Legally Speaking: A Case of Punitive Damages

A Case of Punitive Damages Over the last couple of years, in response to articles I have written, a number of readers have contacted me with various complaints concerning how they have been duped and deceived by antique dealers. The most common scenario has been where an inexperienced vendor agrees to sell a particular class of antique or collectable to someone who specializes in the item. Complaints that come to mind are regarding teddy bears, dolls, and vintage clothes, where the so called "expert" has agreed to either sell on consignment or simply remit funds at the agreed upon price when the items have been delivered. A third gloss on the theme is when the dealer assures the often naive and inexperienced collector/vendor that the items have essentially already been pre-sold and it is simply a matter of waiting until the goods have been received, after which time the cheque will be put in the mail.

A case that was decided this past summer by an Ontario judge illustrates that if a dealer goes too far, and exhibits conduct beyond simply not paying for goods sold or purchased, the court will not hesitate to award a successful plaintiff significant punitive damages on top of the more usual money judgment for breach of contract.

Punitive damages awards are still fairly rare in Ontario. When they are made, the amount that is ordered to be paid on account of this type of conduct by the defendant, is generally modest, frequently ranging in the area of $2,000.00 to $5,000.00, constituting little more than a token or reminder concerning fair play and conduct. This type of award is generally reserved for when the courts want to send a message and punish a defendant for conduct that has frequently been described in the courts as callous, highhanded, heinous, outrageous, malicious or reprehensible. Accordingly, judges will not make such an award where the conduct complained of is little more than failing to keep a promise, not sending the consignor money when the product is sold or not returning the collectable if it cannot be sold. There must be more to a case for a court to go beyond simply calculating the loss and tacking on interest and a contribution to legal fees.

This recent case illustrates the type of conduct that will in fact attract the attention of the court and the extent to which a "simple" damages claim can result in a much more significant court order. The case will hopefully serve as a reminder to the unsavoury in our business, that the downside of not playing by the rules is perhaps greater than one would think.

In 1991 an artist worked out a deal with an agent whereby it was agreed that the painter would produce various works (in lots of about 100), provide them to the agent who would have the exclusive right to sell the art to third parties, and in so doing she would earn a 40% commission. The agent represented to the artist that it would be best to initially sell the art work at a modest price, so as to increase the exposure of the artist in the marketplace. Therefore, the parties agreed that the first batch of art would be sold at $100.00 apiece and the subsequent batches would be sold at a higher amount, using increments of $100.00 per batch.

The young artist trusted the representations of her agent, and relied on what the agent had said, that is, the agent was going to promote and sell the work, initially at the reduced retail price. The artist in good faith produced the work and was willing to let the agent alone sell it, initially at this reduced price based upon the representations and inducement of the agent. This created what in law is know as a fiduciary relationship, that is, a special relationship involving trust and reliance.

A total of 420 paintings were produced and delivered to the agent. Trickles of money were in fact sent back to the artist, but nowhere close to the amounts that should have been remitted. At trial the judge found that while the agent had told the artist that a number of pieces had in fact been sold, that was not the case, but rather, the agent was hoarding the art. The exhibitions that the agent had promised did not materialize. Eventually a theft occurred at the premises of the agent, and a great deal of the work was stolen.

The judge also found that there was a breach in the agreement between the parties that adversely impacted upon the artist because by hoarding the art work and not exposing it to the public, the exposure and increased value of the work for the artist did not materialize. The artist had been deceived, to her detriment.

Excluding commission, the artist was entitled to receive $116,000.00 based upon the agreement respecting sale price for each piece of art. At the time of trial, she had received $22,500.00, leaving a balance owing of $83,500.00. The judge found that commission was not payable under the circumstances, because the agent did not sell the work, nor did she promote it. She failed to account for what the judge referred to as "secret profits" that she had made, although the judge had no way of particularizing those profits. All that he could determine was that it was the intention of the agent to simply hoard the works for her own benefit. Furthermore, even though the agent still retained some of the pieces, being the ones that had not been stolen, the judge gave the artist the option of demanding the return of the remaining art and thereby reducing the amount awarded, or simply leaving that part of the judgment as it was made, for $83,500.00. So even though the agent began sending the artist money for art supposedly sold at the agreed upon prices, because the works were not in fact sold, but rather, kept by the agent, the judge decided that commission should not be payable. In doing this the judge created more precise contractual terms, essentially saying "even though we're agreeing that the art will be sold at a certain price and subject to a 40% commission, if you don't actually sell the work to third persons and otherwise do what you are supposed to do to increase my exposure and promote my work, I don't have to give you that 40% if you keep the work for yourself or it is otherwise disposed of (the theft)".

Dealing with the issue of punitive damages, the judge awarded the artist $50,000.00 on top of the award of $83,500.00. In describing the conduct of the agent, in addition to confirming that the conduct made the case fit into the category of cases where such damages are awarded, the judge concluded by describing what the defendant did as a despicable scheme.

The lesson to be drawn from this example is that where you are clear in your own mind that you have been wronged by a dealer in this fashion, it would be advisable to have your lawyer cite the Von Bismark v. Sagl case in his/her initial demand letter sent out on your behalf, in support of a speedy resolution. The downside in refusing to pay and having the matter litigated can be significant.

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