News:

The discovery in a Munich flat of a hoard of over 1400 artworks acquired by Hildebrand Gurlitt in dubious circumstances during the Second World War has been making headline news.  The current value of the collection of artworks has been estimated at over €1 billion and contains previously unknown works by Matisse, Chagall, Picasso and Renoir.

Gurlitt, an art dealer and collector, allegedly assisted Hitler in pillaging art from Jews in Germany and other countries occupied by the Third Reich.  After the war, he reportedly claimed that the artworks had been destroyed in an air raid, when in fact he hid the collection and passed it to his son, Cornelius Gurlitt.

Gurlitt Jr (now about 80 years old) is under investigation for tax evasion.  The artworks were discovered in February 2012 when his Munich flat was raided by the German authorities.  The authorities have seized the artworks, but they have apparently not charged Gurlitt with an offence.

The German authorities are gradually publishing details of the treasure trove found in Gurlitt’s flat.  Relatives of the former owners are beginning to stake their claims.  How likely is it that they will be successful?  The law of restitution is complex and claims can take a long time to resolve.  Claimants will be expected to prove ownership and their right to pursue the claim as heirs of the original owner.  A fundamental obstacle in their way could be the rules on limitation.  Depending on the jurisdiction in which claimants bring their claims, they may find that the claims have expired, because too long a period of time has lapsed since their forebears lost possession of the artworks.

Statutes of limitation set out restrictions on the period in which someone may bring a claim.  The rules are fairly technical, and their application depends on a number of factors.  For instance, the limitation period may vary, depending on the circumstances in which the owner lost possession.  Was the artwork stolen?  Was it lost?  Was it sold at an undervalue?  The time periods vary from country to country (and, in the US, from state to state).  Fundamental questions arising under the relevant law will be, first, when does the limitation period start from, and, second, for how long does the limitation period run?

The objective of the limitation rules is to strike a balance between, on the one hand, the interests of the dispossessed owner, and on the other, the certainty of legal transactions.  The argument in support of limitation is that, after a period of time, the property may have changed hands many times.  If it were open to the victim of the original offence to claim the property without limitation in time, successive transactions, some of which concluded in good faith, would need to be unravelled, leading to significant uncertainty for buyers, complicated legal disputes and potentially unfair results.  To take account of the fact that the Nazi regime was particularly horrendous, certain countries (e.g. France) have relaxed the rules on limitation to facilitate the recovery of property by the families of victims of the regime.

In England, the general principle is that you cannot pass ownership of goods if you did not have ownership in the first place.  Accordingly, a thief cannot transfer ownership, and the person taking property from the thief cannot pass ownership either.  This means that, in principle, the victim of theft can claim stolen property in the hands of anyone in whose possession he finds it.  However, there are exceptions to that principle: under English limitation rules, if property was stolen, and subsequently acquired for value by a purchaser in good faith, the victim of the theft is time-barred from bringing a claim six years after the first good faith acquisition.  If there has been a purchase in good faith, or if the first purchase in good faith was less than six years before the claim was brought, then a claim by the original owner is not time-barred.  In other words, if you are the victim of theft, and you make a claim against the person in whose possession the property is found, that person has a valid defence if he can show that either he or someone in the chain of possession acquired the property for value in good faith more than six years before you made the claim.

In New York, as in England, the general principle is that you cannot pass ownership of goods if you do not have ownership in the first place.  Accordingly, neither the thief, nor a person taking from the thief, can transfer ownership.  However, in New York too, there are exceptions to that principle.  Under the “demand-refusal rule”, the limitation period does not begin to run until the dispossessed owner has, on discovering the location of the stolen property, notified a good faith purchaser of his claim to the property, and the purchaser has refused to return the property.   The dispossessed owner has a period of three years to start his claim from the date of refusal by the possessor to return the property.  If he does not do so, his claim will be barred.  If he does make a claim within the three year period, he has a live claim, no matter how long ago the theft may have taken place.

By contrast, German law provides that an original owner has a period of 30 years, commencing on the date of acquisition by the possessor of the work, in which to bring a claim, irrespective of whether the possessor acquired the work in good or bad faith.  This means that, after 30 years, a thief may be in a position to claim good title to the property he acquired through theft.

