Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby's Australia - [2014] NSWSC 1840

Supreme Court

New South Wales

Case Title: Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby's Australia

Medium Neutral Citation: [2014] NSWSC 1840

Hearing Date(s): 15 December 2014

Decision Date: 19 December 2014

Before: Sackar J

Decision:
See paragraph [94]

Catchwords: COSTS - indemnity costs - where application for preliminary discovery in relation to unidentified vendor of painting - where application for interlocutory injunction - where leave sought by plaintiffs to discontinue proceedings - where late enquiries revealed no basis for proceeding with application - whether defendant entitled to indemnity costs

Legislation Cited: Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005

Cases Cited: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd and Ors [2008] NSWCA 243
Bi v Mourad [2010] NSWCA 17
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32
Cummins v Australian Jockey Club Ltd [2009] NSWSC 254
Executors of the Estate of the late Valerie Marshall Olsen v Second East Holdings Pty Ltd t/as Sotheby's Australia [2014] NSWSC 1675
Fordyce v Fordham [2006] NSWCA 274
Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230
Harrison v Schipp [2001] NSWCA 13
Leichhardt Municipal Council v Green [2004] NSWCA 341
Levis v McDonald (1997) 75 FCR 36
Liu v The Age Company & Ors [2010] NSWSC 1176
Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165
McBride v Christie's Australia Pty Limited [2014] NSWSC 1729
Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission (NSW) [2006] NSWCA 129
Packer v Meagher [1984] 3 NSWLR 486
Re The Minster for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622
Richards v Cornford (No 3) [2010] NSWCA 134
The Age Company Ltd & Ors v Liu [2013] NSWCA 26

Texts Cited: J D Heydon, Cross on Evidence (9th edition, 2013)

Category: Principal judgment

Parties: Timothy John Olsen as Executor of the Estate of the late Valerie Marshall Olsen - first plaintiff
Louise Sarah Olsen as Executor of the Estate of the late Valerie Marshall Olsen - second plaintiff
Second East Auction Holdings Pty Ltd t/as Sotheby's Australia - defendant

Representation

- Counsel: Counsel:
C O'Neill - plaintiffs
J E Richards - defendant

- Solicitors: Solicitors:
Kay and Hughes - plaintiffs
John F Morrissey & Co Lawyers - defendant

File Number(s): 2014/342426

JUDGMENT

Proceedings

To be heard on 15 December was an application by the plaintiffs for preliminary discovery pursuant to rule 5.2 of the Uniform Civil Procedure Rules 2005 and an application for an interlocutory injunction.
The plaintiffs had sought an order that the defendant provide any documents, and attend the court to be examined, as to the identity or whereabouts of the vendor of a certain painting which the defendant had put forward for sale in the course of their business of auctioning art in Australia. The plaintiffs also sought to renew an application for an interlocutory injunction to restrain the defendant from disposing, selling or in any way transferring the painting until further order.
I was notified by email on Friday 12 December at 5.07pm that the plaintiffs intended to discontinue their application in the following terms:
Dear Associate,
I act for the Plaintiffs to the above proceedings, set down for hearing on preliminary discovery and an interlocutory injunction before His Honour on Monday, 15 December 2014.
I am instructed that on Monday the Plaintiffs will discontinue their application. Accordingly, the only matter that may remain for determination by His Honour is costs.
The parties are currently negotiating in relation to that issue and we are hopeful it will be resolved.
I have discussed this email with Ms Richards, counsel for the defendant prior to sending it. Ms Richards is copied to this email.
My clients apologise to the Court for the inconvenience.
At the hearing on the morning of 15 December therefore, the only issues presented were whether the plaintiff should be given leave to discontinue and what if any appropriate order should be made as to costs.
Subject to costs, it seemed to me there could be no rational basis for not giving leave to discontinue, there being no suggestion for instance that the proceedings were an abuse of process: Packer v Meagher [1984] 3 NSWLR 486.
The plaintiff sought that there be no order as to costs, while the defendant claimed indemnity costs. At the conclusion of oral submissions, I gave my decision that the plaintiff be given leave to discontinue and was to pay the costs of the defendant on an ordinary basis only and I indicated I would provide reasons. These are those reasons.

