England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		7 August 2001

Mr Justice Thomas:

Introduction:

1. On 7 October 1991 there was a fire at the warehouse of James Bourlet & Sons Limited (Bourlet). At the warehouse, but within a strong room, a number of valuable works of art were stored; these included a pastel painted by Degas in 1881 entitled La Danse Grecque. When the pastel was subsequently examined, it was found to have sustained some damage.
2. At the time of the fire the pastel was insured by the defendants, the Roberts & Hiscox syndicate at Lloyd's (the underwriters), who are leading underwriters in the field of fine art insurance. A claim was made upon underwriters, but a dispute has arisen as to the amount payable under the policy, if any, consequent upon the fire. Determination of this dispute involves a number of issues - whether the policy was a valued policy, what the value was of the picture prior to the fire, what damage was sustained and what the value was after the fire. The issues in relation to valuation have involved questions of some interest.
3. It is convenient first to set out my findings as to the dealings in the picture as those findings of fact are relevant both to the question of the value of the pastel prior to the fire and its value thereafter.

The purchase of the pastel in 1989

4. La Danse Grecque was drawn in pastel by Degas in 1881. It had been exhibited and passed into collections of collectors first in Paris and then in the USA.
5. By 1989 La Danse Grecque was owned by a private collector in New York. In that year, the art market was, as was described to me, very much a "bull market". Prices that could be obtained for important works of art at auction were often in excess of the prices expected by auctioneers and dealers were obtaining high prices.
6. It was in this type of market that Mayfair Fine Art Ltd decided to see if they could purchase the pastel. The company was owned by three persons. Its chairman was Mr Uppstrom, a dealer primarily based in Oslo who dealt principally in Norwegian art, but who had wide experience in the international art market and in Impressionist paintings; he gave oral evidence at the trial. Mr Brian Balfour-Oatts, a dealer based in the West End of London, was the person in day to day charge. Mr Ulving was the third person; he was another dealer based in Norway, but his role in the company was unclear on the evidence. Mr Balfour-Oatts and Mr Ulving did not give evidence.
7. On 31 July 1989 Mr Balfour-Oatts obtained from Mr Guy Jennings, then a junior director working in the Impressionist and Modern department at Christie's, a letter which stated:

"It was a great pleasure to talk to you this afternoon about the Degas pastel, La Danse Grecque, Lemoisne no.645.

We would be very pleased to offer it in our important November sale with a reserve of $4,500,000 and an estimate of $4,500,000 - $5,500,000."

8. Mr Jennings, who is now chairman of Sotheby's Switzerland and deputy chairman of Sotheby's Europe, had no actual recollection of the circumstances in which he signed the letter. His evidence was that he would at that time have been asked to make between 1000 and 2000 valuations a year. Some would be made in conjunction with his colleagues in the department. At that time his more senior directors included Mr John Lumley, Mr James Roundell (who remained a director until 1995 and was the expert called by the underwriters) and Mr David Ellis-Jones. Mr Jennings' evidence was that sometimes he would give an estimate when the actual picture was available to be viewed or sometimes on his own from his catalogue. From the terms of the letter, he believed he had been telephoned by Mr Balfour-Oatts and given the valuation based on the black and white photograph in the Lemoisne Degas Catalogue Raisonne, as he had never seen the pastel. He could not recall if he had spoken to his colleagues, but it was possible he might have done or he might have made the

valuation on his own. He would have taken into account prices that had recently been achieved in London and New York for Degas pastels, in particular:

Sur La Scene, (c.l 879-1881) sold at Christie's New York in May 1989 at a hammer price of $6m.

La Danseuse, (c.1899) sold at Christie's New York for $3m on 10 May 1989.

Danseuse au Tambourin, (c.1882) which had sold at New York at a hammer price of $1.6m.

9. Although the letter giving the valuation was unqualified, the evidence of Mr Jennings was that, as Mr Balfour-Oatts was a professional dealer, he would have known it was a preliminary valuation and that it was subject to revision when the pastel was considered and studied. That qualification would have been provided to him over the telephone. However, as I have said, Mr Jennings had no actual recollection of the valuation. It was the evidence of Mr Uppstrom that Mr Balfour-Oatts had taken two high quality colour transparencies to show Mr Jennings; that is not first hand evidence and I have to treat it with considerable caution. Furthermore, although it was the evidence of Mr Roundell that the letter might not have been as strongly worded if a photograph of the pastel had not been seen, I do not consider that, on the evidence as a whole, I can conclude that Mr Jennings saw a photograph before making the valuation.
10. Negotiations ensued with the owner of the pastel. They hoped then to sell the pastel within a few months for $5-6m making a significant profit. However, they needed finance to enable them to purchase the pastel.
11. Mr Uppstrom approached Mr J C Brynildsen. He is the director and sole owner of the Claimant, a Norwegian company formed by him in 1986 as a private investment company. He had been a shipowner, selling his ship management company and ships to a Norwegian public company and making a considerable profit on the sale. He became interested in the art market as an area in which he could invest the proceeds of sale. He was cross examined very thoroughly about the dealings in La Danse Grecque and in particular about the circumstances in which it was eventually sold in 1995, as set out in paragraphs 51 and following below. I had the opportunity to observe his evidence very carefully; his somewhat hesitant, slow and careful manner in answering questions on occasions was not, in my experience, unusual in those involved in the Scandinavian shipping industry. Having taking this into account and having contrasted his evidence with such contemporaneous documents as exist, I concluded that he was an impressive witness and gave truthful and honest evidence to the court.
12. On 1 October 1989 Mr Uppstrom sent Mr Brynildsen a copy of the letter from Mr Jennings of Christie's; he told him that the price they would have to pay was $4.3m inclusive of all commissions. He asked him if he would finance the purchase of La Danse Grecque, on the basis that it could be resold within a 3 month period for $5.5 - $6m. Mr Brynildsen agreed to do so; the Claimant then entered into a facility agreement with Mayfair Fine Art Investment Limited (Mayfair) under which $4.3m was lent to Mayfair. Appropriate security was taken by the Claimant including the personal guarantees of Mr Uppstrom and Mr Balfour-Oatts. The loan was repayable on 30 April 1990. Once the funds were advanced, the pastel was purchased by Mayfair; there was no document before the court which showed the purchase price and Mr Uppstrom could not recall precisely what had been paid. Mayfair then took possession of it in New York at about the end of October 1989. The price cannot have exceeded $4.3m and may have been a little less.

The valuation by Christie's in October 1990

13. The picture was not entered for sale in Christie's November 1989 sale. I am, however, satisfied that the picture was seen by Christie's towards the end of 1989.

• Mr Uppstrom's evidence was that the pastel was inspected, probably in late 1989, by Mr Roundell and Mr Jennings at Mayfair Fine Arts' gallery when Mr Ulving was also present. He did not recall Mr Roundell telling him that he disagreed with the valuation given by Mr Jennings and he thought he would have recalled that.

• Mr James Roundell thought that Mr Uppstrom's recollection about the circumstances of the inspection was probably right. He recalled that when the pastel was actually seen, he was of the opinion that Mr Jennings' estimate was too high and Christie's were not prepared to enter it for sale at the levels set out in the letter of 31 July 1989. That was his recollection when asked about the matter in 1992 (as set out in the circumstances described at paragraph 39) and at trial. He did not recall what his valuation was, but said that it was less than that given in the letter of 31 July 1989.

• Mr Jennings had no recollection of seeing the pastel in late 1989 at Mayfair Fine Art; when he gave his evidence, Mr Uppstrom had not given evidence and his very brief statement did not refer to this. At my request Mr Uppstrom's and Mr Roundell's evidence on this point was put to him. He said he had no recollection of seeing the picture in the circumstances described by Mr Uppstrom.

• It was not possible to confirm when the picture had been inspected as the records of Christie's were not available. Despite diligent searches by Christe's, the records could not be found; in all probability they had been destroyed, in accordance with their usual policy, in 1997. The only document they found was a manuscript entry in Mr Jennings handwriting in the Lemoisne Degas Catalogue Raisonne which set out the value as $4m -$5m with a date of 31 July 1989.

14. On 23 October 1990 Mr Balfour-Oatts obtained a further valuation signed on behalf of Mr Jennings of Christie's. It stated:

"Further to your fax I confirm that in our opinion La Danse Grecque (L.645) is worth in the region of $4,000,000 - 5,000,000."

15. Again Mr Jennings had no actual recollection of the circumstances in which that letter had been written. His evidence was that this lower valuation reflected changes in the market; he considered the market was a little nervous by the autumn of 1990 as a result of the Iraqi invasion of Kuwait. He said he had taken into account the price achieved for another Degas pastel, Trois Danseuses ...c.l 1896), sold at Christie's in June 1990 for £1.8m (about $3m).
16. Mr Jennings' evidence was that he had never seen the pastel. However, I have reached the clear conclusion he was mistaken in his recollection. I have set out at paragraph 13 the evidence before the court; I found Mr Uppstom's evidence on this point clear and convincing; furthermore there cannot be any real doubt that Mr Roundell saw the picture. Mr Jennings was able to give a second valuation in terms of a confirmation of its value. The overwhelming probability is that after he had seen the pastel in the company of Mr Roundell, they had then expressed a view on its value. This letter, sent much later, was a confirmation of that fact. As I have stated, Mr Roundell could not say what value he had put on the picture, but it was less than $4.5 to $5.5 set out in Mr Jennings' letter of 31 July 1989. The value Mr Jennings had written into the Lemoisne Catalogue Raisonne was $4-5m; though the manuscript entry in the catalogue bears the date of 31 July 1989, that cannot have been done at the time of the letter of 31 July 1989, as his view at that time was that the value was higher. I am satisfied that Mr Jennings was a man of integrity; and he would not have formed a view as to the value and written to a client with a higher value, knowing that the letter on Chrisities' paper was probably required for a purpose and might be shown to others. The probability is therefore that he had written this into the Lemoisne Catalogue Raisonne on inspection of the pastel later in 1989 and had used this when writing that letter in 1990. Mr Roundell did not think that the letter related to his inspection, but his reasons for so suggesting were unconvincing.
17. In the result I am satisfied that the valuation made in October 1990 by Christie's was a valuation by them after seeing the pastel and that it represented the opinion of Christie's at that time.

