City of Gotha  and Federal Republic of Germany v. Sotheby's and Cobert Finance S.A

II.4 Public Policy

Had I concluded that the plaintiffs’ claim was barred under German Law, it would have been necessary to consider whether that law conflicted with English public policy. I set out my conclusions on that issue; it may provide a framework for further debate and I make further findings of fact relevant to that issue.

Section 2(1) of the Foreign Limitation Periods Act l984 provides:-

"(1) In any case in which the application of section 1 above would to any extent conflict (whether under sub section (2) below or otherwise) with public policy, that section shall not apply to the extent that its application would so conflict.

(2) The application of section 1 above in relation to any action or proceedings shall conflict with public policy to the extent that its application would cause undue hardship to a person who is, or might be made, a party to the action or proceedings." The plaintiffs contend that if the German limitation period has expired it should be disapplied pursuant to section 2(1) because it conflicts with English public policy. I shall determine whether to disapply the German limitation period according to the following principles.

(1) Public policy should be invoked for the purposes of disapplying a foreign limitation period only in exceptional circumstances. Too ready a resort to public policy would frustrate our system of private international law which "exists to fulfil foreign rights not destroy them" (see Law Commission Report No 114 3.2(ii), 4.35, and Evans J in Arab Monetary Fund v. Hashim [1993] 1 Lloyds Rep. 543 at 592 (referring to the Law Commission’s view that it should only apply "in most unusual circumstances" (paragraph 4.39)).

(2) Foreign law should only be disapplied where that law is contrary to a "fundamental principle of justice". (see Law Commission Report No. 114 4.43 and 4.44). In The Estate of Fuld, decd. (No. 3) [1968] P. 675 Scarman J said:-

"an English court will refuse to apply a law which outrages its sense of justice or decency" (698). In Oppenheimer v. Cattermole [1976] AC 249 the House of Lords refused to recognise racially discriminatory legislation on the grounds of public policy; so too our courts would refuse to recognise discriminatory limitation law.

(3) The fundamental principle of justice with which it is said foreign law conflicts must be clearly identifiable. The process of identification must not depend upon a judge’s individual notion of expediency or fairness but upon the possibility of recognising with clarity a principle derived from our own law of limitation or some other clearly recognised general principle of public policy (see paragraphs 4.35 and 4.45 of Law Commission Report No 114).

English courts should not invoke public policy save in cases where foreign law is manifestly incompatible with public policy. The Law Commission expected that that approach would be adopted and thus did not recommend the use of the word "manifestly" in its proposed Bill. (Paragraph 4.38).

(4) The English law of limitation serves the purpose of providing protection for defendants from stale claims, encouraging claimants to institute proceedings without unreasonable delay and conferring on a potential defendant confidence that after the lapse of a specific period of time he will not face a claim (Paragraph 4.44 of Law Commission Report 114).

(5) A foreign limitation period will not be disapplied as being contrary to public policy merely because it is less generous than the comparable English provision (see Durham v. T & N PLC and others (unreported decision of the Court of Appeal dated 1st May 1996 per Sir Thomas Bingham MR at page 12)). Some reason other than mere length must be identified for invoking public policy (see Law Commission Report 114 Paragraph 4.46).
 
The plaintiffs rely upon the fact that under German law no account is taken of the plaintiffs’ state of knowledge, no account is taken of the fact that the painting was stolen, the defendants were not bona fide purchasers and the defendants were guilty of deliberately and unconscionably concealing Cobert’s identity and address.

It is true that there are special rules whereby time does not begin to run in English law until relevant facts could have reasonably been discovered. But those rules only apply in respect of actions for personal injuries (Sections 11 to 14), in respect of latent damage (Section 14(a)), in respect of disability (Section 28), and where there has been fraud or deliberate concealment by the defendant or the action is for relief from the consequences of a mistake (Section 32). It seems to me that the proposition that a foreign limitation period which fails to take account of a plaintiff’s state of knowledge is likely to be contrary to public policy is too broad. If a foreign limitation period relevant to, for example, a personal injury action takes no account of a plaintiff’s state of knowledge that arguably would be contrary to our public policy or at least cause a plaintiff undue hardship and thus conflict with English public policy (see per Sir Thomas Bingham MR in Durham (q.v. supra pages 11 to 12). Our law in respect of latent damage affords another example. Prior to The Latent Damage Act 1986 the law that time started to run when damage came into existence was described as "unjustifiable in principle" and "harsh and absurd" (see Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 AC 1 at 19F).

