In Fairlight v Sotheby’s, the Court of Appeal considered whether a line of authorities relating to sub-agency could be applied to preclude privity of contract between the parties, and to excuse Fairlight from returning proceeds received from the sale of a painting which had been rescinded on authenticity grounds.

The facts were as follows:

• Fairlight purchased the painting on behalf of itself and Mark Weiss as co-owners.
• A private treaty sale was entered into consisting of two agreements: the first, Contract A, between Sotheby’s and Mark Weiss (as agent for Fairlight and on its own behalf); and, the second, Contract B, between Sotheby’s (as agent for the seller) and Nevada (as buyer).
• Contract B contained an authenticity guarantee which Sotheby’s gave to Nevada as principal.
• Contract A provided that, should Sotheby’s determine the painting to be a “counterfeit”, the sale would be rescinded, and the seller would return the purchase price to the buyer.
• Sotheby’s subsequently determined that the painting was a counterfeit, rescinded the sale pursuant to the guarantee, returned the purchase price to Nevada, and sought to recover the sale proceeds from Mark Weiss and Fairlight.

Fairlight contended that it had appointed Mark Weiss as its agent and that, by consigning the painting for sale, Mark Weiss had delegated certain duties to Sotheby’s as sub-agent. Accordingly, Fairlight argued, no privity of contract existed, and it sought to engage a line of authorities which required Sotheby’s to adduce “precise proof” to establish that the parties had entered into direct contractual relations.

The Court found that the facts did not support Fairlight’s contention; there was no sub-agency and privity existed between Fairlight and Sotheby’s in Contract A pursuant to the normal principles of agency. Further, precise proof of privity existed: the reciprocal commitments in Contract A only worked if both co-owners were privy to them; the rescission clause in Contract A would be meaningless if it bound only one co-owner; Sotheby’s had given the guarantee as principal and not as agent for the seller; and Fairlight had accepted it was a party to Contact B (a contract it had not seen) so it was counter-intuitive for it not to be privy to Contract A.

The Court upheld the decision at first instance: Fairlight was bound by the rescission clause in Contract A and must return the sale proceeds to Sotheby’s.