Legal principles

Discontinuance and the legal principles as to costs

The Uniform Civil Procedure Rules 2005 (UCPR) contains rules at Part 12 (Discontinuance, withdrawal, dismissal and setting aside of originating process), Division 1 (Discontinuance of claim) which provide:
Division 1 Discontinuance of claim
12.1 Discontinuance of proceedings
(1) The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant:
(a) with the consent of each other active party in the proceedings, or
(b) with the leave of the court.
(2) A notice of discontinuance:
(a) must bear a certificate by the plaintiff, or by his or her solicitor, to the effect that the plaintiff does not represent any other person, and
(b) except where it is filed with the leave of the court, must be accompanied by a notice from each party whose consent is required by subrule (1) to the effect that the party consents to the proceedings being discontinued in accordance with the notice of discontinuance.
(3) If any such consent is given on terms, those terms are to be incorporated in the notice of consent.
(4) If any party has not been served with the originating process, the plaintiff must file an affidavit to that effect.
(5) For the purposes of this rule, proceedings on a cross-claim are taken to be different proceedings to the proceedings on the originating process and to proceedings on any other cross-claim.
12.3 Effect of discontinuance
(1) A discontinuance of proceedings with respect to a plaintiff's claim for relief does not prevent the plaintiff from claiming the same relief in fresh proceedings.
(2) Subrule (1) is subject to the terms of any consent to the discontinuance or of any leave to discontinue.
...
42.19 Proceedings discontinued
(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1 (2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
A Court will usually however, with appropriate orders as to costs, grant leave to a party to discontinue proceedings.
In Re The Minster for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625, McHugh J set out, in the particular statutory context before his Honour, "the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means":
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried... But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
[Citations omitted]
Under the presently applicable rules in the UCPR, the result of discontinuance is that the costs must be paid by the discontinuing party "unless the court orders otherwise" (r 42.19). It is clear that the rules require the discontinuing party to provide proper justification for any costs order different from the conditional direction contained in the rules.
In Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32, Hodgson JA (with whom Tobias and Basten JJA agreed) said at [53]-[54]:
[53] It has been said that UCPR 42.19 does not give rise to a presumption that costs will be ordered against the discontinuing party: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [65].
[54] However, like UCPR 42.20, UCPR 42.19 states what the order for costs is to be unless there is a discretionary decision to order otherwise: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]. This means there is an onus on the discontinuing party to make an application in respect of costs if it does not propose to pay the costs of the other parties: Foukkare at [65]. In my opinion, it also means that there must be "some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines at [54].
Basten JA said (at [74] and [78]):
[74] ... The general costs rule set out in s 98 of the Civil Procedure Act 2005 (NSW) does not identify the limits of the court's discretion with respect to costs. The most important limitation for present purposes is the requirement that, again subject to the court otherwise ordering, costs should follow the event: see r 42.1. If that rule were to be applied, absent persuasion that the court should otherwise order, the plaintiff would be required to pay the costs of discontinuance. It seems likely that it is consistency with that general principle which underlies the default consequence provided in r 42.19. If that rule has application with respect to a discontinuance (and no reason was proffered as to why it should not) the discretion to make a costs order under r 42.19 will be confined by that general principle. In that respect, it may be misleading to describe the discretion under r 42.19 as "unconfined": see Fordyce at [87].
...
[78] This approach is not entirely consistent with that outlined in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625, where McHugh J concluded that where "both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings". However, the rule pursuant to which the applicant sought costs in the High Court conferred an open discretion: see High Court Rules 1952 (Cth), O 71, r 39, set out at 623. Further, his Honour held that where there had been no hearing on the merits, "a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order": at 624. UCPR rr 42.1 and 42.19 indicate that a different approach may properly be taken by this Court in respect of both issues upon which his Honour relied: see also Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [64].
In Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365, Bryson JA (with whom McColl JA agreed) said at [48]:
[48] [The relevant] passage from Lai Qin is not readily applicable to decision under r 42.20(1). UCPR r 42.20 is not entirely consistent with McHugh J's observation that the proper exercise of the costs discretion will usually mean that the Court will make no order as to costs. Justice McHugh's observations were directed to the discretionary power in O 71 r 39 of the High Court Rules (Cth), set out in Lai Qin at 623, which was discretionary overall, whereas in contrast r 42.20(1) creates a starting point by requiring " ... the plaintiff must pay the defendant's costs of the proceedings ... " unless that outcome is displaced by a discretionary decision. It should in my opinion no longer be said that if the moving party, or if both parties have acted reasonably in commencing and defending proceedings the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings; observance of the starting point under r 42.20 will make this outcome less usual than it earlier was.
It has been said that some matters for consideration in exercising the discretion to make other than the usual orders will be the reason the proceedings were discontinued, whether the discontinuance is a consequence of having achieved practical success in relation to the claim (Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 at [32] and [34]), whether the defendant has acted unreasonably in its opposition to the plaintiff's claim, whether the defendant's conduct has caused unnecessary costs to be incurred, and whether the proceedings have been rendered futile by circumstances beyond the parties' control (Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission (NSW) [2006] NSWCA 129; at [23] and [39]).
In Fordyce v Fordham [2006] NSWCA 274 Santow JA observed (at [3]):
[3] I would wish to add this observation on one aspect of the reasons on UCPR 42.19 and 42.20. I consider the fact of discontinuance is likely to be a factor of some weight in exercising the discretion to determine whether the discontinuing party should be ordered to pay the other party's costs. While it is true the Court may otherwise order, the onus remains on the discontinuing party to justify such an order by reference to the circumstances said to justify exception to the normal cost outcome in such event. That the Court retains a discretion to accommodate such circumstances does not alter their character as being by way of exception nor the consequence in terms of onus. That said, the discretion remains to otherwise order.
The cases, especially the more recent decision of Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32, indicate that for the purposes of determining costs under r 42.19, there is no "presumption" that the discontinuing party pays the costs of the proceedings. However, a court commences with a predisposition that the party seeking discontinuance ought to be characterised as an unsuccessful party, and that unless there is some sound positive ground or good reason for departing from the ordinary course, the discontinuing party should pay the costs of the proceedings. In Lai Qin, the discretion with which McHugh J was dealing in the statutory context of that case was completely unhindered by any statutory predisposition.
However, notwithstanding the different statutory context, it is clear that the considerations referred to by McHugh J in Lai Qin are not irrelevant. In Fordyce v Fordham [2006] NSWCA 274, McColl JA (with whom Beazley JA agreed) said (at [84]) that:
[84] ... Other relevant considerations were...usefully gathered in Lai Qin...notwithstanding, as the discussion below reveals, that they were decided in a different statutory context.
Here of course there is no need to speculate on prospects. The plaintiffs having made some recent enquiries led to Mr John Olsen recalling giving the painting away. This had an obvious and somewhat dramatic impact on the future of the litigation.
In relation to indemnity costs, in Harrison v Schipp [2001] NSWCA 13 at [139], Giles JA observed that "departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down". Caution must be exercised when departing from making costs orders on the usual basis: Leichhardt Municipal Council v Green [2004] NSWCA 341.
I made the following observations in Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 at [25]:
As noted in Ritchie's (at [42.5.5]), costs may be ordered on an indemnity basis under s 98 of the Civil Procedure Act 2005 and, perhaps, under the court's incidental power to control its proceedings (Walton v McBride (1995) 36 NSWLR 440 at 461). There are a variety of cases where indemnity costs have been awarded pursuant to the court's general discretion. Although the discretion is absolute and unfettered, it must be exercised judicially in the sense that there is some special or unusual feature in the case justifying such an award (Mead v Watson (2005) 23 ACLC 718 at [8] per Sheller, Ipp and Tobias JJA). Situations in which indemnity costs have been ordered include where a party has misled the court or conducted the proceedings in a way to cause unreasonable delay and expense (Wentworth v Rogers [1999] NSWCA 403 per Handley and Stein JJA and Sheppard AJA), or maintained proceedings which had no chance of success such as a case involving fraud allegations known to be either untrue or irrelevant (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 per Woodward J), or maintained proceedings for an ulterior purpose (Cultus Petroleum v OMV Australia [1999] NSWSC 435 per Santow J), or unreasonably delayed an admission of liability for the purpose of obtaining a tactical advantage (Rouse v Shepherd (No 2) (1994) 35 NSWLR 277 per Badgery-Parker J).
An order for indemnity costs is based on the conduct of a party against whom it is made that relates to the proceedings themselves. While the categories of conduct giving rise to a claim for indemnity costs are not closed, cases brought without chances of success, cases that are an abuse of process and unreasonable conduct in the proceedings such as fraud or misleading the court may all constitute grounds for the granting of such an order. Attempts to settle the proceedings through offers of compromise and Calderbank letters, along with the giving of notice that a party intends to claim indemnity costs, are also relevant factors.

Contentions of the parties

In essence, the plaintiffs argued that they should avoid a costs order because the defendant had failed to disclose the identity of the vendor, and this justified no order as to costs.

The defendant on the other hand argued that the plaintiff had not made reasonable enquiries to a sufficient or adequate level prior to commencing proceedings and was therefore responsible for the defendant incurring unnecessary costs in defending proceedings which in effect should not have been brought.