Dealings in the pastel October 1990 - October 1991

18. The picture was not sold by Mayfair. This was due to the fact that Mr Balfour-Oatts was left to deal with it by Mr Uppstrom and he did not have the requisite experience or ability to sell it successfully. It was only sometime in 1990 that Mr Uppstrom became directly involved; he had been very ill earlier. It is not possible to date Mr Uppstrom's involvement, but it is clear form the evidence of Mr Raimund Thomas, to which I will refer, that he showed the picture to him in 1990. Although Mr Balfour-Oatts did not give evidence, it seems probable that Mr Balfour-Oatts would have made extensive efforts to try and sell it; a significant debt had been incurred, the facility was for a short term and he would have wished, if at all possible, to sell the picture. I am sure that Mr Uppstrom, when he became involved, vigorously attempted to do the same; he was somewhat unforthcoming in his evidence about this, but he was much more concerned than he stated and was making much greater efforts than he would admit. As the events in relation to the sale to Ms Ganz's client show in the failure to tell her of the fire (see paragraph 53), Mr Uppstrom was a person who was not prepared to be candid and straightforward with the information he provided or the evidence he gave. There was no information as to the price being sought, save that to be inferred from the price mentioned to Mr Raimund Thomas considered at paragraph 26 below.

19. The loan by the Claimant to Mayfair should have been repaid in 1990. It was not. On 28 March 1991 the Claimant demanded repayment of the loan from Mayfair. By that time the amount owing under the loan, including charges was $5.19m. The loan was not repaid. On 10 April Mr Balfour-Oatts offered to buy the picture for $3m; that offer was not accepted. On 16 April 1991 an event of default was declared and steps taken to appoint a partner in Binder Hamlyn as receiver.

19. Mr Uppstrom's evidence was that he continued to try to sell the picture. He tried to sell it to a Japanese client and was negotiating a sale for $6m when the illness of that client supervened. He used his contacts with other dealers including Mr Ralph Dosch in Zurich and Mr Raimund Thomas in Munich; this must have happened in 1990; Mr Dauberville, one of the Claimant's experts was certainly told that Mr Uppstrom had contacted a large number of dealers. The picture was taken to Zurich in April 1991 and it was Mr Uppstrom's evidence that he obtained an offer of $4.5m. This offer

through Mr Dosch did not, however, materialise into a sale.

20. After the appointment of the receiver, Mr Brynildsen took a much closer interest in attempts to sell the picture. In June 1991 Mr Brynildsen was introduced to Mr Philip Hook; he is now a senior director of Impressionist and Modern art at Sotheby's, but was then one of the partners in the St James' Art Group. At that time Mr Hook was not an expert in Impressionist art, but one of his partners, Mr David Bathurst (who died in 1992), was. Mr Bathurst had organised an exhibition of paintings, pastels and drawings by Degas to take place between 12 June and 5 July 1991. By the time of the introduction of Mr Brynildsen to Mr Hook, the catalogue for the exhibition had been prepared and the exhibition organised, but nonetheless on 6 June 1991 Mr Hook told Mr Brynildsen by fax that they would be pleased to have the picture at the gallery to coincide with Mr Bathurst's exhibition of Degas' works. He considered that an asking price of $3-3.5m would be appropriate. It was Mr Hook's evidence that Mr Bathurst had provided that price range from his own knowledge of the works of Degas and of the pastel itself; the price was, he said, fixed to reflect a wish to sell it reasonably quickly.
21. The picture was consigned to the exhibition. It arrived on 20 June 1991 (after the exhibition had started) and was placed in a private room at the gallery. It did not form part of the exhibition. There was some dispute on the evidence before me as to whether it was appropriate to attempt to market the picture at this exhibition in this way and whether its price was affected by the other works in the exhibition. It was the evidence of Mr Hook, who by the time of the trial had acquired greater expertise in Impressionist painting, that there were three pictures at this exhibition which were comparable to La Danse Grecque, they were:

• Danseuse rajustant son chausson (c.1887); this was a pastel. It was Mr

Hook's evidence that this was sold in the course of the exhibition for more

than $3m.

• Femme a sa toilette (c. 1890-1894) this was a pastel which had been lent to the

exhibition and was not for sale.

• Danseuses Russes (c. 1899); this pastel was one of several drawings of the

Russian dance. It was Mr Hook's memory that the asking price was about

$2m.

22. The picture was not sold at the exhibition. In a letter written to Mr Brynildsen on 29 July 1991, Mr Hook stated that no offer had materialised and that he thought that it was not the right moment to be selling. Mr Uppstrom in his evidence agreed with that view.
23. The picture was taken to Bourlet's warehouse for storage.
24. There was some dispute about the significance of this failure to sell. The Claimant contended that it was of little significance as the pastel had not been in the catalogue, it was not part of the exhibition and it had only arrived after the exhibition had started. There is much force in these points.
25. Some time in the summer of 1991 Mr Raimund Thomas, an art dealer in Maximillian Strasse Munich, met a Greek shipowner at an exhibition. He mentioned to him La Danse Grecque which he had been shown by Mr Uppstrom in 1990. At that time Mr Uppstrom wanted $6m for the pastel. The Greek shipowner (whose identity, as is the practice of dealers in art of this value, Mr Thomas would not reveal) expressed interest in the pastel and Mr Thomas sent him a photograph of it. They started to discuss the purchase of the pastel and in the course of negotiations, towards the end of September 1991, the Greek shipowner was prepared to pay $5.4m. Mr Thomas and Mr Uppstrom wanted $5.75m. Mr Thomas' evidence was that he was confident that he could have sold the picture to the Greek ship owner at a price between these figures, but the sale had not been concluded at the time of the fire. The fire brought the discussions to an end, as Mr Thomas was not prepared to sell the pastel after it had been in a fire.
26. There was no documentary evidence to support Mr Thomas' evidence but it was not challenged and, in my view, his evidence was truthful. He was a dealer of considerable reputation and his reluctance to name the prospective purchaser was entirely consonant with the way in which the dealers' market operated.
27. In contrast to this evidence, there was evidence which gave a different view of the market for La Danse Grecque:

• The Claimant disclosed a note written by a person at the receivers, Binder Hamlyn

which recorded a telephone conversation with Mr Jennings on 11 July 1991. Mr Jennings was recorded as having said that La Danse Grecque was seen by Christie's in 1989 and valued at $3.5m, it was valued in the autumn of 1990 at $2 - $2.5m and that its current value was £600,000 - £800,000, $1 - $1.5m. The note also recorded his feeling that there would be no change in the next six months and there would be little change in the market for at least 12 - 18 months. Mr Jennings had no recollection whatsoever of this telephone conversation; he could not explain how the values recorded in the note for 1989 and 1990 were so very different from the much higher values given by him in the letters in 1989 and 1990 to which I referred at paragraphs 7 and 14. Mr Jennings thought that the person at Binder Hamlyn might have been relaying to him information provided to Binder Hamlyn by Christie's. His evidence was, however, that by the summer of 1991 it was incredibly difficult to sell any picture in the market and Christie's were only accepting pictures for sale if they were absolutely sure that they could be sold. Therefore in giving the figure of £600,000 - £800,000, he was giving a very pessimistic valuation; he was being deliberately conservative whereas before he might have been optimistic.

• An approach was made by Mr Michael Bell, a solicitor who was company secretary of Mayfair Fine Art; he had a client who was apparently prepared to offer $3m. According to a contemporaneous note dated 19 September 1991, Mr Brynildsen considered that this was below the value, but was prepared to accept it. It was Mr Brynildsen's evidence (which I accept) that he meant that he was prepared to go along with the offer and allow the prospective purchaser to look at the picture, but he was not prepared to sell at that price.

• In late September 1991, the receiver authorised Mr John Austin of Austin Desmond Fine Art Ltd of Great Russell Street, London to inspect the picture at Bourlet's warehouse in the company of a client known as "Benny Munch"; he inspected it on 27 September 1991. As set out at paragraph 36 below, he also inspected the picture after the fire. A contemporaneous note in the insurance brokers' records states that the receiver said there was a serious buyer offering a price in the region of about $3m. I infer that this was Mr Austin's client. There was reference in a letter from the receiver dated 24 September 1991 to Mr Austin making a valuation; there is no further reference to this and it appears Mr Austin was acting for a potential purchaser. Mr Austin did not give evidence. I cannot in the circumstances conclude that he made a valuation, let alone provided it to the receiver or the Claimant.

• There were some documents before the court relating to the obtaining of insurance by the receiver; on these La Danse Grecque was shown as having a value of $3m. The documents were not sufficiently clear for me to infer that the receiver had valued the picture at $3m. In any event, it is to be recalled that the Claimant renewed, with effect from 1 October 1991, the insurance the subject of the current action at the same figure of $5.3m which had been in the policy from the time the Claimant acquired its interest in the picture.

The fire on 7 October 1991

28. On 7 October 1991 whilst the pastel was in storage at a strong room at Bourlet's warehouse, there was a major fire. Although the fire destroyed the contents of the warehouse outside the strong room, the fire did not penetrate the strong room. It appears from the evidence before me that the strong room had a steel door; the fire was so intense that the locks were fused. It also appears that water seeped through the floor of the strong room to a depth of about 2 inches. However no smoke penetrated the strong room, as the ventilation to the strong room was shut off when the fire broke out; the closure of the ventilation, however, may have had the effect of retaining the humidity.
29. The parties were agreed that on the balance of probabilities the strong room, and hence the pastel, was exposed to sudden and violent environmental changes in consequence of the fire, namely rapid increases to very high levels in heat and also humidity (from water used in extinguishing the fire). On the evidence before me, what would have affected the pastel was the exposure of the pastel to these rapid increases in heat and then intense heat from the fire followed by the increase in humidity.
30. When the strong room was opened, the works of art were removed; a newspaper report recorded that "paintings were brought out still hot 24 hours after the fire"; there was no other evidence to support that report. The works of art were examined by two experts, one of whom came from the Victoria and Albert Museum. The loss adjusters who attended noted that these experts had seen some evidence that moisture had entered the frame of the pastel.
31. On 14 October 1991, the picture was examined by Mr Philip Stevens. Mr Stevens was a paper conservator, had run his own studio for the past 37 years and who had been active in paper conservation since 1962. He was plainly an expert of very considerable distinction in this field and gave impressive evidence before me.
32. His evidence was that he had been shown La Danse Grecque by Mr Uppstrom in April 1990; at that time he did not have it removed from its frame, but from a brief visual inspection came to the view that it did not need any conservation work. He made no written report in 1990, as his practice was to make such reports only if he had a proper opportunity of examining a picture at his workshop. His examination of the picture on 14 October 1991 was in the presence of the underwriters' loss adjuster. His report, confirmed by his evidence, was that there were two tears to the top left side of

the pastel and the board upon which the pastel had been fixed was bowed. He had the picture taken to his studio where he conducted a detailed examination after its arrival in the studio on 16 November 1991. In his written report dated 10 December 1991, he stated:

The pastel was no longer flat; it was distorted and slightly buckled.