It is said that it would be contrary to public policy to apply a German limitation period when Cobert deliberately and unconscionably concealed facts relevant to the plaintiffs’ claim. The plaintiffs rely upon the fact that Cobert through Mr Montgomery had been told by Mina Breslav that the painting had disappeared from Gotha (see Mina Breslav paragraph 26). Mr Montgomery knew, at least by November 1991, that the painting had been stolen because that is what he told Mr Feigen an art dealer in New York (see Feigen paragraph 4). Mr Montgomery told him that he believed that the statute of limitations had run out in Russia and Germany and would run out in the United Kingdom in approximately two years from the time of their meeting. (see Feigen paragraph 5). When the City of Gotha was contacted by Sotheby’s by letter on 16th December 1991 they were told that Sotheby’s had been commissioned by a third party to auction the painting. Sotheby’s recorded that the painting was listed as lost and stated that it was their policy not to auction objects without first offering them to the previous owner. They made an offer to sell the painting for £700,000 left open until 15 January 1992. Despite requests for the identity of Cobert twice in April 1992 and twice in June 1992, its identity was not disclosed until 19th June 1992 and the address was not disclosed until 16 July 1992. When the painting appeared in Sotheby’s catalogue in April 1992 no reference was made to the theft of which Mr Montgomery had spoken to Mr Feigen back in November 1991. I record these facts not in any criticism of Sotheby’s, which has not appeared, but of Cobert who through Mr Montgomery had stated that the painting had been stolen back in November 1991 but subsequently asserted that it was a gift.

Mr Brindle QC, on behalf of Cobert, contends that any deliberate concealment by Cobert has no relevance to the fact that under German law the limitation period had expired. It had expired long before Cobert acquired the painting.

By Section 32:-

"(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either

... (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; ...the period of limitation shall not begin to run until the plaintiff has discovered the ... concealment ... or could with reasonable diligence have discovered it.   References in this subsection to the defendant include references to the defendant’s agent ...." In my judgment Cobert did deliberately conceal facts relevant to the plaintiffs’ right of action. It concealed its identity, address, its knowledge of the loss of the painting in l989 when the painting was acquired, and its knowledge of the theft, exposed by the evidence of Feigen in November 1991. In Sheldon v. R.H.M. Outhwaite (Underwriting Agencies) Ltd [1996] 1 AC 102 the House of Lords ruled that the words of Section 32(1)(b) of the 1980 Act applied where the concealment relevant to the facts occurred after the accrual of the cause of action, even if that concealment occurred after the period of limitation had elapsed. In the course of his speech Lord Keith pointed out that a construction which led to the conclusion that the concealment must be contemporaneous with the accrual of the cause of action would mean:-

"concealment occurring one month or even one day, after the accrual would afford the plaintiff no protection at all. Perhaps a more cogent argument against the construction is that if it is correct even a concealment taking place more than six years after accrual of the cause of action would bring section 32(1) into play. But that is not a realistic objection, since it is not conceivable that a potential defendant would set out to conceal facts relevant to a cause of action when more than six years had elapsed since its accrual." Yet it is that inconceivable event which has occurred in this case; Cobert set out to conceal facts long after the time when it believed the German limitation period had elapsed.

Lord Browne-Wilkinson identified the underlying rationale as being that the defendants should not be entitled:-

"to benefit from their own alleged unconscionable behaviour by deliberately concealing the facts relevant to the plaintiffs’ cause of action." (145H). Lord Nichols thought that both arguments produced unattractive alternatives.

"If initial concealment should stop time running so equally should subsequent concealment. The underlying mischief is the same." (152E) But he pointed out the absurdities of the contrary argument that:-

"The statutory consequence of concealment is to deprive the defendant of the benefit of time, however short or long, which has already run in his favour before there is any question of concealment". He concluded that, forced to make a choice, he should adopt the approach of Lord Keith and Lord Browne-Wilkinson. (155A to B).

English law, therefore, provides that time will not run in favour of a defendant who is guilty of deliberate concealment whenever that deliberate concealment takes place until the plaintiff has discovered the concealment or could with reasonable diligence have done so.

Notwithstanding the decision in Sheldon, I do not think that it is possible to identify with sufficient clarity a public policy which deprives a defendant of the benefit of time which has already run in his favour before he is guilty of deliberate concealment. Accordingly, it is not possible to disapply a foreign law of limitation merely because that foreign law does not recognise the same consequences of concealment as those which the House of Lords has recognised to be the consequences of Section 32(1)(b). It may be that one can discern a public policy that a defendant should not be entitled to obtain the benefit of deliberate concealment where that concealment has resulted in an action becoming time barred. But a foreign law which ignores deliberate concealment which has no causative effect upon the expiry of a period of limitation does not seem to me to conflict with any fundamental principle of justice. The decision in Sheldon was, in my view, a decision dictated by the wording of the statute and resulted from a process of construction of that statute.

