplained and inexplicable, save on the basis that it is (a) compulsive and (b) redolent of someone with a complete disregard for his contractual obligations. It is a serious cause for concern. The Sheikh’s royal status [is] irrelevant. We are all equal in the eyes of the law.” Despite finding that “Claimants would appear to have an unanswerable claim against the Sheikh,” the court had been asked to grant a “worldwide asset-freezing injunction,” an unusual remedy that requires a showing that denial of the injunction would result in a judgment or award in the case remaining unsatisfied due to “dissipation of assets.”
It isn’t enough for the auction houses to demonstrate that they would eventually win a judgment in the case — they had to show that the sheikh would dissipate assets to the point where not enough would be left to pay that judgment when it was rendered.
The court found that standard was met easily in this case. While the sheikh may not have been acting deliberately to dissipate his assets, he was nevertheless doing so: “[T]he Sheikh’s recent extraordinary behavior — in leaving a large trail of outstanding debts owed to a succession of auction houses and dealers — is discreditable, dishonorable and disturbing (as well as unbecoming of someone in his position).”
In conjunction with findings that the sheikh (1), incorrectly stated that some of his assets were free and clear when they were, in fact, pledged to Sotheby’s; (2), left England for Qatar for a reason that, to the court, “does not make much sense”; and (3) had substantial, and readily transferable, offshore assets, justified an injunction.
And in response to objections that the auction houses were well protected because they retained the coins, the court stated that it was satisfied that if the coins were resold to cover the debt, the proceeds “will not cover the entire judgment figure,” because of “the ‘taint’ of goods having to be re-auctioned,” and “presumably because the Sheikh will not be there to bid again.”
The court examined the available unencumbered assets held by the claimants, and entered an injunction freezing the sheikh’s assets to an additional $15 million.
Armen R. Vartian is an attorney and author of A Legal Guide to Buying and Selling Art and Collectibles.