The pastel had been to a great extent detached from the backboard to which it

had been originally applied with wood glue adhesive on the edges. The picture had originally been stretched like a drum skin onto the backboard.

The two tears he had observed were established as splits caused by tension of

the paper. In his oral evidence he explained that the board and the paper were

very hydroscopic; during the drying process, the drawing was not in contact

with the board. The paper dried very quickly and the board slowly; the pastel

was damaged by that, though it was difficult to observe.

The backboard was very bowed and there was residue of mould visible on the

backboard; he confirmed in his oral evidence that this was fresh.

He could see no damage to the pastel surface and general appearance of the drawing. He explained in his oral evidence that he knew that the pastel had been damaged by being in the fire, but that it was very, very difficult to observe it.

33. He concluded the picture was highly stressed as a result of exposure to the dramatic changes to humidity and temperature. The high humidity had caused the pastel to relax and expand, but, as it had dried, it shrank. Tension seemed to have been the cause of the detachment, the split areas and the buckling and the distortion of the pastel itself. He considered that the condition of the pastel had not visibly deteriorated, though this was luck because often an increase in humidity caused stretching and shrinkage of the paper which could disrupt the adhesion of the pastel - the chalk - from the surface of the paper and darken the colour. He recommended removal of the pastel from its original backboard, its treatment with fungicide to prevent mould growth, the repairing of the tears, the use of a new chemical backboard, as reattaching it to its original backboard was too high a risk, and the construction of a new frame to create its own micro-environment.
34. Mr Stevens then carried out the work he had recommended. He detached the pastel from its original board, created a new inert board and repaired the tears. He was not able to stretch it; it was held with little tension because to do any more was too risky. He then placed the pastel into a new frame he specially made to create its own micro environment. If the pastel was removed from this micro environment and exposed to room temperature, it would start to move around. The conservation work was completed in early 1992. His view was that, although he had restored the work to the best of his ability and the materials he used were stable, the pastel was more vulnerable than it had been.
35. According to Mr Stevens' report, he asked Mr John Austin who had seen the picture on 27 September 1991 (as set out at paragraph 28) to inspect the picture; his opinion was that the tears had not been there when he had seen it prior to the fire, the board was more bowed and the picture was no longer flat. No deterioration was visible to the pastel surface and the picture seemed the same.

Further consideration of the damage to the picture

36. On 6 March 1992 the picture was examined by Mr Michel Dauberville; he was the chairman of Bernhiem-Jeune Art Gallery in Paris, established in 1876 and which for 5 generations of the family had been selling works by leading Impressionist painters, including Degas; his grandfather was the appointed expert for the auctioning of Degas' studio together with another French house. He had been selling works of art for over 40 years and had sold many Impressionist works including a number of Degas pastels and paintings. He was called by the Claimant as an expert witness and was a most impressive witness.
37. His examination on 6 March 1992 took all morning. He noted the tears and the fact that, after the pastel had been removed from the box in which it was housed, it was no longer flat and slightly buckled. He had a long discussion with Mr Stevens. He came to the view that there was no visible damage to be seen on the surface or to the general appearance of the pastel and no loss of colour or chalk. He came to the conclusion that it was impossible to guarantee the conservation of the paper after it had been stressed by high humidity and temperature; that there was a great risk for the paper to desegregate or that the pastel chalk would loose its adhesion after a time. He concluded that prior to the fire its value had been $5m and that the picture had lost at least 55% of its market value. His house would not take the risk of selling the picture.
38. In April 1992 Mr Stevens showed his work to the loss adjusters, the receiver and to Mr Brynildsen. After that meeting Mr Stephens was asked by the loss adjusters for a suggestion as to a person who would give a second opinion; Mr Stevens suggested to the loss adjusters that they consult Mr James Roundell, the director of Christie's to whom I referred at paragraph 8. He had joined Christie's in 1973 and had specialised in prints. In 1986, he had transferred to become Director and Head of the Impressionist and Modern department and had retained that position until he left Chrisitie's in 1995. He had then established his own firm through which he acted as a dealer and agent in Impressionist and Modern pictures. Instructions were given to Mr Roundell on 26 May 1992 and he provided his opinion on 23 July 1992. In his letter, Mr Roundell considered that a sensible level for auction estimates for the picture at the time of the fire would have been $1.8m - $2.4m; in 1992 he would have put the current auction expectation in the region of $1.5 - $2m. He said that it was difficult for Christie's to assess the measure of the depreciation suffered by the picture as a result of the fire. His view was that it was difficult to assess what damage had been done to the picture as a direct result of the fire, as it was obvious that it was not in perfect condition prior to the fire; however some depreciation had arisen as a result of the uncertainty concerning the pastel's condition due to the fire. He considered that a 20% depreciation was possible and that Christie's would now place auction estimates of $1.2m - 1.6m for the picture but in the present market would not be confident of

achieving that figure.

39. On 8 July 1993, after an abortive attempt to inspect the picture in London, Mr Dauberville again inspected it in Paris. This inspection was carried out in Paris with the assistance of Mr Dordevic and Mr Yves LeBouc. Both Mr Dordevic and Mr LeBouc gave expert evidence before me and it is more convenient to refer to Mr Dordevic's qualifications later (see paragraph 82). Mr LeBouc was a dealer in Paris specialising in works of art on paper for over 30 years; he specialised in the works of

Picasso and Chagall. He was plainly very knowledgeable in his subject. It was the evidence of Mr Dauberville that he wished to have the assistance of Mr Dordevic, an expert in picture restoration particularly of pastels, and Mr LeBouc, an authority on Degas, to confirm his views. Mr LeBouc's evidence was that when he removed it from the frame, it wrinkled immediately; he considered this a sure sign of damage by humidity.

40. After that inspection Mr Dauberville, Mr LeBouc and Mr Dordevic signed a report dated 22 July 1993 in which they stated that the picture superficially looked in a good state, but that it had been through severe stresses which had probably shortened its life considerably and it was impossible to give any guarantee for the duration of the effects of the restoration. They gave the pastel a value of $5m - $6m if it had not been damaged by fire; the then market value of the pastel after the fire and restoration was $lm.
41. In September 1993 Mr Stevens was again instructed to inspect the picture at the premises where it was stored. He found that the frame he had made had been disturbed and the pastel was no longer sealed in its frame; dust and scrap paper particles were visible on the surface of the pastel. There was no direct evidence as to the cause of this further damage, but the picture had since the restoration work by Mr Stevens in 1991-2 only been in the hands of experts and carriers and storage companies experienced in handling works of art.
42. Mr Stevens recommended that the picture be taken to his studio so he could assess the damage that had taken place. The detail of that further damage was set out in an invoice dated June 1996. The damage then included six further new damaged areas around the edge of the picture, the removal of surface dust particles, the retouching of missing areas of pigment and the re-framing of the picture in a sealed frame.

Enquiries about value and possible sale

43. After the fire, both the receiver and Mr Brynildsen were involved in or received enquiries about a possible sale of the picture. On 16 January 1992 there was a further telephone conversation between Mr Jennings and the accountant acting as receiver at Binder Hamlyn. According to the accountant's note Mr Jennings gave a valuation of $900,000 - $1.2m. According to the note, Mr Jennings advised that there would be no movement in the market for at least the next 12 months but it might then pick up again to about $1 m - $1.5m. Again Mr Jennings had no recollection of that conversation.
44. On 17 January 1992 Mr Michael Bell (to whom I referred at paragraph 28) wrote to Mr Brynildsen to say that he had had expressions of interest from two acquaintances; one of them, was a surgeon and the other a businessman from the north of England who had funds from the sale of shares and was interested in acquiring the pastel for about $3m. Mr Brynildsen's evidence was that he did not take this seriously.
45. On 5 February 1992 the receiver at Binder Hamlyn was informed by Mr Hook, according to the note of the receiver, of a possible purchaser. The note recorded:

"Philip Hook has a possible punter who wanted asking price. PH could not/would not supply. Seems punter has in mind $1.2m Asked for identity/credentials. Only info. is that he from Far East and can deposit the money in escrow. PH not aware of him having any previous contact with the painting/Mayfair. He appreciates difficulties facing the receiver. I said I would try to revert, but that it would not be days, but weeks."

Mr Hook pointed out that the word "punter" was not a term he would have used; beyond that he had no recollection of this. Nothing came of the enquiry. However, it was suggested on behalf of the Claimant that the prospective purchaser knew of the fire and that this was evidence of the market value after the fire and supported the view expressed by M. Dauberville to which I have referred at paragraphs 38 and 41. In my view this is pure speculation. Certainly Mr Hook accepted that he became aware that La Danse Grecque had been at Bourlet's warehouse at the time of the fire, but he did not know when; nor can I infer from the use of the term "punter" by the accountant that the prospective purchaser was a speculator. Again it is speculation that the words "difficulties facing the receiver" referred to the fire and the reason why there would be a delay in a response was due to the fire. The difference in the price indicated and the asking price of $3m -$3.Sm suggested in June 1991 by Mr Hook (see paragraph 21) could be due to a change in the market or simply a try on. In my view there is no justification for treating this brief note as evidence of the market value of La Danse Grecque after the fire.