Background facts

Within the court file are a number of affidavits which set out the history of the matter. Although only one affidavit was formally read before me at the hearing, it is implied from a previous judgment of Stevenson J in this matter (see Executors of the Estate of the late Valerie Marshall Olsen v Second East Holdings Pty Ltd t/as Sotheby's Australia [2014] NSWSC 1675) that the affidavit of Mr Timothy Olsen at least was read. Nevertheless, I am of the view that I am entitled to have regard to the other affidavits even if merely on the question of costs.
The plaintiffs, Mr Timothy Olsen and Ms Louise Olsen, are the executors of the estate of their late mother Mrs Valerie Olsen. The plaintiffs are the children of Mrs Valerie Olsen and Mr John Olsen.
Mrs Valerie Olsen passed away on 14 October 2011 and probate of her will dated 23 August 2011 was granted on 2 December 2012. It is unnecessary to set out the terms of the will, other than to note that plaintiffs are entitled to the whole of her estate as tenants in common in equal shares (clause 3) and that an art collection is listed as an asset of the estate without any reference to specific paintings (Annexure C).
It cannot be gainsaid that Mr John Olsen is an artist of international repute.
In or about 1964, Mr John Olsen painted an artwork known as "The Mother" (the painting). It is signed by him in the lower left hand corner, and an inscription on the back of the painting in Mr John Olsen's hand reads "For my darling Valerie, John Olsen '64". That painting was given it seems as a gift by Mr John Olsen to his wife Valerie to mark the birth of their daughter Louise (who was born on 24 January 1964).
It is asserted that in or about 1966, the painting was lent by Mrs Valerie Olsen to the Commonwealth Festival Exhibition in Nottingham, England. An exhibition label to this effect is still attached to the painting.
Mr John Olsen gave evidence (paragraph [18]-[19] of his affidavit dated 24 November 2014) that he last remembered seeing the painting hanging in his house at Watson's Bay, in which he lived from approximately 1961 until 1967. At some point he moved to Dural and he did not remember seeing the painting hanging in that location. He also gave evidence that the painting "may never have returned from England" although he could not remember if he saw the painting after the Nottingham Festival or not (paragraph [25]-[26] of his 24 November affidavit).
Ms Louise Olsen gave evidence (in her affidavit of 25 November 2014) that as a teenager, her mother had told her that there were artworks belonging to her mother which had gone missing in the United Kingdom. Ms Louise Olsen asserts that her mother appeared angry and frustrated and said words to the effect of:
There were paintings [sic] that never came back from England. I don't know what happened to them. They were a beautiful, special gift to me from your father. It really annoys me.
Ms Louise Olsen asserts a similar conversation occurred approximately once a year throughout her mother's lifetime, and more frequently in the last few years. On one occasion, Ms Louise Olsen gives evidence that her mother said words to the following effect:
I don't know what to do about the paintings that went missing in England. Your Dad has better connections to chase them, but everyone strings us along or gives us the run around. So much time has gotten away.
Mr Tim Olsen gave evidence for example (in his affidavit of 20 November 2014 at [7]) that he spoke to his mother in the last few years of her life when she said words to the effect of:
There was a painting that John did for me when Louise was born that disappeared and it has constantly worried me throughout my life.
Mr John Olsen and Mrs Valerie Olsen had separated in 1979 "on amicable terms" but appear to have remained in frequent and friendly communication until her passing in 2011.
In or about July 2014, the first plaintiff became aware that the painting was being offered for private sale by the defendant, Second East Auction Holdings Pty Ltd trading as Sotheby's Australia (Sotheby's Australia). Mr Tim Olsen became aware of the proposed sale through a business acquaintance, Mr Marcus Seow, who rang him to enquire about the provenance of the painting.
Sotheby's Australia is an auction house, and is in the business of selling art in Australia by auction or private treaty. It apparently has possession of the artwork and has consistently, as will become apparent, refused to disclose the identity of the apparent owner even after requested by NSW police.
It is necessary in considering the question of costs to examine the conduct of the parties, as can be gleaned from some of the correspondence passing between them.
On 29 July, the solicitors for the plaintiff (at that point Nicholas Eddy and Company) wrote to the directors of the defendant in the following terms:
We are the solicitors for the Olsen Family. We are instructed that you have in your possession the above painting painted by John Olsen in 1964 and inscribed "For my darling Valerie, John Olsen '64' " on the reverse of the painting.
John Olsen gave the painting to his wife Valerie on the birth of their daughter. Valerie Olsen never sold the painting and it was always in her possession and ownership. Mrs. Olsen is now deceased.
The late Mrs. Olsen had an emotional attachment to that painting as did the family and she would not have parted with possession of the painting under any circumstances.
Our client, Tim Olsen had requested you to provide him with the provenance of the painting and you have refused to give this information to him.
Our clients believe whoever gave you the painting to sell are not the rightful owners of the painting and the rightful owner is the Estate of the Late Mrs. Olsen.
We note from the condition report that the canvas was rolled and not in a frame. The painting was in a frame when it was in our client's possession.
We require your undertaking not to part with possession of the painting and not to sell the painting until this matter is resolved.
Should we not receive your undertaking within 24 hours we have been instructed to commence legal proceedings without further notice.
We put you on notice that you should inform the person who gave you the painting to sell and any prospective purchasers of the contents of this letter.
[emphasis added]
On 30 July, solicitors for the defendant (at that point, John F Morrissey and Company) replied in the following terms:
We act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia.
Our client has today provided us with a copy of your letter dated 29 July 2014 addressed to our client and received after 5:00 PM on 23 July 2014.
Your letter contains various assertions, including an assertion that "the rightful owners of a painting known as The Mother" is the property of the Estate of the Late Mrs. Olsen.
We are instructed that the painting was not the property of Mrs. Olsen when she died. However, so that our client may consider the assertions set out In your letter, we would be grateful if you would let us have the following:
1. A copy of the grant of probate and inventory identifying the painting referred to in your letter.
2. The name and details of the executor or executors of the estate of the Late Mrs. Olsen.
Should your client elect to commence legal proceedings, we would ask that you give us 24 hours' notice of any application and that you attach this letter to any material your client intends to rely on. We note that although you have sought an undertaking from our client you have not offered any undertaking as to damages.
Our client otherwise reserves its rights to rely on this correspondence in any application that your client may bring including in relation to an application that your client or clients pay our client's costs on an indemnity basis.
We would also be grateful if you would clarify precisely on whose behalf you are acting as we are unsure from your letter whether you act for the executor or executors of the Estate of the Late Mrs. Olsen and whether that Is the capacity in which you act for Mr Tim Olsen.
[emphasis added]
On 4 August 2014, the solicitors for the plaintiff replied in the following terms:
We refer to your letter of the 30th July, 2014.
You state that the property was not the property of Mrs. Olsen when she died. Our client Tim Olsen requested your client to provide to him the provenance of the painting which they refused to do. We have given you the provenance, it was Mrs. Olsen's painting.
The Executors of the estate were Tim and Louise Olsen the children of the late Mrs. Olsen.
We are not required to provide you with an undertaking as to damages and we note that your client has not given the undertaking that we requested.
We confirm that we have instructions to act on behalf of the Executors of the Estate.
If your client asserts that our client is not the true owner of the painting then this can be easily resolved by you providing us with evidence of the provenance of the painting which to date you have failed to do. Your client has also failed to provide the undertaking and our correspondence with be used in any evidence should your client choose to sell the painting.
[emphasis added]
On 11 August, the solicitors for the defendant replied in the following terms:
We refer to your letter dated 4 August 2014.
As nothing in your letter advances your client's claim of ownership of the painting, we are instructed our client will proceed to offer the painting for sale.
On 12 August, the solicitors for the plaintiff replied in the following terms:
We refer to your letter of 11th August, 2014.
Despite our request and our clients request for your client to provide the provenance of the painting you have failed to do so. It is clear that your client is unable to establish ownership of the painting. We have put you on notice that the painting belongs to the Estate of the late Valerie Olsen and that the painting was a gift from her husband John painted by him to celebrate the birth of their daughter Louise. The painting was never sold by the late Mrs. Olsen or by any member of the family.
It is clear that the painting has been stolen from Mrs. Olsen and our clients are referring the matter to the police.
We again request that you provide evidence of ownership and provenance. We will be using all of this correspondence in any proceedings.
[emphasis added]
The solicitors for the defendant replied on the same day in the following terms:
We confirm that we act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia.
We refer to your recent telephone conversation with Mr Morrissey on 12 August 2014 and to your letter dated 12 August 2014.
You have advised Mr Morrissey that your instructions were that the painting was stolen after being sent to a restorer.
You advised Mr Morrissey that our client had not disclosed the basis on which it had established provenance.
Mr Morrissey reminded you that Sotheby's Australia had satisfied itself in respect of provenance and ownership of the painting and it did not propose to disclose any further matters.
