Safra takes on Christie's in court…again

In January this year, Mr Jacqui Safra, a Swiss businessman and significant collector of art and cultural property sought an order from the New York court which would prevent Christie's from selling more of his works following a default on his art finance agreements. The court denied his request for a preliminary injunction on 10 February in relation to scheduled February sales, on the basis that if Mr Safra's claims about Christie's defective marketing were proven, he would be adequately compensated.

In contrast, in England in 2009, Mr Safra, who at that time was said to own a collection valued at $300m, which he used to obtain financing from Lloyds TSB, was successful in obtaining injunctive relief to prevent Christie's proceeding with a sale in circumstances where he claimed Christie's marketing materials were incorrect. The Court held that damages were not an adequate remedy:

In the first place there is clause … which provides that Christie's should not be liable for any errors or omissions in the catalogue or other descriptions of the property.  This appears to have the potential of making it impossible for Mr Safra to recover damages for the matters about which he now complains.  In addition, it appears to me to be impossible to determine the difference between the proceeds of sale obtainable in the sale based on the present catalogue and the proceeds of a sale based on what Mr Safra would call a properly prepared catalogue.  Despite the evidence presented by Christie's, I also accept the force of the argument that a disappointing sale of these items based on this catalogue might adversely affect the valuation of the remainder of Mr Safra's collection, although I acknowledge that the items due to be sold were not the most valuable pieces in his collection.  However, a disappointing sale could adversely affect the valuation of the remainder of the collection, which in turn could adversely affect Mr Safra's ability to refinance his loans in June of next year.  Christie's, on the other hand, will at some stage in the future obtain commission on the sale of lots for Mr Safra.  The concerns expressed about the damage which Christie's would suffer to their reputation on the cancellation of this sale are, in my view, unfounded and unjustified.  In any event, during pre-trial negotiations Mr Safra made it clear that he was then prepared for Christie's to lay the blame for the cancellation or postponement of the sale at his door.  Christie's rejected that offer… the balance of convenience falls heavily in favour of Mr Safra.  Accordingly, I granted the injunction.

In the New York proceedings, Mr Safra denied that he was in breach of his agreement with Christie's for a $63 million advance although this was given short shrift by the Supreme Court last month. In relation to Christie's marketing, he claimed that Christie's failed to execute a promised marketing plan and that they undermined the value of the works. In particular, Mr Safra claimed that his Albert Einstein's "Love Letters" sold at 35% of their lowest estimated value (in December last year). Mr Safra claims that there would be irreparable cultural damage in allowing further sales to proceed, as he needs to demonstrate that a claim for damages is inadequate to successfully prevent further sales.

The Supreme Court denied his motion for an injunction on the basis that the art ceased being unique upon it being pledged as collateral and the loans not being repaid.

Christie's argued that there had been a series of defaults by Mr Safra's BVI companies which led to the decision to sell the works. The Court duly determined that there was no dispute that Mr Safra and his companies were in default of or various agreements. so Christie's had a right to sell the works.

Mr Safra complained that the apparent discrepancies in the marketing materials devalued the works which would lead to an eventual shortfall in the loan. Mr Safra's complaint sets out that at the time he entered into the agreement with Christie's the total value of the pledged works (at their lowest estimate) exceeded the $63m loan by 30% and that the "fire sale" approach taken by Christie's resulted in substantial losses. Mr Safra's concern was that future sales (which would include more valuable works) would result in poor sale results. His collection was said to be valued at over $100m as at the date the complaint was filed.

Christie's argue that Mr Safra's attempts to stall the sales were akin to a "Hail Mary". They contend that there were clear grounds for default after another of Mr Safra's creditors notified Christie's last year that they had obtained a $192m judgment and had served a restraining order against the works.  They also argue that Mr Safra's defaults entitled Christie's to sell the works without adhering to the agreed marketing plan and that no irreparable harm would occur as the claims made could all be remedied through compensation ($50m has been sought by Mr Safra). Christie's defence noted that Mr Safra's fortunes had declined in recent years and that he had owed over $63m to UBS which then led to the advance agreement with Christie's. The more recent settlement agreement between Mr Safra and Christie's forgave certain debts and interest and entitled Christie's to determine and revise all estimates for the works. Mr Safra's failure to comply with the payment of the settlement agreement entitled Christie's to begin selling works from 15 December 2024. Christie's maintained that sales of the works would not damage Mr Safra's reputation as a collector, contrary to his assertions, and that the art market fluctuates regularly so valuations change.

The English judgment from 15 years ago also makes reference to Christie's having the sole and complete discretion as to the sales of the works. The Court limited Christie's discretion in accordance with the Court of Appeal decision in Socimer International Bank Limited v. Standard Bank London Limited (2008) which sets out the requirements for someone having complete discretion, which is that they are required to exercise honesty, good faith and genuineness and there must be an absence of arbitrariness, capriciousness, perversity and irrationality. The Court held that the discretion used by Christie's in their marketing materials was arguably irrational, which combined with the fact that Mr Safra may not be able to recover damages, was sufficient for the Court to exercise its discretion to order an injunction to stop the sale in his favour.

It will be interesting to see what the New York Supreme Court makes of Mr Safra's appeal and any subsequent claim for damages. In England, Mr Safra satisfied the court that Christie's discretion was not unlimited. He has made similar claims in the New York proceedings but the Court has not yet considered this point.