46. Later in 1992, Mr Brynildsen was contacted by Blease Lloyd Associates, chartered accountants specialising in financial and international taxation advice based in Richmond, Surrey and in Jersey. They said they had become aware of La Danse Grecque and on 8 September 1992 wrote to Mr Brynildsen saying they knew of a potential purchaser willing to pay a price not exceeding $3m. They do not appear to have known of the fire. Arrangements were contemplated for the purchaser to see the picture, but by December 1992, nothing had come of this. Mr Brynildsen's evidence was that he did not consider this to be a serious offer. That view seems justified.
47. In November 1992, the Claimant's solicitors reported to the receivers that Mr Brynildsen had received two approaches; one had indicated he was prepared to pay upto $3m, the other $2m; neither was aware of the fire. In December 1992, the solicitors reported that the prospects had faded.
48. Nothing material in relation to a sale then happened until 1995.

The sale of the pastel in June 1995

49. According to Mr Stevens' evidence, no one inspected the pastel after it had been re-framed by him at the end of 1993 (as set out at paragraph 43) until June 1995.
50. In May or June 1995 Mr Uppstrom mentioned to Mr Keith Wheldon, of Independent Arts of Moreton-in-the-Marsh, Gloucester, the possibility of selling the pastel. Mr Uppstrom told Mr Wheldon of the fire but that the image seemed to be in good condition. Mr Wheldon then contacted Kate Ganz, an active art dealer since 1979 with galleries in London first and then in New York. She had specialised in drawings and had from time to time dealt in high value drawings and pastels. After she had been contacted by Mr Wheldon, she in turn contacted Asya Chorley, another art dealer

who had formerly worked for Sotheby's.

51. Asya Chorley had a client who was interested in Degas pastels. Miss Ganz, who gave evidence to the court, wished to keep the identity of that client confidential in accordance with that client's wishes and the practice of the market. She told the court, however, that he was a substantial private collector with knowledge of the works of Degas who was interested in acquiring a high quality Degas pastel.
52. It was agreed that the pastel be shown to Miss Ganz and to two others. As the pastel would have to be taken out of its frame, it was arranged that Mr Stevens attend. Mr Wheldon and Mr Uppstrom agreed with Mr Stevens that he would not make any comments about the pastel unless he was specifically asked; such comments were to be made by Mr Wheldon. Both Mr Wheldon and Mr Uppstrom were not going to say anything about the fire unless asked; that course was not in accordance with the ethics or practice of this market where disclosure of such an event would be expected as a matter of course. On the way to the inspection by Ms Ganz Mr Wheldon had a motor car accident and did not attend; Mr Stevens therefore was on his own when the picture was viewed by Miss Ganz and two others in June 1995. Mr Stevens took it out of its frame; he then described its condition to her on her questioning, but said nothing of the fact that it had been involved at the fire at Bourlet's warehouse.
53. Mr Stevens was then asked to prepare a conservation report on the pastel. It was the evidence of Mr Stevens that a "conservation report" describes what work a conservator had done, but does not describe reasons as to why that work was necessary. If a report set out the reasons why the work was required, that would have to be a "condition report". Miss Ganz did not accept there was any such distinction between a condition report and a conservation report, the only distinction being, as far as she was concerned, the fact that a conservation report would have to be written by a qualified conservator.
54. Mr Stevens prepared in manuscript a report headed by him "conservation report". It described the work he had done but said nothing of the involvement of the pastel in the fire at Bourlet's warehouse. The report stated that there was no evidence of major mechanical damage and drew attention to the fact that a new support and backboard had been made, he concluded:

"The pastel surface is delicate and original. There has been the absolute minimum of retouching in its recent history - i.e. limited to the toning down of the paper joins top left and bottom right.

Yes there are minor scuffs and abrasions to the pastel surface. These minor imperfections I find totally acceptable with a drawing of this age.

So often, retouching rules. In this case, no.

The new support was needed re long term conservation - the original backboard support is retained at the back of the frame."

55. That report was then typed by Miss Ganz, though headed condition report on one page and conservation report on the other. Mr Stevens authorised the signing of the report, not noticing the heading.
56. The client of Asya Chorley agreed to buy the pastel for $3.275m. Neither he, nor Asya Chorley nor Ms Ganz knew anything of the fire. The amount paid to the Claimant was $2.7m. The difference of $575,000 is accounted for by the commissions:

• $225,000 was shared between Kate Ganz and Asya Chorley

• $350,000 was shared between Mr Wheldon and Mr Uppstrom.

57. The pastel was not sold directly by the Claimant to Ms Ganz's client. It was first sold by the Claimant to a company called Tonilock Enterprises Limited of Dublin (Tonilock) for $2.7m. Tonilock then sold the pastel to the client of Asya Chorley and Miss Ganz for $3.05m
58. Tonilock was a company controlled by Mr Uppstrram. The interpolation of Tonilock in the chain and its internal documents gave rise to questions that underwriters were entitled to investigate. They did so during the cross examination of Mr Brynildsen at a time when it was made clear that Mr Uppstrom would not be giving evidence; Mr Uppstrom was in the end called to give evidence and also cross examined about Tonilock. I am satisfied, having heard that evidence and having considered the documents, that Mr Brynildsen had no interest in it and the sale by him to Tonilock was at arm's length. When Mr Uppstom had found he could sell to Ms Ganz, he asked the Claimant if they would take $2.7m and then split the difference between that and the sale price to Ms Ganz of $3.05m between him and Mr Wheldon to give them the commission of $350,000. There is one matter that remained unexplained - the involvement of Mr Heffermehl of Simonsen & Musaeus, lawyers in Norway; he acted for Mr Brynildsen and for the Claimant, but Tonilock was also his client; he did not give evidence and it would not be right for me to comment on his position, save to say that whatever his conduct was, it did not detract from my view that Mr Brynildsen was giving entirely truthful evidence when he said he had no interest in Tonilock and the sale to it was at arm's length.
59. Prior to the acquisition of the picture, Tonilock made a representation as to its ownership and that it was free from encumbrances. At the time it made those representations, it was not in a position to do so. The evidence of Mr Uppstrom was that it was not unusual in the art market for such a representation to be given as by the time a company in the position of Tonilock had to deliver the pastel, the representation would be true as it would then have title, free of encumbrances.
60. The sale was completed and the picture delivered to the client of Asya Chorley and Ms Ganz.
61. It was not until much later that Miss Ganz learnt of the fact that the picture had been involved in the fire at Bourlet's warehouse. Her evidence was that the price for the picture which she paid to Mr Wheldon, namely $3.05m was a fair open market price for the picture given its excellent condition. She described it as dazzling, in very good condition and with no sign of damage beyond that described by Mr Stevens in his report. She felt it was a perfect example of a Degas pastel with the freshness of the pastel and the glow of the chalk on the surface of the paper being of paramount

importance to Asya Chorley's client. This was, however, the first Degas pastel she had purchased.

62. Miss Ganz's evidence was important in another respect; she said that if she had been told that the picture had been exposed to the effects of the fire at Bourlet's warehouse and given full disclosure, this would not have influenced her decision to present the pastel to the prospective purchaser and to encourage the purchaser to purchase it given its excellent physical condition.
63. Having set out the facts, I now turn to the three issues that arose.

Issue (1): Was the policy a valued policy?

64. The policy in force at the material time ran from the period 1 October 1991 to 30 September 1992. It was on the standard Lloyd's J NMA 2402 form and was subject to the "A.E.R. Fine Art Dealers Wording No.3" (the AER Wording). The schedule to the AER Wording identified the insured property as the stock and merchandise used in the conduct of the insured's business; the total sum insured was stated to be Norwegian Kroner 130m. The coverage was stated in the following terms:

"Underwriters will indemnify the Assured named in the Schedule attaching to this Policy up to the amounts and in the manner stated in the this Policy ...."

65. The schedule also set out the following:

"BASIS OF VALUATION (Memorandum M14);

the basis of valuation in respect of stock being the property of the Assured:-

Original cost price to the Assured. Plus 20% or Market Value at the time Loss or Damage is sustained whichever is the greater, otherwise as set out in Memorandum M14."

66. Memorandum M14 provided:

"M14 Basis of Value

In event of a claim being made in respect of property insured under Section 1 of the Policy, such insured property shall be valued as follows for the purposes of adjustment of the claim:-

(a) Stock being the property of the Assured: on the basis specified in the Schedule;

(b) Property sold but not delivered to the purchasers: at selling price;

(c) Property in the care custody or control of the Assured being the property of third parties: at either the market value immediately prior to the loss or the Assured's liability to such third parties whichever is the less."

No average clause was contained in the Policy.

67. La Danse Grecque was specifically referred to in an endorsement to the policy. The clause in the endorsement had formed part of the slip (and not an endorsement to the slip) for the period of insurance that incepted on 1 October 1991. The endorsement provided:

"The Policy is extended to include US$5,300,000 on Painting by Edgar Degas "La Danse Grecque" in addition to the Policy Limits hereon including whilst anywhere within the Geographical Limits of the Policy".

68. After the fire on 7 October 1991 and when it was known that the picture had sustained some damage, the brokers and the underwriters agreed a partial loss clause on 17 January 1992 in the following terms:

"This Policy shall be subject to the following Partial Loss

Clause:-

"In the event of Partial Loss or Damage to any item insured hereon the amount of loss shall be the cost and expense of restoration plus any resulting depreciation in value. Underwriters liability shall be limited to that proportion of such Loss or Damage which the Sum Insured bears to the market value of the item immediately prior to the Loss and in no event shall Underwriters be liable for more than the Insured Value of the Item."

When this wording was under discussion after the loss, the brokers stated in a letter date 28 November 1991 that the underwriters had asked by way of information for it to be confirmed that the "Schedule Values represent the approximate market values as at renewal 1 St October 1991 ". That confirmation was given. However, although this letter adds yet another phrase about value, it does not seem to me, in any event, that it is a document to be taken into account in construing the policy. I must have regard only to the wording of the policy.