The plaintiffs also rely upon the fact that the painting was stolen from its rightful owner and that the current possessor, Cobert, does not even assert that it or that any of its predecessors purchased the painting in good faith or that Cobert has title to the painting. If English limitation law applied, this action would not be subject to the time limits under section 2 and section 3 of the Limitation Act 1980. Section 4 provides:-

"(1) The right of any person from whom a chattel is stolen to bring an action in respect of the theft shall not be subject to the time limits under sections 2 and 3(1) of this Act, but if his title to the chattel is extinguished under section 3(2) of this Act he may not bring an action in respect of a theft preceding the loss of his title, unless the theft in question preceded the conversion from which time began to run for the purposes of section 3(2).

(2) Subsection (1) above shall apply to any conversion related to the theft of a chattel as it applies to the theft of a chattel; and except as provided below, every conversion following the theft of a chattel before the person from whom it is stolen recovers possession of it shall be regarded for the purposes of this section as related to the theft.

If anyone purchases the stolen chattel in good faith neither the purchase nor any conversion following it shall be regarded as related to the theft.

(3) Any cause of action accruing in respect of the theft or any conversion related to the theft of a chattel to any person from whom the chattel is stolen shall be disregarded for the purpose of applying section 3(1) or (2) of this Act to his case.

(4) Where in any action brought in respect of the conversion of a chattel it is proved that the chattel was stolen from the plaintiff or anyone through whom he claims it shall be presumed that any conversion following the theft is related the theft unless the contrary is shown.

(5) In this section "theft" includes:-

(a) any conduct outside England and Wales which would be theft if committed in England and Wales; and references in this section to a chattel being "stolen" shall be construed accordingly."
  The conversion in this case followed the theft and was, therefore, "related to the theft" for the purposes of Section 4.

It does seem to me possible to identify, from that legislation, a public policy in England that time is not to run either in favour of the thief nor in favour of any transferee who is not a purchaser in good faith. The law favours the true owner of property which has been stolen, however long the period which has elapsed since the original theft. If German limitation law is not disapplied the result will be to favour a purchaser with no title to the painting who does not even contend that it or its predecessors purchased the painting in good faith. To permit a party which admits it has not acted in good faith to retain the advantage of lapse of time during which the plaintiffs had no knowledge of the whereabouts of the painting and no possibility of recovering it, is, in my judgment, contrary to the public policy which finds statutory expression in Section 4. To allow Cobert to succeed, when, on its own admission it knew or suspected that the painting might be stolen or that there was something wrong with the transaction or acted in a manner in which an honest man would not, does touch the conscience of the court. Moreover, to recognise such a public policy does not in any way undermine the purposes of a law of limitation; there is no reason why a defendant in the position of Cobert should be protected from this claim nor does the recognition of such a public policy discourage claimants from instituting proceedings without unreasonable delay. I can discern no conflict with the essential public interest in a law of limitation by recognising that the victim of a theft who had no opportunity of bring the claim earlier should be entitled to assert his rights however long the time which has elapsed since the original theft. It is true, as Mr Brindle QC submits, that rather than providing that no limitation period will apply where an action is brought in respect of a stolen chattel, German law provides a lengthy period of limitation. But that consideration seemed to me to be insufficient to subordinate the rights of the victim of the theft in favour of one who has acted without good faith. Nor does it seem to me to matter that the plaintiff in this case is the Federal Republic of Germany, whose own laws it is seeking to disapply. It does not seem to me that the question whether a foreign law should be disapplied on grounds of English public policy can depend upon the nature of the plaintiff seeking to disapply that law. I should, however, make it clear that if the victim of the theft had itself delayed once it had discovered the facts relevant to its cause of action that might well be a ground for not disapplying the foreign law. (see Law Commission Report No 114 paragraph 4.47)

The Federal Republic of Germany has not been guilty of "forum-shopping". It had no control whatever as to where it could bring its action; it was Cobert which chose to buy the painting in England and convert it here.