In your letter, you state that it "is clear that the painting has been stolen from Mrs. Olsen" and you have not provided any particulars. So that our client may properly respond to these allegations, please provide the following further and better particulars;
1. When is it alleged that the painting was stolen?
2. Who was the restorer that the painting was allegedly stolen from?
3. What action, if any has your client taken against the restorer regarding the alleged stolen painting?
4. Has the matter been reported to the police prior to 29 July 2014?
5. If it has not been reported, why hasn't it been reported?
6. If it has been reported, please provide us with any police records relating to that report.
You further indicated to Mr Morrissey that the only course available to your client was to take the matter to the police and you have advised us in your letter that your clients are referring the matter to the police.
We are instructed that Sotheby's Australia would be happy to respond to any investigations made by the police and they will cooperate with any police investigation.
In this regard, could you ensure that any complaint your client makes to the police has attached to it a copy of this correspondence. For the purposes of completeness, we are attaching to this correspondence the following letters:
1. Your letter to Second East Auction Holdings Pty Ltd of 29 July 2014;
2. Our letter to you of 30 July 2014;
3. Your letter to us of 4 August 2014;
4. Our letter to you of 11 August 2014; and
5. Your letter to us of 12 August 2014.
In the event that the NSW Police wish to speak to any representative of Sotheby's Australia, they are happy to meet with the representatives of the NSW Police or other police forces in this office.
Could you provide a copy of this letter to the police force that your client may elect to refer the matter to.
[emphasis added]
On 13 August, the solicitors for the plaintiff replied in the following terms:
We refer to your email of 12th August, 2014.
Your third paragraph is incorrect. At no time did I state that the "painting was stolen after being sent to a restorer". I stated that the painting had been stolen. At no time did our client or the executors sell the painting. We have given you the provenance of the painting namely that it belonged to the late Mrs. Olsen and at no time did she sell the painting. You have been unable to provide a provenance and we can only assume that you are unable to.
The fact that "Sotheby's Australia had satisfied itself in respect of provenance and ownership of the painting" means nothing.
The fact you are not prepared to "disclose any further matters" is to say the least unhelpful.
We will provide copies of all correspondence to the Police.
[emphasis added]
Some further correspondence passed between the parties in relation to service and notification of instructions to commence legal proceedings on 15 October and 16 October, but it is not presently relevant.
In August 2014, Mr Tim Olsen went to see the NSW Police Force in order to commence investigations into the possibility that the painting was stolen. He suggests in his affidavit that this occurred in September, but the correspondence would seem to suggest an earlier date.
On 25 August, Mr Morrissey received a phone call from a Detective Michael Capon from the NSW Police with a number of queries regarding the painting. Mr Morrissey then sent a letter to Detective Capon in the following terms:
We refer to our earlier telephone correspondence and confirm that we act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia.
We are currently awaiting instructions from our client in regards to your earlier queries and anticipate being in a position to provide you with further information shortly in assistance with your investigation.
In the meantime, please feel free to telephone myself or Chris Lowe of my office on 02 9331 0266.
On 26 August, Mr Morrissey sent a further email to Detective Capon in the following terms:
We refer to our letter dated 25 August 2014 and confirm that we act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia.
We are attaching our letter to Nicholas Eddy, the solicitor for the Olsen Family dated 12 August 2014 (including the attachments referred to therein) as well as Mr. Eddy's letter in response dated 13 August 2014.
You will note that there has been a fair amount of correspondence between this firm and Mr. Eddy between 29 July 2014 and 13 August 2014.
We have requested that Mr. Eddy provide our office with various information and material. Mr. Eddy has failed to provide that information and material. We do not know the basis on which the Olsen family is making a claim and our client maintains its position that they have satisfied itself in respect of provenance and ownership of the painting.
On the same day, Detective Capon replied to Mr Morrissey in the following terms:
Dear Sir/Madam,
Thankyou for the attached correspondence.
To further this investigation can you please provide me with:
1. The identity and contact details of the current owners of the painting.
2. The current location of the painting
On 10 September, Mr Morrissey received an email from Detective Chelsea Funnell from the Rose Bay Local Area Command. That email was in the following terms:
Good Morning Sir,
Please see correspondents [sic] below dated 26 August 2014.
Detective Sergeant Capon requested the following information in relation to the John Olsen oil canvass, 'The Mother',
1. The identity and contact details of the current owners of the painting.
2. The current location of the painting
Ample time has been given for the requested information to be provided however it is yet to be supplied. It is requested that Sotheby's Australia are forthcoming with the requested information within the next 24 hours. If the requested information is not supplied the matter will be investigated in full.
Many thanks for your prompt assistance.
[emphasis added]
Mr Morrissey replied the same day in the following terms:
Thank you for your email of 10 September 2014.
We are currently obtaining instructions from our client, Second East Auction Holdings Pty Ltd trading as Sotheby's Australia and we will provide you with a response shortly.
On 11 September, Mr Morrissey sent a letter to both detectives in the following terms:
As previously advised, we act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia. We refer to previous correspondence and to your email of 10 September 2014.
Briefly, in response to your two questions, we advise that our client is obliged to keep the identity of the owner of the painting and other details about it confidential. That our client is subject to such obligations of confidence should not be interpreted as an admission of any sort; such obligations are commonplace.
We have, on behalf of our client, attempted to ascertain details underpinning the assertions set out in the letter dated 29 June 2014 of Nicholas Eddy & Company. We provided Detective Michael Capon with a copy of that letter on 26 August 2014, together with copies of other correspondence between our office and of Mr Eddy. As you will have seen in that letter, Mr Eddy asserted that the painting was "always in [the Late Mrs Olsen's] possession and ownership" and is owned by the Estate of the Late Mrs Olsen. Mr Eddy stated that unless our client undertook not to part with possession or to sell the painting until the matter raised by him was resolved, he was instructed to commence legal proceedings without further notice. We responded to Mr Eddy by letter dated 30 July 2014, a copy of which was provided to Detective Michael Capon on 26 August 2014. As you will see from our letter, we did not offer any undertakings. We advised that on our instructions the painting was not the property of the Late Mrs Olsen when she died. We sought information from Mr Eddy.
To date, we have not been served with any legal proceedings. We asked for a copy of the grant of probate, which may have shed further light on Mr Eddy's claim, but we have not been provided with a copy of the grant of probate.
Further correspondence, summarised below, was exchanged with Mr Eddy. Copies of that correspondence were provided to Detective Michael Capon on 26 August 2014.
In his letter of 4 August 2014 Mr Eddy again asserted that the painting was that of Mrs Olsen. By our letter of 11 August 2014 we noted that as Mr Eddy's letter of 4 August 2014 did not advance the matter, our client would proceed to sell the painting.
On 12 August 2014 we received a letter from Mr. Eddy stating, for the first time, that, contrary to his earlier assertion that the painting had always been in the possession of the Late Mrs Olsen, "tl]t is clear that the painting has been stolen from Mrs Olsen". No details supporting that claim were supplied. Accordingly, on 12 August 2014 we sought the following specific details (as taken from our letter):
1. When is it alleged that the painting was stolen?
2. Who was the restorer that the painting was allegedly stolen from?
3. What action, if any has your client taken against the restorer regarding the alleged stolen painting?
4. Has the matter been reported to the police prior to 29 July 2014?
5. If it has not been reported, why hasn't it been reported?
6. If it has been reported, please provide us with any police records relating to that report.
Mr Eddy responded to our letter on 13 August 2014 but he did not respond in terms to any of our enquiries. It appears that Mr Eddy erroneously considers that our client bears the burden of disproving his bare assertion that the painting was stolen.
We have not been provided with any information by Mr Eddy or any other person that could support Mr Eddy's claim made on 12 August 2014 that the painting had been stolen from Mrs Olsen.
If Mr Eddy or any other person has provided you with any supporting information, we would be pleased to receive it so that we may pass it to our client, as our client takes these allegations most seriously.
Our client, together with other entities in numerous locations around the globe, has a significant and well-established reputation. Mr Tim Olsen, the son of the artist Mr John Olsen, is an art dealer in Sydney controlling the sale of many artworks created by his father. To the extent that our client has occasion to offer for sale works by Mr John Olsen, there is commercial competition between Mr Tim Olsen and our client. If Mr Eddy has any basis on which to make good his clients' latest claim, that claim may be tested in court proceedings. Having declined to commence the threatened civil proceedings or to even provide us with any of the information we have requested, Mr Eddy, on behalf of his clients, has now agitated his clients' assertion through you.
We are at a loss to understand the basis of the assertion that the painting has been stolen but we reiterate that our client remains open to the provision of any information, as previously requested, or otherwise.
[emphasis added]