69. It was common ground that the form of the policy including the AER Wording (but without the clause referring to La Danse Grecque or the partial loss clause) was not in the form of a valued policy. The AER wording incorporating Memorandum M14 provided a basis for valuing the stock of the insured -cost plus 20 per cent or market value which ever was the greater; for other items within clause M14, the value was to be market value. La Danse Grecque was not part of the stock of the assured and there was therefore no formula that was applicable. Nor did the picture fall within any of the other sub-clauses of clause M14.
70. It was also common ground that I should construe the policy as a whole (including both the endorsements) in the light of the principles applicable. In Kyzuna v Ocean Marine [2000] 1 Lloyd's Rep 505, I endeavoured to summarise at page 508 the principles applicable to determining whether a policy of marine insurance was a valued or unvalued policy. Those principles are also generally applicable to non marine insurance; in paragraph (5) of my summary in Kyzuna, I referred to the fact that it is common for a policy of marine insurance to be a valued policy and set out the reasons for that. As regards non marine insurance, a passage at page 28-7 of Professor Clarke's The Law of Insurance Contacts (1999 edition) is helpful:

"A policy is more likely to be construed as a valued policy in cases in which a valued policy is most useful, such as the insurance of property the value of which fluctuates or is a matter of debate or in cases in which it may be difficult to assess the amount of the loss."

However it is important to bear in mind that there is an accepted and well known distinction between an insured value and a sum insured:

"The use of the term "sum insured" will normally indicate the amount for which the subject matter is insured and will not be read as an agreed value. There are a number of authorities that make this clear."

(see Kyzuna at page 509)

71. Although the clause relating to La Danse Grecque refers to the sum of $5.3m, it does not do so in terms of value. Although I see the force of the argument made by the Claimant that one would ordinarily have expected the parties to agree a value for a work of the importance and value of La Danse Grecque, the parties did not do so. Although they did not use the words "valued at", that is clearly not decisive as any language can be used. However, they expressly used the words "in addition to the policy limits hereon, including whilst anywhere within the geographic limits of this policy". It seems to me clear that they were adding this picture as an additional work with a further policy limit, though expressed in dollars rather than Kroner. The policy contained a limit of 10m Kroner when the property was outside the insured's premises as opposed to the sum insured of 130m Kroner; the terms of the endorsement in respect of La Danse Grecque make it clear that both the sum insured and the limit whilst outside the insured's premises are increased by $5.3m. There are no words that stipulate that this is an agreed value. Furthermore the words of cover in the policy (set out at paragraph 65) are expressed in terms of "up to the amounts stated"; the clause adding La Danse Grecque did not use any words to modify that basic provision.
72. The endorsement agreed on 17 January 1992 applied from inception. Although therefore as a matter of context and timing, it was agreed after the loss, it was to apply from inception. It was therefore common ground that I should construe it as if it had always been part of the policy. The clause was, however, ambiguous and contained a clear contradiction in the terms used in the second sentence. This is somewhat remarkable, given the fact that it was agreed after the loss and was intended to deal with it.

• The first sentence was clear; the amount recoverable was the cost of restoration

and the resulting depreciation in value.

• The second sentence then purported to limit the recovery by reference first to the

proportion the "sum insured" bore to the market value immediately prior to the

loss, with a cap of the "insured value" of the item.

Both parties contended that in the second sentence, the parties could not sensibly have intended to refer to both the sum insured and the insured value; both references must have been either to the one or the other. The Claimant contended that both references must be read as being to insured value.

73. It was submitted by the Claimant that the first sentence was neutral. It provided the initial calculation of depreciation - a comparison between market value before the event causing damage and market value after. The second sentence then applied the principles applicable to a valued policy. They referred to the decision of Morris J in Elcock v Thomson [1949] 2 KB 755 where he held that the principles set out in s.69(3) of the Marine Insurance Act in respect of depreciation had to take into account the agreed value; that the same principle applied in the case of non-marine insurance where there was a valued policy.
74. The major difficulty with this submission in relation to the second sentence is the use of the use of the term "sum insured" in the first part of that sentence; for the submission to have any force that has to be read as "the insured value".
75. Underwriters submitted that, as the first sentence of the clause referred not to "reasonable depreciation arising from the unrepaired damage" (the phrase in the Marine Insurance Act), but to "resulting depreciation in value", the words were apt to apply to the actual market value which was diminished, but not to an agreed value. The second sentence operated to cap the liability of underwriters in the event of an increase in the market value of the item. For example, if the market value had risen to $10m before the fire and after the fire the value was $9m, the effect of the clause was to reduce the recovery in respect of the diminution in value under the policy by reference to the sum insured. In effect it was an average clause; if premium had been paid on the basis of a sum insured of $5.3m, then the average clause had the ordinary commercial purpose of reducing recovery proportionately. However, there were two difficulties with that. In the first place, on this view the last part of the second sentence with its reference to insured value had little purpose in practice. More importantly the effect of the words used in the second sentence were accepted by underwriters to operate to reduce the amount recoverable for diminution in value, even if the market value of the item had fallen. This would be an extraordinary commercial consequence, as premium would have been paid on the basis of the sum insured and there would be no commercial logic in this consequence.
76. It is unfortunate that after the loss the parties should have agreed a clause that is so unclear. On the Claimant's submissions this partial loss clause had the effect of confirming the policy as a valued policy after the loss; on the underwriters' case it introduced an average clause of a most unusual kind at that point in time. However, as I have said, it is common ground that I must construe the clause as if it had always been part of the policy.
77. Approaching the policy as a whole, including the partial loss clause, I do not consider it to be a valued policy. I have already considered the other terms of the policy. The first sentence of the partial loss clause is the primary measure of recovery; on its ordinary language, it is to be read as referring to depreciation in value in terms of market value. This sentence therefore does not point to the policy being a valued policy, though it is not inconsistent with it being a valued policy. Thus the second sentence is crucial to the Claimant's argument; the difficulty is that the operative words that would apply the principles of a valued policy are expressed in terms of "the sum insured" and if I were to read those words as "insured value of the item", I would not only be making a major interpolation, but the last phrase in that sentence would have no purpose. Furthermore the terms of the partial loss clause would not obviate the need for an enquiry into the market value; it would be a little unusual to find therefore the decisive terminology in such a clause. In my view, less violence is done to the language and a greater consistency is achieved by reading "sum insured" to mean, as it says, sum insured. The clause would then operate as an average clause. However this leaves the difficulty that it would operate, on its literal language to reduce the recovery if the market value had fallen below the sum insured; this was not a result for which underwriters contended and it is wholly so uncommercial that the result cannot have been intended. I was told on behalf of underwriters that I might apply the principles in Mannai Investments v Eagle Star [1997] AC 749 and in Investors compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. I will do so; the second sentence of the partial loss clause was plainly intended to operate only where the market value had risen and had no application where it had fallen.
78. In the result therefore I have concluded that this was not a valued policy.

Issue (2) What damage did the pastel sustain which is recoverable under the policy?

The coverage provided

79. Coverage provided by the policy was for:

"direct physical loss or direct physical damage of whatsoever nature to property as described in the Schedule at the premises and anywhere within the territorial limits stated in the Schedule occurring during the Policy period subject to the terms conditions exclusions memoranda and limitations contained herein."

80. Underwriters contended that this provided an indemnity only in respect of direct physical damage; there was no indemnity in respect of any stigma attaching to the picture as a result of it having been in the fire at Bourlet's warehouse. It is convenient to set out my conclusion on this submission after setting out my conclusions on the damage caused by the fire.

The damage caused by the fire

81. In addition to the evidence of Mr Stevens which I have set out at paragraphs 33 and following and the evidence of the inspection carried out in Paris in July 1993 set out at paragraph 40, expert evidence was called as to the damage suffered:

• Mr Dordevic was called on behalf of the claimants; after study in Fine Art

Institutes in Europe and New York and a career as a painter, he became a restorer

in 1982 of works of substantial importance. He had worked on pastels for 50 years

and restored somewhere between 30 and 50 pastels drawn by Degas. He was an

expert of considerable international standing and reputation and an impressive

witness.

• Mr Graf was called to give evidence on behalf of the underwriters. He was trained

at the British Museum and the Louvre; after experience overseas he was appointed

in 1975 Conservator of the Queen's drawings at Windsor. He subsequently

established his own practice, but remained a consultant to the Royal Collection.

He had very limited experience of Degas pastels, as he had only worked on one

and that was when he was at the British Museum during his early training. His

experience of pastels had been gained in restoration work on pastels owned by the

National Trust in stately homes; these did not have the depth of pastel with its

heavy chalking characteristic of the technique used by Degas. Mr Graf had not

seen the picture and his evidence was based on the findings made by Mr Stevens.

He was also an impressive witness.

82. It was the evidence of Mr Dordevic (who had seen the pastel on the occasion referred to at paragraph 40) that as a result of what had happened during the fire, the heat and humidity had affected both the pastel and the paper:

• He agreed with Mr Stevens' evidence that the frame had provided no protection;

indeed he considered that it had made matters worse as it had to some extent acted

as an oven.

• The paper was made of fibres which were held together by a matrix; the matrix had been cooked by the heat and it did not hold itself together as well when it dried out.

• In consequence, the paper was less able to withstand minor changes in atmospheric conditions; this was evidenced by the rippling of the paper when the pastel was inspected out of its frame. This would exert further mechanical stress on the pigments of the pastel increasing the likelihood of dislodgement. The paper was also more brittle. Mechanical movement of the paper during the fire may have altered the position of the pastel pigment.

• The pastel was made up of a powder with pigments of colour held together with a matrix, most commonly gum arabic which was comprised of small crystals; the crystals gave the pastel its shine. The heat and the humidity had caused molecular change, the effect of which depended on the extent of the heat and the humidity. In simple terms, he considered that the heat and humidity were similar in effect to an oven and the crystals were cooked and became like flour; in consequence, they lost their adhesion and shine:

• Loss of adhesion: The pastel appeared in good condition, but with time each particle of pigment would fall away. He did not consider that long term damage would have been visible in 1995. No physical test to determine the full extent of the damage could have been carried out without the risk of further very serious damage to the pastel.