I should emphasise that my view as to public policy is not founded upon the fact that the chattel in question is a painting which had been on public display in Gotha since the second half of the 19th century. There has been some debate, instigated I fear in part, by my own observations, as to public policy in relation to stolen works of art. I have been referred in relation to public collections of art to Council Directive 93/7/EEC of 15th March 1993 on "the Return of Cultural Objects Unlawfully Removed from the Territory of a Member State." Article 7 provides a time limit of thirty years after the object was unlawfully removed in which to bring proceedings, a period extended to seventy-five years in the case of objects forming part of public collections. The Directive and in particular Article 7 has been given legislative force in this country in the Return of Cultural Objects Regulations 1994 (SI 1994 No 501) but it is to be noted that the Regulations apply only to cultural objects unlawfully removed from a territory of the Member State on or after 1st January 1993 (see Regulation 1(3)). This country did not give retrospective effect to the regulations as it would have been entitled to do under Article 14.2 of the Directive. I cannot identify from those Regulations any public policy in relation to a painting stolen after the war. Moreover, attractive though it would be to apply some special consideration to a work of art when there exists a possibility of it being displayed, once again, to public view such a consideration should not weigh with me at all. If I had allowed those circumstances to prevail, my observations would have to be numbered amongst "the idiosyncratic inferences of a few judicial minds" (see the unattributed quotation in "The Foreign Limitation Periods Act 1984" PB Carter (1985) 101 LQR 68 at 71).

The plaintiffs rely also upon Section 2(2) of the 1984 Act contending that they would be caused undue hardship if German limitation law was applied. In Jones v. Trollope Colls Cementation Overseas Ltd (Times Law Reports 26 January 1990). Farquharson LJ said that:-

"the word undue added something more than just hardship. It meant excessive or greater hardship than the circumstances warranted." In AMF v. Hashim (q.v. supra) Evans J emphasised that the provision was intended to have a narrow application (page 592). Moreover he said:-

"It cannot be said that the three year period for claims of this sort (under Gulf law) is so short that the plaintiffs suffer undue hardship merely by reason of the fact that it is imposed. There must be some additional factors which make the hardship excessive in this case" That additional factor might have arisen if the plaintiffs had been defeated because of transitional provisions which were not easy to apply (see page 593 and Saville L.J. in the Court of Appeal at page 600). In the instant case the additional circumstance upon which reliance is placed over and above the mere impact of a limitation period of thirty years, is that the plaintiffs were the victims of theft and between that theft and 1991, they had no means of discovering the facts which would have enabled them to identify the possessor of the painting and its whereabouts. But it is difficult to see how that additional fact would justify invoking Section 2(2) in circumstances where Section 2(1) did not apply. Either the public policy which I have already identified exists or it does not. If it does not, then all the plaintiffs are, in essence, complaining about is the length of the German limitation period. That by itself is not enough, and in those circumstances had I not been prepared to disapply German law under Section 2(1), I would not have done so under Section 2(2).

Conclusions

This judgment would remain incomplete without a proper tribute to the skill and industry of all counsel involved, ably supported as they were by other members of their respective ateliers, particularly Pamela Kiesselbach, solicitor for Cobert and Dr Michael Carl, solicitor for the plaintiffs. Their submissions, translations and guidance through unfamiliar territory shone as if they had been painted on copper.

For the reasons I have given I conclude that:-

I.1 The painting was taken from Thüringia in January 1946;

I.2 Title passed to the Land Thüringia by virtue of the law of 9 October 1945, the expropriatory effect of which was not repealed by the law of 4 December 1945;

I.3 Had not title passed in 1945 it would have passed to the Land by virtue of the dissolution of The Art Foundation on 14 October 1950;

I.4 English Courts will recognise and enforce the Federal Republic of Germany’s title to the painting whether derived from the law of October 1945 or the dissolution in 1950;

I.5 It has not been proved that the painting entered the territory of the German Democratic Republic in 1987;

I.6 The City of Gotha cannot claim possession to the painting;

II.1 The painting was misappropriated in 1987;

II.2 The German law limitation period is relevant;

II.3 The claim is not statute barred under German Law;

II.4 Had the claim been time-barred, German law conflicts with public policy.
  In her monograph and catalogue raisonné "Wtewael and Dutch Mannerism" published in 1986, Dr Anne Lowenthal recorded that between 1975 and 1986 eighteen paintings by Wtewael had been recovered from obscurity. She foresaw that more would appear. She recorded that the location of the painting of The Holy Family was unknown. That is no longer correct. For the time being putti blush unseen within an envelope in an office at Sotheby’s (where I had the privilege of a judicial peep). Whether my conclusions will result in a greater opportunity for those who enjoy Dutch mannerism or wish to cultivate their antipathies, others will have to decide.
 

Note (GD)
Fuld is the rare example of a case for which both German and English judgments have been reported each. The German decisions in the Fuld case are OLG Frankfurt 22.9.1965, IPRspr. 1966/67 Nr. 168a p. 530 and and BGH 19.6.1967, IPRspr. 1966/67 Nr. 168b p. 537.
 

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