On 12 September, Mr Morrissey sent a letter to both detectives in the following terms:
I refer to my letter of 11 September, could you acknowledge receipt of same.
I have had a further opportunity to review the totality of the material available to me and at the present time I am still not able to identify what is meant to be the alleged crime. Could you provide that detail to me.
As you are aware I act for Sotheby's Australia. By acting for
Sotheby's Australia I also act for its employees and Directors in this manner. If you wish to make any contact with Sotheby's Australia, its employees or Directors you should do so through this office.
An email was sent to Mr Tim Olsen by Detective Chelsea Funnell from Rose Bay Local Area Command to the effect that the police would not be pursuing an investigation. That email was in the following terms:
Afternoon,
Tim I'm aware that you're still in the UK. I have just had a phone conversation with Mr Eddy in relation to the report you made to Paddington Police Station in regards to the John Olsen oil canvas 'The Mother' being stolen.
I was asked by my supervisor Detective Sergeant Capon to seek advice from the Police Prosecutions Command, Operational Legal Advice in relation to the matter. Subsequently I have been advised that the matter is a civil matter as we are not able to prove larceny beyond reasonable doubt for the following reasons;
- There is lack of documentary evidence concerning the agreement between the artist and the gallery in the UK who was loaned the art work
- Considering the age of this matter and the fact that the owner was not aware that the property was missing for over 40 years
- There does not appear to be any evidence of who may have originally stolen the painting
- It may be the case that the painting was given to the gallery as a gift or permanent loan
- How many owners has the painting been sold and bought by over the past 40 years?
- Even if the current owner of the work is disclosed, without an admission from the person that stole the work larceny would never be proved due to the length in time since its last viewing.
The matter will be suspended and not investigated as a criminal matter.
It is recommended that a caveat is placed on the work to prevent it from being sold whilst the respective lawyers argue the legitimately or otherwise of the rightful owner of the property.
It is also recommended that you contact the Department of Fair Trading. I made some enquiries with them and it's believed that Sotheby's may be breaching their auctioneers licence by not disclosing the current owner of the work.
I have obtained a number of statements in relation to the matter. Please do not hesitate to contact Government Information Public Access services NSW to have all documentation subpoenaed.
If you have any further questions please do not hesitate to contact me.
[emphasis added]
On 13 November, the solicitors for the plaintiffs (now a firm named Kay and Hughes) wrote to the solicitors for the defendant in the following terms:
We act for the Olsen Family, and the Estate of the late Valerie Olsen.
We write further to your correspondence with our clients' previous solicitor, Nicholas Eddy, of Nicholas Eddy & Company, pursuant to which we understand that you act for Second East Auction Holdings Pty Ltd trading as Sotheby's Australia.
As you are aware, our clients seek the immediate and permanent return of the oil painting "'The Mother", as painted by John Olsen in 1964 (the "Painting"). The painting was the property of the late Mrs. Valerie Olsen. There is (and will not be) any record or knowledge of Mrs. Olsen having transferred ownership of the Painting to any third party prior to her death in 2011. Further, and given that the Painting was created for her on a hors d'commerce basis to celebrate the birth of her daughter, Louise, there is no basis upon which anyone could assert that she would have contemplated transferring ownership of it to any party outside her immediate family.
It is therefore of extreme concern to our clients that the Painting is currently in the possession and control of your client, and, as confirmed in your letter dated 11 August 2014, will be offered for sale in the immediate future by your client, acting as agent for an unknown third party (the "Seller").
As has already been detailed to your client extensively and repeatedly, our clients emphatically dispute your client's right to possess, retain, sell or otherwise deal with the Painting.
Equally importantly, they dispute the Seller's legal title in the Painting, the provenance of which your client has refused to confirm despite several months of correspondence between solicitors.
To be clear, it is our clients' firm position that the Executor of the Estate of Valerie Olsen is the true current owner of the Painting, and that Tim Olsen and Louise Olsen, as the sole beneficiaries of Valerie Olsen's Estate, are entitled to ultimate legal and beneficial ownership of that property.
On behalf of these parties, we are instructed to demand the Painting's immediate safe return.
In this, having reviewed the correspondence to date, it is perplexing that your client, despite consistently alleging that it has satisfied itself of the provenance of the Painting, and the Seller's legal ownership thereof, has been wholly unwilling or unable to provide even basic information that could support any such conclusion.
As you will be aware, it is considered standard industry practice for auction houses such as your client to confirm the provenance and historical ownership of substantial artworks prior to their advertisement and sale, and experienced buyers will regularly require and be granted the provision of such information prior to their purchase of any work.
In this contest, the information requested by our clients cannot in any logical sense be inherently confidential, which makes any request for it reasonable and commonplace.
Your client's continued refusal to identify any legitimate right pursuant to which they are entitled to refuse our client's demand for the Painting's lawful return is concerning. Despite being given every opportunity, your client has failed to provide our clients with any information or records supporting any right of possession or ownership of the Painting as compared to that detailed and confirmed by our clients.
Simply put, if your client genuinely believes that the Seller holds legal title in the Painting, and has access to facts or records that support that conclusion, the simplest course of action would be to provide that information to our clients as a matter of urgency and resolve this dispute.
In the absence of such cooperation, our clients can only interpret your client's continuing intransigence as an effort to somehow delay, obfuscate, or confuse their efforts to recover their property.
Accordingly, our clients will not tolerate any further obfuscation or delay in this matter. You client has two options, it can either immediately return the Painting or urgently provide the following information:
Confirmation that the Painting remains in your client's possession and control;
The full name and contact details of the Seller claiming ownership of the Painting;
The full basis of the Seller's alleged ownership of the Painting;
All information that your client has relied upon in determining that the Seller holds full legal title in the Painting, and is entitled to sell it via your client;
The alleged provenance of the Painting; and
Confirmation that you have provided all potential purchasers of the Painting with full details of our clients' claims in relation to the Painting.
Further, in the event the Painting is not immediately returned, our client requires that you provide an undertaking that your client will not sell, auction, dispose of, transfer or otherwise deal with the Painting in any manner without first providing our client with forty eight (48) hours written notice of their intention to do so (the "Undertaking").
The Undertaking is of particular and urgent necessity given that your client is conducting an auction of Important Australian and International Art on Monday 25 November 2014.
In the event that you fail to either return the Painting or supply the requested information and Undertaking, prior to 5pm on 14 November 2014, we put you on notice that our client intends to commence proceedings against your clients without further notice to you. Such a claim will include an injunction restraining your client and the unidentified Seller from selling or in any way transferring ownership or possession of the Painting. We will attach this correspondence (and all correspondence preceding it) in support of any application for damages and costs. Our clients will also be drawing the Court's attention to the conduct of your clients in concealing the identity of the Seller and the provenance of the Painting on any such application.
Have no doubt that this is a deeply felt matter for our clients, as the Painting holds special, unique and personal value to their family that is not compensable by money. They will not cease until they have obtained the return of their rightful property, together with a satisfactory explanation for these events.
We await your urgent response.
In the interim, our clients continue to reserve their rights in this matter.
[emphasis added]
On 14 November, the solicitors for the defendant wrote to the solicitors for the plaintiff in the following terms:
1. As you are aware we act for Second East Holdings Pty Ltd trading as Sotheby's Australia.
2. We acknowledge receipt of your letter dated 13 November 2014 which adds nothing further to the correspondence of your clients' former solicitors and does nothing to advance the matter and provides no support for the claim being made. It is only a reiteration, albeit more aggressively, of a demand previously made and denied in July 2014. It contains no evidence new or otherwise to support your clients' demand. We refer you to our letters to Mr Nicholas Eddy, your clients' then solicitors dated 30 July 2014 and 12 August 2014 to which your client has failed to provide the requested further and better particulars necessary to advance or substantiate their claim. What we have requested would be mandatory in any proceeding commenced by your clients and they would be doomed to failure without any substantiation.
3. The last correspondence from your clients' then solicitors, on 15 October 2014, advised that they had instructions to commence legal proceedings against our client and requested whether we had instructions to accept service. We responded to Mr Eddy on 16 October 2014, another letter that you clients' have failed to respond to.
4. You would have been able to review our client's catalogue for the auction of Important Australian and International Art to be held on 25 November 2014 online and your client was sent a catalogue for the sale by our client. You will have noted and would have been instructed that no reference is made in the catalogue to the Painting.