• Loss of shine or brilliance. When he had seen the pastel in 1993, he considered, using his great experience of pastels and the works of Degas, that it was more brittle than a normal pastel and its shine had changed; a person with less experience and sensitivity might not be able to detect that change. He accepted that there were no marks or traces on the pastel which would have been present had the humidity been very high.

• He considered that the picture would have to be kept with the greatest care and no purchaser could be certain of the extent of the damage.

83. In his report, Mr Graf concluded that it was impossible to assess the long term effects of the fire upon the pastel; he felt that some long term effects would have become apparent, beyond the bowing and tensioning, if the factors had been so extreme as to cause concern. High heat and humidity would have caused some darkening of the hues in the pastel strata or the smooth texture of the pastel surface would have turned more granular, but neither of these effects were reported as being present.
84. Mr Graf agreed with the explanation of molecular change advanced by Mr Dordevic. He also agreed that sub molecular changes at a chemical level had occurred and were irreversible. He considered that the fire had accelerated the ageing process; he expressed this in terms that instead of the picture being 120 years old, it was as a result of the fire 140 or 150 years old to be judged against a time scale that could be very long indeed. He also accepted that because of the depth of the pastel used by Degas, his pastels were among the most fragile. However, he had seen no evidence that the changes had become apparent. He would have expected some changes to manifest themselves if the heat and the stress had been extreme, particularly in the light of the movements of the pastel after the fire. However he accepted that, given the sub-molecular damage, it was uncertain how that damage would develop and manifest itself and it needed to be treated with greater care; if the picture were to be part of a museum collection, it would have to be monitored every few years to check its condition. He could not say whether there in fact had been a reduction in brilliance, as he had not seen the pastel. The lack of brilliance observed by Mr Dordevic was often the subjective view of an expert, as experts differed in their subjective views of the brilliance of pastels, and such views might depend on whether they knew or did not know of the fire.
85. If he had been asked to assess the position after the fire in 1991, he would have agreed with Mr Dordevic's view that it was certain that there had been sub-molecular damage and he would have said "who knows how that damage will develop".
86. Mr Dordevic agreed that a pastel should always be kept in a closed or sealed frame, though the paper always had to be allowed to breathe.

Conclusion on the damage caused by the fire

87. On the evidence before me, I am satisfied that the fire caused the following damage:

• The paper had been damaged by the heat and humidity and then the cooling. Apart from the minor tears, it wrinkled when taken out of the frame which Mr Stevens had made for it and was likely to do so whenever removed from its frame, for the reasons given by Mr Stevens ( as set out at paragraph 35). This meant that there was more risk involved in looking at the pastel removed from its frame and thus more risk in examining the true colours of the pastel out of the frame.

• There was clearly sub-molecular damage to the pastel itself with resultant greater fragility of the pigment; this gave rise to the risk of loss of adhesion. It is in my view important that this had not, either in early 1992 at the time the restoration was completed or in 1995 manifested itself in actual loss of adhesion, though, because the pastel is now owned by an anonymous collector, there was no evidence of what had happened since then. However there must have been a known risk of loss of adhesion in the period immediately after the fire and that risk must, on the evidence before me, in so far as is relevant, remain. The important matter is that there was a risk of loss of adhesion and the nearer in point of time to the fire, the greater the uncertainty as to the extent of that risk.

• I also accept the evidence of Mr Dordevic that there had, on a balance of probabilities, been a loss of brilliance; this was, however, only detectable to the highly expert eye. It would not have been discernible by an experienced collector (such as the anonymous collector who bought the picture in 1995) who would be the most likely purchaser of the picture. The initial report of Mr Dauberville, referred to at paragraph 38, supports this view; he came to the conclusion that there was no visible damage. So does the account given by Mr Stevens of the views of Mr Austin who saw the picture after the fire and who had seen it in the company of a prospective purchaser only a few days before the fire.

• The board to which the pastel had been attached had had to be replaced because of the bowing and the infection by mould. I accept the evidence of Mr Stevens that it was an important fact that the pastel was not on its original board; I prefer this evidence to that of Ms Ganz who did not think that this was a significant point as, according to her, most Degas pastels had new backboards. Mr Stevens was clearly a person of far greater expertise than Ms Ganz who I did not consider to be sufficiently expert in relation to Degas to express any opinion of weight.

• The picture was more vulnerable to damage than it had been; I accept the evidence of Mr Stevens to this effect. The damage which Mr Stevens had to repair in September 1993 is an illustration of the greater risk to which the picture was subject.

Conclusion on the damage recoverable under the policy

88. Underwriters contended that apart from the paper tears and bowing of the board (which they accepted to be direct physical damage), there was no other direct physical damage.
89. I do not agree with that submission on the facts of this case as I have found them to be. I accept that depreciation in value because of the suspicion of possible physical damage is not covered; I also accept that indirect physical damage is not covered. However, I have found that there was sub molecular damage to the pastel caused by the fire; that was, in my view, damage to the picture. In my view such damage is clearly direct physical damage resulting from the fire, even though it might not be visible and its extent could not be determined without testing which could not be carried out because of its effects on the pastel. That conclusion is supported by a decision of a Tasmanian court in Ranicar v Fridge Mobile Pty Ltd [1983] Tasmanian Reports 113.
90. The sub-molecular change gives rise to the shortening of the life of the pastel and the risk of deterioration. As time passes and no deterioration occurs, the risk must become less, but I have to assess that risk at the time the damaged value has to be ascertained immediately after the fire.
91. Furthermore it seems to me clear that in assessing the diminution in value of the picture, I must take into account the view which the market would take of the value of the picture with the physical damage I have found existed. It may well be that the market attributes to such damage a much greater monetary effect than a detached and rational analysis might suggest; however, it is common place that in the case of more prosaic goods that have suffered minor damage (such as damaged cargo), the diminution in value might in consequence be greater than might at first sight be assumed, because of the view taken by the market of such goods. That is a function of the market's view of the value of goods which have suffered damage as a result of an insured peril; it is not a separate element of "stigma".

Issue (3): The value before and after the fire

The time at which the damaged value is to be ascertained

92. The Claimant contended that the time for assessment of the damaged value should be "after restoration but assessed as at immediately after the fire". The underwriters accepted that contention prior to the trial.
93. This agreement gave rise to a slight gloss; it is clear from my findings in respect of damage that immediately after the fire, no one could have expressed a view on the extent of the damage to the pastel itself and its adhesion. It seems to me clear that the assessment of the damage and further risk of deterioration was to take place at the time restoration was complete. That would be the time at which it was first possible to make an assessment of that risk and so it must be implicit in the agreement reached.
94. The approach must therefore be to ascertain the market value on 8 October 1991 on the assumption that the restoration had been carried out by then; as the restoration took a period of 4 to 5 months, I must assume that there had been 4 or 5 months to assess the risk of further damage.
95. In ascertaining the market value, I am not concerned with events after October 1991 such as the auction sales in November 1991, save in so far as they lend support to or undermine the differing views expressed as to the market value at that date.

The relevant market

96. There are two distinct parts to the market in works of art of the quality and value of La Danse Grecque.

• The auction market dominated and controlled by Christie's and Sotheby's through the sales held each year in London and New York in the spring and autumn; there are no relevant auctions at other times of the year.

• The private dealers' market where sales are made discreetly by private agreements.

Prices achieved in these different markets can be very different; for example a dealer will buy at an auction if he perceives that the price is such that he can achieve a higher price with a client or range of clients he knows.

97. Estimates for auctions at Sotheby's and Christie's and achieved prices at these auctions are made public. The prices for private sales are not, though dealers will have a fair knowledge of the price achieved on sales by others who deal in similar works of art.
98. It was at one stage suggested that, as auction prices are made public, that must have been the only relevant market contemplated by parties. That suggestion was not pursued and was quite unsustainable.

The relevant legal principles

99. There was very little authority that counsel could find, despite extensive research, on the approach to the valuation of a work such as La Danse Grecque.
100. I consider that the task of the court is to ascertain the price that could be achieved between a willing seller and a willing buyer within a reasonable period of time in the relevant market or markets; if there is an open market price, that should be ascertained. That test is, it seems to me, consistent with the approach taken in relation to the sale of goods (see Benjamin 5th edition paras 16-055 to 16-073 and McGregor 16th edition para 923), the approach to valuation under many statutes (such as s 160 of the Inheritance Tax Act 1984 and corresponding provisions of other revenue statutes, s.9 of the Leasehold Reform Act 1967 and s.459 of the Companies Act 1985), the observation of Colman J at paragraph 24 of his judgment in The Timbuktu (28 March 2000) and the general guidance by the Royal Institute of Chartered Surveyors as to the basis for valuations conducted by them.
101. In assessing the value, I should take into account whatever evidence is available: see Professor Clarke's The Law of Insurance para 28-38. That will include evidence of prices obtained at auctions: see Luxmoore-May v Messenger May Baverstock [1990] 1 WLR 1010 at p 1026-7.
102. There is some guidance in three tax cases as to what the court should do where there were two markets. In Holders v IRC [1974] 2 All ER 819, there were two markets for the conversion of currency. In the New Zealand Court of Appeal, Turner P. observed:

"Where there are two markets and the question is what is the value, the economists tell us that the question is begged by selecting arbitrarily one of the available markets rather than the other. In such a case the value, is the value in the market actually used, or if neither is used, the value in the higher of them."

Lord Wilberforce, in the appeal before the Privy Council, approved the approach of Turner P.