The significant differences in approach on limitation between jurisdictions means the claimants of works in the Gurlitt hoard need to give serious consideration to where a claim should be brought.  Would a claim need to be brought in Germany, or could a claimant persuade another court to accept jurisdiction?  Bringing a claim in the courts of one jurisdiction does not necessarily mean that those courts will apply the limitation rules of that jurisdiction.  They will apply their own conflict of law rules, which are, in themselves, complex, leading the court to apply their own limitation rules or the limitation rules of another country.  In England, the courts may conclude that they must apply the limitation rules of another country, but decline to do so, on grounds of public policy.

In the case of City of Gotha v Sotheby’s (No.2) (QBD, 1998), the Federal Republic of Germany and the City of Gotha claimed a 1603 painting by Joachim Wtewael consigned for sale by auction to Sotheby’s in London.  The consignor was Cobert Finance, a Panamanian company.  The painting had disappeared from the collection of the Dukes of Saxe-Cobourg-Gotha in the City of Gotha at the end of the Second World War.  It was accepted that Cobert Finance, the possessor of the painting, had not acquired it in good faith, suspecting that it may be a stolen but making no enquiries to allay that suspicion.  As there had been no good faith purchase, under English rules of limitation, the claim would not have been time barred.  However, the English court was required to apply the German limitation rules.  As mentioned above, the German limitation period is 30 years from when the work comes into the hands of the possessor.  In certain circumstances, a new 30-year period begins to run each time the work changes hands.  The court found that a new limitation period had begun to run in 1987 and therefore the claim was not time-barred in 1998.  Nonetheless, the court was obliged to consider whether, had the limitation period expired, it would have applied the German rule.  The Hon Mr Justice Moses stated:

“It does seem to me possible to identify, from [the Limitation Act 1980], a public policy in England that time is not to run either in favour of the thief nor in favour of any transferee who is not a purchaser in good faith.  [..] To permit a party which admits it has not acted in good faith to retain the advantage of lapse of time during which [the Federal Republic of Germany and the City of Gotha] had no knowledge of the whereabouts of the painting and no possibility of recovering it, is, in my judgment, contrary to the public policy which finds statutory expression in Section 4 [of the Limitation Act 1980].  To allow [Cobert Finance, the party who consigned the painting for sale to Sotheby’s] to succeed when, on its own admission it knew or suspected that the painting might be stolen or that there was something wrong with the transaction or acted in a manner in which an honest man would not, does touch the conscience of the court.  […] there is no reason why a defendant in the position of [Cobert Finance] should be protected from this claim […].”

Returning to the Gurlitt case, if German rules of limitation apply, it may well be the case that any claim brought today would be out of time because more than 30 years have passed since Gurlitt Jr came into possession of the artworks.  Whether courts outside Germany have jurisdiction over claims to the artworks, and whether such courts would apply limitation rules more favourable to the claimants, will depend on the facts in each case.

The German government may be forced to intervene to avoid a situation where the German Courts are compelled to acknowledge Gurlitt Jr’s ownership rights to some or all the artworks discovered in his flat.  There are precedents in other countries where the state has confiscated artworks and returned them to a foreign claimant.  For example, in United States v An Antique Platter of Gold (2nd Cir. 1999), the US government relied on a violation of US Customs law to seize and confiscate an antique Sicilian gold platter so it could be returned to its rightful owner, the Republic of Italy.  The government successfully contented that the importer of the platter into the US had falsely declared on the US Customs form that Switzerland was the country of origin of the item, when in fact the country of origin was Italy.  This may seem like a technicality, but the New York appeal court authorised the government to forfeit the gold platter on that (and another) ground.  It is difficult to draw parallels between cases where the facts are so totally different.  However, the German government may well be able to rely on an existing statute (for example, the laws on money laundering) to justify the confiscation of the artworks found in Gurlitt Jr’s possession.  The German government may also decide to intervene because the circumstances are such that applying the law would be so iniquitous as to shock the collective conscience.

Whatever the German government decides, we can be sure that any claims will not be resolved any time soon.