5. Further, we are instructed that our client does not intend to include the Painting in that auction on 25 November 2014. More importantly your client would be fully aware of this as no request for copyright to reproduce the painting has been made which would be necessary to offer the painting for auction. We understand that all requests for copyright are forwarded to your client for approval from Viscopy. However, given your clients' persistent failure to address any of our previous correspondence, our client reserves the right to offer the painting for private sale if we again do not receive a full response to our letters of 12 August and 30 July 2014 within 7 days of this letter.
6. We note that you have copied a number of Sotheby's personnel in to your email of 13 November 2014. Please advise us the basis for you doing so. We require you to desist from circulating to third parties communications in which you make allegations against our client. We consider that your letter is both malicious and defamatory of the Directors of our client. The contents of your letter has the potential for interfering in the contractual relations between our client and Sotheby's, and, if any loss or damage is suffered by our client or its Directors, our client and its Directors will look to you, personally, and your clients for payment of additional costs and damages for your contumelious behaviour. Our client and its Directors reserve all of their rights in that regard and we will use this letter on the question of costs and punitive damages for malice should there be a repetition of this behaviour.
7. If, as you say, your client "emphatically" disputes our client's right to possession of the painting, we again ask that you provide us with a detailed response to our letters of 12 August 2014 and 30 July 2014 to your clients' former solicitors.
8. Should your clients be so ill advised to proceed with any application before the Court please provide all our correspondence to you and your clients' former solicitors to the Court and provide us with 7 days' notice of any such application so that we can provide answering material and be prepared to appear on the return date.
[emphasis added]
On 20 November, the solicitors for the defendant again wrote to the solicitors for the plaintiff in the following terms:
I refer to Mr Ben Kay's telephone attendance on Mr Morrissey and Mr Lowe this afternoon.
My client is fully engaged in preparation for holding an auction for Important Australian and International Art to be held in Sydney on 25 November 2014.
It should be noted that this painting is not a part of that auction.
It is suggested that you would be having a return date of this matter on Wednesday of next week.
My client advises that it would not be in a position to provide instructions to this firm until after the conclusion of the auction on 25 November 2014. In this regard, my client will need five clear days on which to consider the material and provide instructions.
On that basis, could you seek a return date for this matter in the latter part of the week commencing 1 December 2014.
I note that the demands made by your client first originated on 29 July 2014. I note further that no response has been supplied to the matter requested in our letters of 14 November 2014,12 August 2014 and 30 July 2014.
No reasonable explanation has been provided to my client or this firm as to the delay in the matter and there has been no urgency demonstrated. Accordingly, we cannot see the need to have this matter returnable next week.
Please attach a copy of this letter and our letter of 14 November 2014 with any application made to the Court.
A second letter was also sent by the solicitors for the defendant on 20 November. It was in the following terms:
1. We refer to our earlier telephone correspondence between your Mr Ben Kay and our Mr Morrissey and Mr Lowe as well as our enclosed letter dated 20 November 2014.
2. Our client advises us that it was served with a summons, affidavit of Timothy Olsen made on 20 November 2014 and affidavit of Benjamin Kay made on 20 November 2014, filed on 20 November 2014, at about 5:12pm earlier today.
3. The summons that you have purported to serve on our client issues proceedings against a defendant referred to as "Second East Holdings Pty Ltd t/as Sotheby's Australia, ACN 104 669 749". This is not our client and accordingly, the summons is defective.
4. At about 5:30pm, you then provided our Mr Lowe with the above filed documents as well as orders of the Court made on 20 November 2014 including an order that the summons be returnable at 10am on 21 November 2014. Our client has not been served with those orders. Accordingly, you have not effected proper service on our client.
5. As you are aware, our client is not able to provide us with instructions prior to Wednesday 26 November 2014, and certainly not by 10am tomorrow morning. Despite our request to do so, it would appear that you have not brought our earlier letter of 20 November 2014 to the attention of the Court when seeking an order for short service. Out of respect to the Court and to protect our client's position, we will appear under protest tomorrow morning.
6. We put you on notice that our client has incurred significant costs to date of $8,861.16 and we estimate our costs of appearing tomorrow including Counsel's costs to be $4,000.
7. We will seek an order for indemnity costs against the plaintiffs and you, as the solicitors for the plaintiffs who have failed to effect proper service, payable forthwith. In the event that the costs are not paid forthwith, we will be seeking that you, as the solicitors for the plaintiffs, indemnify our client for those costs.
8. There is no evidence in regards to the estate's current assets with respect to its ability to meet any undertaking to damages or any capacity to pay costs. We will seek leave to file a motion for security for costs and for these proceedings to be stayed until such motion is dealt with.
9. We will also be seeking a return date for a notice for the plaintiff to produce relevant estate documents
[emphasis added]
On 20 November, the solicitors for the plaintiffs wrote to the solicitors for the defendant in the following terms:
We write further to your letter to Kate Hughes dated 14 November 2014 ("Your Letter"), together with our telephone conversation and your subsequent letter of today's date ("Today's Letter").
We note from this correspondence your confirmation that your client will not sell the Painting at the Auction on Tuesday 25* November 2014, or prior to tomorrow, Friday 21st November 2014.
Nevertheless, as is reflected in all these communications, your client has failed to return the Painting or provide the information or the Undertaking detailed under our Letter, as is and was quite reasonably required by our clients. Instead, your client has consistently refused demands to lawfully return the Painting to its rightful owners, and confirmed its intention to sell the Painting via private sale at any time after Friday 21st November 2014.
Accordingly, and as you are aware, our client has now served both your client and your offices with proceedings that were filed with the Supreme Court of New South Wales this afternoon.
To be clear, our clients stand by their prior claims, and have no obligation to supply your client with any of the further information demanded in Your Letter. As is apparent from all correspondence to date, the last and only identifiable legal owner of the Painting was Mrs Valerie Olsen, as is detailed on the back of the Painting itself. Regardless of whether the Painting was misappropriated, who did so, or when, your client has offered no details of subsequent legitimate competing title or any legal basis for a superior right to possession.
Given your client's consistent refusal to engage with our clients, and answer their reasonable questions, our clients can now only presume that no legitimate legal basis exists for your client or the Seller's continued retention of the Painting.
This concern is amplified by Your Letter's reliance on information regarding the temporary halt on sale of the Painting that, whilst attempting to reassure our clients, in reality offers very little security, and severely understates the still very real risk of the Painting being sold without their consent or knowledge. In particular, as your client would be aware, copyright consent from Viscopy would not be required if photographs of the Painting are not being published in an auction catalogue, if it is included in the auction without prior advertisement, or if it is sold via private sale.
In this context, and particularly as your client has refused to provide or extend the Undertaking, these concerns remain very real, and our clients have been left with no choice but to pursue this matter through litigation.
Accordingly our clients filed a Summons with the Supreme Court of New South Wales today seeking an Order for Preliminary Discovery against your clients in relation to your possession of the Painting, the details of which you have been provided.
We are also in receipt of your further letter of today's date, which was received at approximately 7pm on the 20th November 2014 ("Your Most Recent Letter").
In relation to the claims detailed in Your Most Recent Letter:
i) You confirmed in your letters dated 30 July 2014 and 12 August 2014 to Nicholas Eddy and your letter to our firm dated 14 November 2014 that your client was "Second East Auction Holdings Pty Ltd trading as Sotheby's". This description also appears on your client's website. Any necessary clarification should therefore be easily achievable, particularly as we note that the AGN of the Company in the Summons is correct. Accordingly, we will contest any effort by your client to argue that the Summons is defective on such a basis;
ii) In relation to the details regarding your client's alleged inability to provide instructions, and the accompanying timetable detailed in Your Most Recent Letter, as you are aware, Your Most Recent Letter was received after we entered Court to file the summons. In a gesture of good-faith, we contacted you immediately before entering the Court to confirm your instructions and you failed to convey this information, other than stating that you had no instructions to accept service or provide the Undertaking; and
iii) When we contacted you earlier in the day to suggest the timetable of Wednesday 26th November 2014, supported by an undertaking that your clients would not sell or dispose of the Painting, you indicated that both these suggestions should be reasonably possible, pending instructions.
For these reasons, our clients reject the claims detailed in Your Most Recent Letter, which in the above context are without any legitimate basis.
Our clients have endeavored to deal with your clients on a good faith basis in this matter and look forward to detailing their position to the Court tomorrow morning.
In the interim, our clients continue to reserve their rights in this matter.
[emphasis added]