103. In Holt v IRC [1947] 1 All ER 148, the court had to determine the full market value of whisky where there were two markets; the Court of Appeal held that it was the best price obtainable on any available market. Similarly in Mouat v Betts Motors [1959] AC 71 the Privy Council held that a price on a surreptitious market should be used, if that gave the correct measure of the loss. In the Canadian case of Cote v The Queen (20 November 1998), Garon J in the Tax Court of Canada was concerned to establish the value of gifts of works of art. The court noted that there were two markets - the gallery market and the auction market; on the facts of the case, the court looked at all the available evidence in relation to each particular work of art.
104. On the bases of these authorities, it seems to me that I ought to have regard to the market where it was likely that the higher price would be obtained - the dealers' market. Furthermore that was the market where the Claimant was more likely to sell the picture and therefore it more accurately reflected the loss against which the Claimant is entitled to be indemnified. If, on the facts, it was clear that the Claimant would have used the market where the price was likely to be lower, the position might be different, but on the facts of this case, I am satisfied that in October 1991 the Claimant and Mr Uppstrom were going to sell on the dealers' market. However the dealers' market and the auction market did not operate in isolation and it is relevant to take into account the available evidence in relation to both.
105. The commissions in the market for works of art of this value are very large indeed -whether the sale is by auction or through a dealer. Should they be taken into account? In my view they should not be. Commissions are not normally taken into account in valuations and I see no reason to do so in this market.
106. It was common ground that there was no market for the damaged pastel. In the circumstances, I will follow the approach suggested by Devlin J in Biggin v Permanite [ 1951 ] 1 KB 422 at 43 8-9. He observed that one could rarely arrive at an accurate figure of damaged value; in the absence of precise evidence " the court must do the best it can."

Factors that influence the market

107. A number of factors had to be taken into account in assessing the market value of a work of art of the quality and value of La Danse Grecque. On the evidence before me, these included:

. No two works were identical.

• The judgment of the quality of a picture was highly subjective; what one person sees and appreciates might not be what another sees and appreciates. Whereas it might be possible to achieve a consensus as to whether a particular picture was to be treated as a major work or a minor work, beyond that views were highly subjective. It was common ground that La Danse Grecque was not a celebrated masterpiece of Degas, but in the upper tier of Degas' work.

• The provenance of a work was important; it was not in issue that La Danse Grecque had a distinguished provenance, as it had been handled by celebrated galleries in Paris and owned by distinguished collectors.

• It was important to see the actual work; although transparencies or other reproductions gave an indication of the quality, it was better to see the actual work.

• Exposure of the picture to market might affect value; some sales were achieved by public exposure at an exhibition or auction. Other sales could be achieved by discreet and exclusive private marketing.

• Collectors often liked to own works of art that had not been publicly for sale or marketed extensively and were prepared to pay a premium for that.

• At an auction, the price obtained depended on a number of factors; if two were bidding against each other, then the price might be dramatically higher. On a rising market, a better price might be achieved at an auction, whereas on a falling market, the price might be worse than a private sale. Selling at auction was much more a matter of luck and chance.

• The reaction of the market to a work would probably affect its value; for example, a failure to sell at auction would adversely affect the value.

• Sales of comparable works were a guide. Plainly the use of comparables was much more difficult and subjective than in the more common case of valuing houses or offices. It was necessary to eliminate the subjective as far as possible.

• A work might because of its subject appeal to a particular group of collectors; it would not be right to take this factor into account if the group was so small as to have no material effect on price or to be difficult to identify. A factor peculiar to a particular purchaser would have to be discounted. It was common ground that La Danse Grecque would be of particular appeal to a Greek national and this would be a selling point.

• It was possible for a purchaser to overpay or to obtain a bargain price in any particular transaction in this market. Each transaction had to be carefully considered.

The general trends in the market

108. There can be little doubt that there was what was described as the "bull market" in 1989; Mr Dauberville described it in his report as a " marche fou" (a crazy market). The general market in Impressionist pictures fell during 1990, 1991 and 1992. That was the clear evidence of Mr Jennings and Mr Roundell and is supported by information about the market in general. It was not disputed by Mr Dauberville that what he described as the market for "trophies" - well known works of art - collapsed in late 1991-2. He also considered that the lower end of the market declined rapidly as well with the low point in that market occurring between the autumn of 1991 and the spring of 1992.
109. However, it was Mr Dauberville's view that there was always someone ready to buy a good quality work of art in the mid range whatever the market; what one had to do was to approach a sufficient number of collectors to get the right price. The mid range was much less susceptible to cycles.
110. The Claimants adduced statistics produced by Art Market Research intended to support the view that the works of Degas broadly maintained their value; however, Mr Dauberville had merely been provided with these figures and there was no one to explain them in detail. As far as I could discern they covered a very wide range of values and I was not persuaded that they were very helpful.
111. On the other hand, although I accept that prices obtained at auctions showed a decline, it would have been difficult to gauge the scale of that decline in October 1991; although there had been three sales in 1990, there had been no relevant sales of pastels by Degas in 1991 or in 1992 until the November sales. It would therefore have been difficult accurately to gauge the position in October 1991.
112. Furthermore the evidence of the auction market in 1992 did not point to a very large fall in respect of the works of Degas where it is possible to draw a comparison with earlier prices:

• Danseuses au Tamborin (c 1882) although sold at Christie's New York for $1.76m in May 1989, it was unsold at Christie's New York in May 1992

• La Danseuse Russe (c 1895), although sold at Christie's London in November 1989 for the sterling equivalent of $777,150, it was sold at Sotheby's New York for $615,000 in May 1992

• Trois Danseuses (c 1904-6) although sold in April 1989 at Sotheby's London for the sterling equivalent of $1.163m was unsold at Sotheby's New York in November 1992 at $950,000.


 


All of these sales were after the time at which I have to .assess the value; they are therefore of indirect relevance in showing a trend. Of the one picture sold, the decline was about 10%; in the case of one of the pictures that was unsold, the decline would have been about 20% if the last bid had been accepted; in the case of the third, the decline would have been 70% (on the same basis), though by November 1997, it was sold for $1,432,000. The price at which a picture is unsold is not what it is worth.

114. In 1992, only one further relevant Degas pastel was sold at auction - la Toilette Matinale . Furthermore in 1993 when 3 Degas pastels were sold at auction, the prices were in excess of the estimates and in two cases, Danseuses se Baissant (c 1885) and Danseuses Russes (1895), considerably in excess. Although the two which sold substantially in excess of the estimates were agreed to be at the top of the range of Degas work and superior to La Danse Grecque, the prices achieved showed a strong auction market.

113. It was common ground that in 1991 there was a gap between prices obtained at private sales and auctions and that the prices were higher in private sales than at auctions. Mr Roundell considered the gap was narrow. Mr Dauberville did not think the gap was as narrow as Mr Roundell suggested. Mr Thomas' evidence was that he would expect, if he bought at an auction, to make a gain of 20-30% when he on sold the work. That does not mean that the prices were 20-30% higher generally, but that when he bought a particular work at auction, he would expect subsequently to obtain a price 20-30% greater. The margin must be dependent on the circumstances of the auction and a whole number of other factors. On the evidence, I do not think it is possible to be more precise as to the extent of the difference.
114. It was also the case that by the late summer of 1991, it was not a good time for sellers; that had been Mr Hook's advice to Mr Brynildsen. Mr Uppstrom agreed during his evidence that it was not a good time to be selling.

My conclusion on the relevance of the contemporary transactions

115. I have set out my conclusion in relation to Mr Jennings' valuation in 1990 that it was given after sight of the picture. It is very difficult to reconcile the valuation in the letter of October 1990 with the figures given to the receiver in July 1991 (as set out at paragraph 28); I am sure that Mr Jennings was a witness who was doing his best honestly to help the court. He was severely disadvantaged by the fact that the contemporary records could not be found despite the search made by Christie's. One possibility is that he used the wrong records when speaking to the receiver, as the figures for the value in 1989 and 1990 in the note were so different to those he set out in his letters. If he had made this error, then this would explain the very low valuations given then in 1991 and subsequently in 1992. Another suggestion, made on behalf of the Claimant, was that, if the figures were correct, they might show the practices of an auction house in a poor light. Another suggestion was that the figure for 1989 was the figure given by Mr Roundell after he had seen the picture with Mr Uppstrom.

However each of these suggestions is speculation and the best course is for me to rely only on the evidence he gave in relation to the letters written in 1989 and 1990. It seems to me that Mr Jennings is likely to have used much greater care in ensuring he got matters right when he committed himself in writing in July 1989 and October 1990 than in the telephone enquiry. As the figures for 1989 and 1990 recorded in the receiver's note are at such variance with the letters actually written, it seems to me that the letters are much more likely to be an accurate expression of Mr Jennings' views. In the circumstances, I therefore attach very considerable weight to the opinion as stated in the letter of October 1990, given the facts as I have found them to be, but I attach very little weight to his views of the valuation at the same point in time as recorded in the note of July 1991 and subsequently in 1992, in all the circumstances.

116. I am satisfied on a balance of probabilities, as I have set out, that first Mr Balfour-Oatts and then Mr Uppstrom did make extensive efforts to sell the picture privately in 1990 and 1991 prior to the fire. Although the picture was fresh to the market in the sense it had not been sold at auction, it had been extensively marketed and did not have the premium attaching to a work that had had little exposure. From the evidence of Mr Thomas, it is clear that they were seeking well over $5m and something approaching $6m. I reject Mr Uppstrom's evidence in this respect as less than candid.
117. I have little doubt but that Mayfair Fine Art were influenced in the price that they were seeking for the picture by the debt that they had accumulated under their facility with the Claimant; by October 1990, the amount due (on a rate of interest of 12.5%) was $4.837m and by October 1992, $5.442m. Although Mr Uppstrom suggested that he did not keep an eye on the debt and that it was not a concern to him, an indebtedness of this size was bound to influence the decision making of any competent businessman, which Mr Uppstrom certainly was, who had given his personal guarantee in respect of it.
118. Apart from the negotiations being conducted by Mr Thomas, the evidence was not sufficient to be able to conclude that any figure being talked of was sufficiently firm to give an indication of the market price. It is clear they could not achieve a sale at the level they were seeking.
119. In assessing the negotiations being conducted by Mr Thomas in the autumn of 1991 with the Greek shipowner, it is necessary to bear in mind that the sale was not actually achieved and that the preparedness of the prospective purchaser to pay a price in excess of $5m was probably influenced by the fact that the pastel was of particular national appeal.
120. Furthermore Mr Thomas' evidence must be contrasted with the evidence in relation to the St James' Art Group; although I accept that there were good reasons why the picture did not sell, as it arrived towards the end of the exhibition and was not part of the exhibition, the view of as experienced a dealer as Mr Bathurst that the value of the picture was $3-3.5m must be taken into account, though, as I have stated, it was so priced to achieve a reasonably quick sale and so might be on the low side. I do not draw any inference that the fact that it did not sell shows this figure was too high. It is also significant that the St James' Gallery sold Danseuse rajustant son chausson for more than $3m. The evidence of Mr Jennings and Mr Dauberville was that this was a work of less value than La Danse Grecque, but Mr Roundell) was more equivocal. The range given by Mr Bathurst coincides with what I infer was the figure being contemplated by Mr Austin's client and referred to as a "serious buyer" in the letter from the insurance broker of 26 September 1991- $3m. As this was the figure mentioned by the buyer, it is a further fair inference that he was prepared to go higher.
121. Although the sale through Ms Ganz to the anonymous purchaser in 1995 was nearly 4 years after the event, it provides some helpful evidence. I will deal below with the sale from the Claimant to Tonilock as that is primarily relevant to damaged value. The sale to the client of Ms Ganz is some evidence of the price achieved on the dealers' market for the picture in its undamaged state; however, the price achieved must be treated with caution as Mr Uppstrom and Mr Wheldon were not going to say anything about the fire unless asked and would not have risked engaging in detailed discussions.
122. However, I do treat Ms Ganz's evidence that had she known of the fire and its effects it would not have influenced her decision to present the pastel and encourage the purchaser to buy it with some caution. She was not an expert in Degas pastels and thus did not have sufficient expertise to advise. It seems to me inconceivable that any serious collector would have proceeded to pay over $3m without having an expert report from someone with recognised expertise on the effects of the fire on the pastel before making a purchase.

