Hardy & Anor v Washington Green Fine Art Publishing Company Ltd

The Court of Appeal allowed the appeal and set aside the first instance judgment which had found that Washington Green had dishonestly misappropriated a painting. The court held that the trial judge had overreached in drawing a finding of personal dishonesty against an individual who had not been specifically alleged to have stolen the painting and who had not been given notice to defend such an allegation. The appellate court reaffirmed that the burden lay on the claimant to prove that Washington Green had taken possession and become a bailee of the painting and concluded that the claimant had not discharged that burden. The court accepted the defendants' evidence that Castle Galleries' and Washington Green's stock was kept separate and found that the primary grounds for the trial judge's adverse inferences and finding of dishonest misappropriation were insufficient to sustain judgment for the claimant.

Background and parties: The claim arose out of the loss of a Rolf Harris painting "Lovers on the Seine II" purchased by Mr Dean Hardy and stored by Castle Galleries Ltd at Unit 6, Tachbrook Park. Castle Galleries was taken over by Halcyon and both Castle Galleries and Washington Green became subsidiaries of Halcyon. After Mr Hardy's death his personal representative (Mrs Maxine Hardy) sued Washington Green and Castle Galleries alleging the painting was lost or dishonestly misappropriated while in their custody.

Procedural posture: The action proceeded initially against both companies. Castle Galleries entered administration shortly before trial and the claim against it was stayed; the trial therefore proceeded against Washington Green alone before HHJ Simon Brown QC. The judge found Washington Green liable and drew adverse inferences about the conduct of Mr Udi Sheleg, a directing mind of the Halcyon group. Washington Green appealed to the Court of Appeal.

Relief sought: Damages or recovery for loss of the painting and related remedies for alleged misappropriation while in custody.

Issues framed:

• Whether Mr Dean Hardy had paid for the picture (and if not, how much);
• Whether Washington Green ever had possession of the painting such as to make it a bailee responsible for its loss;
• Whether adverse inferences and findings of dishonest misappropriation against a directing mind were justified on the evidence and pleadings.

Court's reasoning: The Court of Appeal analysed the factual evidence regarding storage arrangements at Unit 6 and later premises and identified significant unchallenged evidence from Washington Green witnesses that Castle Galleries' stock was kept separate from Washington Green stock. The appellate court criticised the trial judge's course of drawing a specific finding of personal dishonesty against Mr Sheleg without that individual having been put on notice by specific pleadings. While recognising that an adverse inference may properly be drawn where a key witness refuses to give evidence (citing the dicta relied on at trial), the court concluded the judge went further than the authorities warranted. The court examined five factors relied on by the claimant as supporting possession by Washington Green (opinion of mixing, Washington Green wrapping, earlier pleadings, late pleading amendment, and non-attendance by Mr Sheleg) and found them, singly and in combination, insufficient to discharge the claimant's burden of proving Washington Green had ever been a bailee. Given that the parties had fully deployed evidence on the central issue, the court rejected a re-trial as unnecessary, entered judgment for the defendant and suggested the claimant could pursue remedy against Castle Galleries' administrators or insurers.

Appeal allowed. The appellate court set aside the trial judge’s finding of dishonest misappropriation and his conclusion that Washington Green had been in possession of the painting. The court held that the claimant had not discharged the burden of proving Washington Green had become a bailee and that the trial judge had gone beyond permissible adverse inference by finding personal dishonesty against an individual who had not been specifically alleged to have stolen the painting. Judgment was entered for the defendant and the claimant's application for a re-trial was refused.

Appeal from the Birmingham District Registry before HHJ Simon Brown QC (trial judgment dated 18 June 2009). This Court of Appeal judgment allowing the appeal is reported at [2010] EWCA Civ 198 (handed down 9 March 2010).