On 21 November 2014, the matter came before Stevenson J as Duty Judge. The plaintiffs however only sought an injunction restraining Sotheby's from disposing, selling or in any way transferring the painting until further order: see Executors of the Estate of the late Valerie Marshall Olsen v Second East Holdings Pty Ltd t/as Sotheby's Australia [2014] NSWSC 1675 at [9] and [23]. Indeed, His Honour suggested that in order to gain such relief, the plaintiffs must show that there is a prima facie case or a serious question to be tried that Mrs Olsen owned, and her estate now owns, the painting and that "the evidence adduced in support of that proposition is slender indeed". At that point, no evidence had been adduced from Mr John Olsen himself and Stevenson J further stated:
[22] However, there is no evidence that, until this year, the painting has ever been reported stolen, despite the fact almost 50 years have elapsed since it "disappeared". There is no evidence at all before me of the circumstances in which the painting went to Nottingham. There is no evidence before me as to when or in what circumstance in which it "disappeared", or what steps were taken to recover it since then. There is no evidence as to what, if anything, was done by Dr Olsen, or Mrs Olsen, or anyone else concerning the painting's whereabouts for the 47 years that have passed since the Nottingham exhibition.
Although refusing the interlocutory injunction, Stevenson J proposed to give the plaintiffs a chance to adduce further evidence from Mr John Olsen, and seek to renew their application in the light of that evidence. The plaintiffs took that opportunity by filing affidavits sworn by Mr John Olsen and Ms Louise Olsen to which I have already referred.
The defendant also filed additional material. Mr John Morrissey, solicitor for the defendant, swore an affidavit dated 25 November 2014 in which he gave evidence that he had been informed by Mr Gary Singer (Chief Executive Officer of the defendant and a director of the defendant) that the terms and conditions of the defendant's sales are contained within the defendant's catalogues. One such catalogue was exhibited to Mr Morrissey's affidavit (described as the "Important Australian and International Art" catalogue, containing works to be auctioned on 25 November). A copy of the general conditions of business that the defendant has in respect of the sales of artworks and other items was also annexed to Mr Morrissey's affidavit. Those conditions of business, which I assume are routinely included in some form in the catalogues prepared by the defendant and updated from time to time, include a clause relating to the warranties of the seller which provides:
6.1 The Seller warrants to the Company [namely Sotheby's Australia] and the Buyer that:
the Seller owns the Lot or the Seller is authorised to sell the Lot by the owner (in which case, an original signed authorisation by the owner must be provided to the Company);
the Lot is free from all liens, charges, encumbrances (including registration on the Personal Property Security Register) and third party claims including a claim by a spouse;
On the following page of the catalogue, a section titled "Information for Buyers" and subtitled "In accordance with the General Conditions of Business" includes the following clause:
TITLE
Sotheby's Australia guarantees good title to all lots.
Mr Morrissey also gave evidence that he had been informed by Mr Singer that:
[5] ... the defendant and Sotheby's Worldwide have a policy of not releasing the names or contact details of any vendor or purchaser of paintings. Any person who has authorised their name to be used in the Catalogue has given written instructions to the defendant to allow their name to be used in the Catalogue.
[6] ...should the vendor's name be released without their authority, the commercial relationship between the vendors and the defendant would be adversely affected.
I should say there is no clear indication that the disclosure of the vendor's identity forms part of the contractual relationship between the vendor and Sotheby's Australia, or that the policy described in Mr Morrissey's affidavit is incorporated into any such agreement. However, that may well be the case.
In any event, on Monday 15 December a further affidavit of Mr Benjamin Kay, solicitor acting for the plaintiffs and dated that day, was read. That affidavit was read subject to in part a confidentiality order which I made for the purpose of preserving the identity of a certain individual named in the affidavit.
That affidavit indicated that enquiries had been made by a private investigator which had prompted Mr John Olsen to recall that the painting had been given to an individual in the 1960s in gratitude for one or more periods of accommodation at that individual's property.
Mr Kay gave evidence that the plaintiffs had engaged a private investigator, a Mr Guy Oatley, to conduct investigations in relation to the provenance and ownership of the painting. Although a date of 28 December is given as the date of engagement, it is clear from the following paragraph this is a typographical error and the date of engagement was 28 November.
Mr Oatley apparently performed a number of investigative steps including a search of the archival collection of the Art Gallery of New South Wales, including the papers of Frank McDonald who was John Olsen's art dealer in 1966; contacting the Nottingham County Council in the United Kingdom seeking archival information in relation to the 1966 Commonwealth Festival; searching the archival collection of the Tate Museum in London in relation to the 1966 Commonwealth Festival; contacting acquaintances and colleagues of John Olsen who were believed to be in the United Kingdom in 1966; and contacting an art collector with whom the Olsen family had stayed.
As a result of these investigations, Mr John Olsen rang the art collector on 12 December. That conversation prompted Mr John Olsen to recall that after leaving the United Kingdom, the Olsen family had lived in a house owned by a relative of the art collector in Portugal for several months in 1966 and that the painting was given to the relative to cover the cost of their stay.
Prior to that point, Mr John Olsen I accept did not recall giving the painting to that individual, but frank disclosure of that fact clearly led to the result that the proceedings ought to be discontinued.