My assessment of the expert evidence

123. Mr Roundell, Mr Dauberville and M LeBouc were all experts well qualified to express an opinion of the value of the works of Degas. They were all men of independence and integrity and did their best to help the court. The views of the two main experts, Mr Roundell and Mr Dauberville were very much coloured by their own experience; Mr Roundell believed great weight should be attached to the prices achieved at the auctions run by Christie's and Sotheby's; this reflected his substantial experience, though he is now a private dealer. Mr Dauberville coming from a very distinguished French house thought that the private market gave a better price and therefore a better valuation.
124. I have had regard to the comparables relied on by the parties, to many of which I have already referred. I have approached this evidence with a degree of caution given the inherent difference between pastels of this quality, the highly subjective judgements involved and the fact that I have seen none of the pastels in their original state. As an example of the highly subjective element, a comment on Trois Danseuses (c 1896) was " It is an interesting work, but the girls are ugly. Like La Danse Grecque, I would not expect this work which is interesting, but not pretty to achieve its best price at auction".
125. The sale of Trois Danseuses (c 1896) is, however, significant as it was one of the pastels sold in 1990; as set out in paragraph 15, Mr Jennings had taken this into account in his valuation of 23 October 1990 and therefore considered that La Danse Grecque was more valuable; that was also Mr Dauberville's opinion. Although Mr Roundell agreed with Mr Dauberville that Trois Danseuses was in the same zone for Degas' work as La Danse Grecque, and that it was not as good as La Danse

Grecque, he did not agree on the valuation and appears to have thought it was less valuable than Mr Dauberville. He would not give a valuation other than an indication that it might support a valuation of $3-4m.

126. It was also unfortunate that Mr Roundell could not recall the value he had attributed to La Danse Grecque when he saw it in 1989. The fact that he would not express a more definite view about Trois Danseuses was, in my view, due to a realisation on his part that a proper valuation would support the valuation given by Mr Jennings in 1990 and detract from his own view of the value in 1991 as expressed by him in 1992. The sale of another pastel entitled Trois Danseuses (c1900) is also important as it was the last relevant pastel sold at auction prior to the fire and achieved a price of $2.64m. Both Mr Roundel) and Mr Dauberville were agreed that this picture was not as good as La Danse Grecque, but they disagreed on the scope of the difference and the valuation; Mr Roundel) explained the difference as entirely subjective.
127. Considering his evidence as a whole and his evidence in relation to the comparables, I considered that Mr Roundell's valuation of the picture before the fire at $1.8-$2.4m was far too low and was on analysis unsustainable. It was based on far too pessimistic an assessment of the auction market, a reluctance to accept the consequences of a proper analysis of the information available to him later and an adherence to his initial view that had become untenable. As I have said, he could not recall the figure at which he had valued the picture in 1989; he is plainly not to be criticised for that. But there is the valuation of Mr Jennings in October 1990 which, on the facts as I have found them to be, was after he had seen the picture with Mr Roundel) and no doubt discussed the value with him. I found it very disappointing and very unhelpful that Mr Roundel) would not express a definite view on the valuation of October 1990; he said it was too high and that it should have been lower, but he would not, despite a perfectly proper series of questions, give a figure. I did not find his reasons for refusing to do so at all convincing. I do not believe it was reluctance to criticise a former colleague, but it would have exposed his own analysis as wrong and that the figure he had initially given in 1992 was unsustainable in the light of a proper analysis of all the available evidence. A drop to $1.8 - $2.4 was far too great a drop in the auction market against any realistic figure he could have given for October 1990, given the comparables. My criticism and rejection of his evidence on value does not in any way cast doubt on his integrity and independence and his desire to do his utmost to help the court; he was in my view simply reluctant to accept that his initial view expressed when much less information was available was unsustainable.
128. It is striking that every other contemporary figure (whether valuation, estimate or indicated offer) for the picture was higher than Mr Roundell's views. It is also difficult to see how his valuation is consistent with the price at which Danseuse rajustant son chausson was sold by the St James Art Group in the summer of 1991.
129. On the other hand, I consider that Mr Dauberville's valuation of $5-6m was much too high. It attached too great a weight to the chance of being able to sell the work to a particular purchaser or someone of Greek nationality and did not reflect sufficiently the fall in the market that had occurred. In my view he attached too much weight to the fact that it was a rarity; he had not known of the extensive marketing by Mr Uppstrom and Mr Balfour-Oatts. In the range of works shown to me, I think he overemphasised the unusual nature of the subject and was over-influenced by its subjective appeal to him.
130. The Claimant placed very substantial reliance on the negotiations through Mr Thomas; they pointed to the fact that the price of $5.4m would represent about a 30% premium to what they submitted was the auction price band of up to $4m by October 1991. But that relationship between the values was pure coincidence and there was no completed sale to the Greek shipowner; he was in my view a purchaser who had a particular interest in the picture and, if he had purchased it, it would have been at a price level that would not properly have reflected what would generally be obtained.
131. In making my assessment, I have taken into account the prospects of finding a private purchaser without special characteristics that would make the picture specially valuable to him, the general course of the dealings on which I have already expressed my view and in particular the negotiations between Mr Thomas and the Greek shipowner, the view of Mr Bathurst and the indication of an offer made in September 1991 from Mr Austin's client.
132. In my view the best price that would have been achieved would have been in the dealer's market which was the market that Mr Uppstrom and the Claimant intended to use at the time in October 1991.However, there was not that great a differential between that market and the auction market. The price there would only have been a little lower.
133. I am quite satisfied that the picture had a value in excess of $3m but not greater than $4m in the sense of the price likely or reasonably expected to be obtained between a willing seller and a willing buyer.
134. Doing the best I can in what is a very difficult area of assessing value, I consider that the value was towards the higher end of that bracket; for example a prospective buyer was unlikely to have indicated an offer in the region of $3m if he was not willing to go higher. In my assessment, taking all these factors into account, I have come to the conclusion that the value was $3.6m on the dealers' market immediately preceding the fire.

The damaged value after the fire

135. Mr Roundell assessed the depreciation as 20%; Mr Dauberville at 80% if assessed immediately and 55% if assessed in March 1992. The difference between them was large and no doubt reflected the difficulty of assessing the depreciated value and their lack of experience in selling works of this value that were damaged.
136. Mr Roundell's view was based on the assessment contained in Mr Stevens' report; he would not give in cross examination a depreciation figure on the basis that Mr Dordevic was correct in relation to the consequences of the sub-molecular damage.
137. Mr Roundell's evidence was that one would not put the picture into an auction in the late autumn of 1991 because the fire was too recent an event; indeed I would be surprised if the picture was put into an auction until there was definite evidence of its final condition. It would seem to me that there would be a real risk of not finding any buyer and depressing the price still further. An auction would also run the risk of achieving a literal "fire sale price".
138. I am also satisfied that the range of those interested in the picture in its damaged state would have been fewer; although there were dealers who would have been prepared to market it, a large number would not. Furthermore, the number of museums and serious collectors likely to be interested would have been few; I consider the evidence of Mr Dauberville was correct on this point.
139. In valuing the picture after the fire, I must look at the risks of further deterioration as they might have been assessed at the time (on the assumption that restoration work had been carried out). Even allowing for the few months that had elapsed by the end of that, it would have been difficult to assess what long term effect the sub molecular damage might have had.
140. On the other hand, I have to treat Mr Dauberville's figures of 80% (if put on the market in 1991) and 55% (given in April 1992) with some caution. He plainly had no actual experience of selling such works in a damaged state.
141. Furthermore, it is necessary to take into account the sale by the Claimants to Tonilock; this was, on the Claimant's case an arms' length sale and took into account the fact that Tonilock knew of the fire and were prepared to pay $2.7m. Unless a very high valuation is given to the picture, this makes Mr Dauberville's figure of a depreciation of 55% untenable at that time. Clearly by 1995, a considerable period of time had elapsed from the fire and therefore there was less uncertainty about the long term position; the market had recovered and the price paid to the Claimant was heavily influenced by what Mr Uppstrom was able to obtain from Ms Ganz's client; but, even allowing for those matters, this must reflect on the accuracy of the assessment of depreciation by Mr Dauberville.
142. Doing the best I can and taking into account the fact that I am dealing with a work of very high value, considering that the uncertainty present in October 1991 (allowing a few months for conservation and thus time to see if any of the sub-molecular damage had manifested itself) and taking into account that Mr Dauberville's figure was given in April 1992, I consider that its value in its damaged state would have been $2.2m.

Conclusion

143. I therefore conclude that the Claimant is entitled to recover $1.4m under the policy of insurance.