Discussion

It seems to me that the conduct of both parties leaves a little to be desired. Whilst it is clear that the plaintiffs went to some trouble and expense, for example in retaining a private investigator, the recollection of the relevant events which finally came to Mr John Olsen arguably might have been disclosed earlier had enquiries been made earlier.
I accept however that memories often do not work in a way that permits instant or accurate recall even of significant events, let alone events of forty to fifty years ago. Without his former wife to discuss the circumstances in which ownership of the painting might have been dealt with, I can well understand why it took so long for him to piece the events together. His children asserted versions of conversations with their mother suggesting she owned and always intended to maintain ownership over the painting.
On that basis, her executors could hardly be criticised for making the application for preliminary discovery for example in the circumstances, especially since they were children at the relevant time and their mother had seemingly forgotten the events as well.
Whilst there is no presumption that a discontinuing party pays the costs of the proceedings, here the plaintiff by reason of the information recently received has sensibly acknowledged the insurmountable difficulties in proceeding further. Therefore, it is appropriate that the plaintiffs pay the defendants costs.
On the other hand, in my view the defendant engaged in a somewhat aggressive forensic strategy, driven partly it seems by a previous commercial experience with Mr Tim Olsen which had undoubtedly soured their relationship.
That previous commercial experience was described in the affidavit of Mr Morrissey dated 25 November 2014 as follows. The defendant asserted that in an auction of paintings in 2011, a painting by Mr John Olsen described as "Wetlands" (1985) (Wetlands) was offered for sale by the defendant. It did not sell, and Wetlands was removed from the possession of the defendant during a period in which the defendant had a right to market the painting after the auction.
The defendant asserts that a former associate provided the contact details of the vendor of Wetlands to the first plaintiff. Such disclosure was unauthorised. The first plaintiff is alleged to have contacted the vendor of Wetlands and eventually sold the work on their behalf.
The defendant then asserts they would have received a commission of between $75,000 and $90,000 if they had been able to sell the work. The defendant elected not to commence any proceedings.
What is clear from that experience is that the defendant and the first plaintiff are in competition with each other in respect of the re-sale of works of Mr John Olsen and it explains, to some degree at least, the level of animosity between the parties.
The painting in the present proceedings was clearly painted by Mr John Olsen as a gift to his wife on their daughter's birth. Taken together with their father's faulty recollection, there was some basis, albeit slender, upon which ownership could be asserted. There is no doubt the painting was sent to the United Kingdom in or about 1966. Mrs Olsen, somewhat eccentrically one might think, seemed not to have made much if any attempt (none which is supported by any evidence) to recover the painting.
The defendant on the other hand had what it asserted and believed was rock solid proof of ownership. In his letter of 4 August, the solicitor for the defendant stridently asserted that they had instructions that the painting was not the property of Mrs Valerie Olsen when she died. There is however no evidence that at any time the defendant sought permission if it were really needed to disclose the vendor's identity to anyone, including the Court.
The executors were clearly only privy to their mother's statements and did not for some time have the benefit of their father's true recollection.
It seems to me that on the basis of the materials at their disposal the plaintiffs had in my view a proper basis to commence proceedings. Their application for preliminary discovery was an interlocutory application at which hearsay materials could have been deployed (under section 75 of the Evidence Act) and with a real possibility that there may have been either limited or no opportunity for cross-examination: see The Age Company Ltd & Ors v Liu [2013] NSWCA 26 per Bathurst CJ (Beazley and McColl JJA agreeing) at [104]. I should say in passing that as a result of that decision, the status of an application for preliminary discovery as interlocutory has now been clarified beyond controversy, despite some earlier views to the contrary: cf Levis v McDonald (1997) 75 FCR 36 at 43; Liu v The Age Company & Ors [2010] NSWSC 1176; Cross on Evidence (9th edition, 2013) at [35595].
However when the true position was discovered, albeit belatedly, the plaintiffs promptly sought to bring the proceedings to an end. In the circumstances I do not consider the plaintiffs have acted in any sense unreasonably and on this basis alone an order for indemnity costs is in my view inappropriate.
If I accept the evidence of the defendant, it believed it had incontrovertible proof Mrs Olsen did not own the painting at the time of her death. Whilst it is entitled to take any legitimate point open to them, one wonders why, other than the collateral issue of competitive rivalry, the defendant would want to prolong the dispute and incur costs to a level that could have been to a large extent avoided. Certainly it seems both sides had a genius for prolixity in their correspondence.
I acknowledge that the defendant, by protocol, policy or contractual agreement, has a practice of maintaining confidentiality in respect of their vendors where requested to do so. This is all well and good, but as Bergin CJ in Equity recently observed in McBride v Christie's Australia Pty Limited [2014] NSWSC 1729 at [131]:
It would appear that the [art auction] industry (including both Buyers and Sellers) has operated on the basis that the identity of the Seller is not known to the Buyer. In an industry where provenance of artworks is so important, keeping secret the identity of the person or entity who is selling the artwork and with whom the Buyer is contracting to purchase it may have the tendency of protecting rather than exposing forgeries by preventing Buyers from having access to all of the relevant information about the background to the artwork.
Such confidentiality may act against the public interest because it could, perhaps unwittingly, prevent the exposure of a forgery or stolen property. Given the conditions of sale one would hardly think it would be in Sotheby's interest not to be entirely transparent.
In my view, the defendant could easily have conducted the proceedings on the basis of neither consenting or opposing the application for preliminary discovery and potentially avoided significant costs.
I do not agree with the submission made by counsel for the defendant that her client had no confidence that the identity of the unidentified vendor would be kept confidential by the plaintiffs. Whilst their previous commercial experience undoubtedly provoked a serious amount of scepticism on the part of the defendant at least in relation to the first plaintiff, either an order of the Court or an undertaking by the plaintiffs to the Court would have had salutary consequences had it been disobeyed. In any litigation in my view, section 56 of the Civil Procedure Act obliges all parties to co-operate with each other and the Court to ensure an efficient and cost effective process.
In that regard, I refer to the following observations made by Allsop P (as His Honour then was) in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd and Ors [2008] NSWCA 243 in relation to a number of sections of the Civil Procedure Act:
[160] Giving due weight to the realities of life in running a long and complex trial and the vicissitudes of the appreciation of the evidence given, it cannot be emphasised too strongly that it is the responsibility of the parties, through their legal representatives, to exercise a degree of co-operation to express the issues for trial before and during the trial. Such co-operation can now be taken as an essential aspect of modern civil procedure in the running of any civil litigation, including hard-fought commercial cases. The need for clarity, precision and openness as part of this co-operation has been emphasised in the context of ambush or surprise: White v Overland [2001] FCA 1333 at [4], expressly approved in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116 (Heydon JA, with whom Mason P and Young CJ in Eq agreed); Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 at [59]-[60] (Ipp JA, with whom Sheller and Hodgson JJA agreed); Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 at [4] (Bryson JA with whom Basten JA agreed); and Hooker v Gilling [2007] NSWCA 99 at [52] (McColl JA, with whom Ipp and Basten JJA agreed).
[161] The need for clarity, precision and openness in the conduct of litigation and the responsibility of parties and their legal representatives therefore flows most clearly from the statutory duty of a party and his, her or its legal representatives in civil proceedings to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in dispute and to participate in the processes of the Court to that end: see Civil Procedure Act 2005 (NSW), 56. It may be that the provision no more than restates the proper approach of the modern law of procedure reflected in cases such as Nowlan v Marson Transport. It places the proper approach, however, on a firm statutory foundation. These principles can be seen to be reflected in the longstanding rules of pleading requiring any matter that may cause surprise to be pleaded.
[162] An enhanced requirement of clarity and disclosure in modern civil litigation can be seen in Australia and England from at least the early 1990s: see the discussion of the "cards on the table" approach by Ipp J (as his Honour then was) in Boyes v Colins [2000] WASCA 344; 23 WAR 123 (with whom Pidgeon and Wallwork JJ agreed), citing Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367 and Khan v Armaguard Ltd [1994] 1 WLR 1204. Indeed, from the late 1970s and early 1980s, the Commercial List of this Court (in which List this hearing took place) has been sought to be run on the strict basis of the clear and full enunciation of issues for trial, in a way that has always demanded the fullest co-operation among parties and legal practitioners to delineate and illuminate the real issues in dispute.
[163] The clear statutory duty to assist the Court, and, in a practical way, to co-operate to bring forward the real issues in dispute, encompasses the requirement to be clear and precise in the illumination of the issues for trial. The occasion for this is not merely pleading (using the word broadly to encompass the modern commercial list summons and defence), it extends to all aspects of the engagement in the Court's processes. For similar responsibilities in the conduct of references, see Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [55]-[56].
On several occasions in the Court of Appeal, His Honour had made similar comments: see Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 at [36]-[38]; Bi v Mourad [2010] NSWCA 17 at [47]; Richards v Cornford (No 3) [2010] NSWCA 134 at [98]-[110].
In awarding costs of any sort, the Court exercises a discretion. In considering awarding indemnity costs, the focus is predominantly upon the conduct of the party against whom such an order is sought to detect the necessary level of unreasonableness to warrant such an order. But the conduct of the party seeking indemnity costs is, in my view, a relevant factor in the exercise of any discretion. The defendant avoided co-operating with the police in circumstances when it said it would do just that. It never offered to disclose to the Court under an appropriate confidentiality regime the identity of its client, nor does it appear to have requested authority to do so. It may very well be the case that the disclosure of the purported owner would have prompted Mr John Olsen to recall the events at an earlier point in time. The defendant is in no position in my view, in all the circumstances and all things being equal, to make an application for indemnity costs.
In the circumstances, the appropriate orders are to grant leave to the plaintiff to discontinue and order that the plaintiff pay the costs of the defendant (including the costs incurred in preparation for the hearing before Stevenson J) on the ordinary basis.
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Case Title:	Timothy John Olsen and Louise Sarah Olsen (as executors of the Estate of the late Valerie Marshall Olsen) v Second East Auction Holdings Pty Ltd t/as Sotheby's Australia
Medium Neutral Citation:	[2014] NSWSC 1840
Hearing Date(s):	15 December 2014
Decision Date:	19 December 2014
Before:	Sackar J
Decision:	See paragraph [94]
Catchwords:	COSTS - indemnity costs - where application for preliminary discovery in relation to unidentified vendor of painting - where application for interlocutory injunction - where leave sought by plaintiffs to discontinue proceedings - where late enquiries revealed no basis for proceeding with application - whether defendant entitled to indemnity costs
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005
Cases Cited:	Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd and Ors [2008] NSWCA 243 Bi v Mourad [2010] NSWCA 17 Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 Executors of the Estate of the late Valerie Marshall Olsen v Second East Holdings Pty Ltd t/as Sotheby's Australia [2014] NSWSC 1675 Fordyce v Fordham [2006] NSWCA 274 Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 Harrison v Schipp [2001] NSWCA 13 Leichhardt Municipal Council v Green [2004] NSWCA 341 Levis v McDonald (1997) 75 FCR 36 Liu v The Age Company & Ors [2010] NSWSC 1176 Mainteck Services Pty Limited v Stein Heurtey SA and Stein Heurtey Australia Pty Ltd [2013] NSWSC 1165 McBride v Christie's Australia Pty Limited [2014] NSWSC 1729 Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission (NSW) [2006] NSWCA 129 Packer v Meagher [1984] 3 NSWLR 486 Re The Minster for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 Richards v Cornford (No 3) [2010] NSWCA 134 The Age Company Ltd & Ors v Liu [2013] NSWCA 26
Texts Cited:	J D Heydon, Cross on Evidence (9th edition, 2013)
Category:	Principal judgment
Parties:	Timothy John Olsen as Executor of the Estate of the late Valerie Marshall Olsen - first plaintiff Louise Sarah Olsen as Executor of the Estate of the late Valerie Marshall Olsen - second plaintiff Second East Auction Holdings Pty Ltd t/as Sotheby's Australia - defendant
Representation
- Counsel:	Counsel: C O'Neill - plaintiffs J E Richards - defendant
- Solicitors:	Solicitors: Kay and Hughes - plaintiffs John F Morrissey & Co Lawyers - defendant
File Number(s):	2014/342426