CBC News has obtained details of a proposed settlement that would have ended the eight-year-old legal dispute between the Beaverbrook Art Gallery and the Beaverbrook Canadian Foundation.

The two sides would have split the 78 paintings roughly evenly, based on whether they came to the gallery before or after its opening in September 1959, according to foundation documents.

That would have been similar to a 2010 arbitration appeal ruling in the gallery’s earlier dispute with the Beaverbrook U.K. Foundation over 133 works of art.

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Timothy Aitken resigned as chairman of the Beaverbrook Canadian Foundation after its board rejected a deal he struck to end an eight-year legal battle with the Beaverbrook Art Gallery. (CBC)

But the settlement was rejected by the Canadian foundation board, even though it was negotiated by Timothy Aitken, the foundation’s chairman and one of Lord Beaverbrook’s grandsons.

The rejection prompted Aitken to resign from the foundation, the documents show. Aitken confirmed the events in an interview with CBC News, his first on the subject.

"I have, I have to say, some sympathy for the gallery, who are confronted with a situation where what seemed sensible and reasonable and agreed evaporated on the basis of a palace coup, if you like, behind the scenes," he said.

Aitken says he has reluctantly accepted that there were some "holes in the argument" the foundation was making, and some validity to the gallery’s case.

"I am prepared to say that I think it's a point of view that has held some substance in terms of other discussions that have taken place," he said, referring to the ruling in the dispute with the U.K. Foundation.

"And the outcome of those other discussions was clear enough, and I don't see much point in trying to reinvent a wheel that's gone, broken, finished with."

The two disputes are about different works of art, but in both cases the gallery’s case is based on the theory that Lord Beaverbrook intended the works to be gifts then changed his mind around the time the gallery opened in 1959.

That’s why the gallery was awarded the 85 pre-opening works in the U.K. case, while the foundation won the 48 post-opening works—works that came to the gallery after Beaverbrook’s change of heart in 1959.

A second change of heart

Now, 53 years later, it appears a second change of heart, by his grandson, is the latest twist in this eight-year saga.

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Judy Budovich met with Timothy Aitken to try and resolve the art dispute. (CBC)

According to the documents, Aitken got involved in the negotiations after visiting Fredericton in October 2011. He was here to attend the Order of New Brunswick ceremony, which saw his legendary grandfather become a posthumous member.

Lord Beaverbrook was raised on the Miramichi and went on to become an influential cabinet minister and press baron in England. He founded the gallery in 1959.

Around the same time as last fall’s ceremony, Aitken learned that the Canadian foundation, which he chaired, had already spent $2.8 million on legal bills.

"I was shocked by the amount," Aitken told CBC News.

"I didn't see why we had spent so much money, given that the whole thing had been somewhat dormant for quite a while. To find we'd spent the best part of $2.8 million was just appalling."

While in New Brunswick, he met with Judy Budovitch, a member of the gallery board, and with David Smith, Chief Justice of the Court of Queen’s Bench, who had been trying to mediate in the dispute.

Vincent Prager, a Montreal lawyer and a member of the Canadian foundation board, had been in talks with Budovitch and Smith, but Aitken felt they weren’t making any progress.

According to the documents, Aitken and Budovitch spoke several times by phone over the following months.

Budovitch says she was pleasantly surprised by Aitken’s change in approach.

"Maybe he just reached that point where he said, `Enough, we have a legacy to protect, we've got losses happening, and there's a history. Let's just look at what we can do,’" she says.

"Maybe coming back to New Brunswick for him was interesting or thought-provoking. Or maybe the fact that in the British dispute, those paintings—there’s only a few that the British received—were sold, so they're lost to the legacy."

Clinching and losing the deal

In early 2012, Aitken again met face-to-face with Budovitch and Smith, this time in New York, to try to finalize the deal.

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The art dispute revolves around the theory that Lord Beaverbrook intended the works to be gifts then changed his mind around the time the gallery opened in 1959. (The Beaverbrook Foundation)

Aitken agreed to make two exceptions to the splitting of the 78 disputed works into pre-1959 and post-1959 groups. He said two portraits by Salvador Dali, of Lady Beaverbrook. The two works flank the larger Dali, Santiago El Grande, the gallery’s signature painting.

Conveniently, each side was getting a group of works of roughly equal value, although the documents do not say what that value is.

"I think at the end of the day, it’s the art of the possible, isn’t it?" Aitken says. "What’s the point going on fighting and running up bills for [lawyers] who have absolutely nothing whatsoever to do with the charitable purposes of this foundation?"

The gallery board accepted the deal, but Aitken met with resistance from directors and members of the Canadian foundation.

According to the documents obtained by CBC News, Prager opposed the settlement and urged other board members to reject it.

In June, Aitken resigned in frustration. "We had a settlement, and an amicable settlement with a future sense of possibility," he says. "Now, God knows where it’s gone."

Prager has declined to comment on Aitken’s departure from the foundation.

Aitken was replaced as chairman of the foundation by Max Aitken, 35, the great-grandson of Lord Beaverbrook and the son of Timothy’s first cousin, Maxwell.

`Far apart’

In an e-mail exchange with CBC News last week, Max Aitken refused to discuss Timothy’s proposed agreement.

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Max Aitken, the chair of the Beaverbrook Canadian Foundation, said he hopes the eight-year-old legal fight can be resolved. (Twitter)

"I can't talk about the detail of the talks earlier this year as there's nothing to tell other than the bottom line," he said. "The sides were too far apart."

Max Aitken says even if the foundation wins ownership of the works in an eventual court ruling, it will allow them to remain at the gallery in Fredericton.

The Canadian foundation’s case revolves around archival documents from 1970 showing that the Canadian foundation spent $250,000 to buy the 78 works from Lady Beaverbrook, the press baron’s mercurial widow.

The gallery argues that 1970 sale was based on a lie, because Lady Beaverbrook never actually owned the paintings. The gallery says it owned them all along, as per Lord Beaverbrook’s wishes.

The gallery has been trying to hold a discovery hearing with Tim Aitken since the dispute began in 2004, but it’s been impossible to schedule one.

Now that Tim Aitken has quit the board, the foundation has argued the gallery should depose someone else. The gallery is appealing a court ruling that says Tim Aitken does not have to testify.

Aitken says because he wasn’t a witness to the key transactions in 1959 and 1970, he has nothing to contribute to the lawsuit and shouldn’t have to appear.

Among the works the gallery kept in the ruling in the U.K. Foundation case are J.M.W. Turner’s Fountain of Indolence, valued at $25 million when the dispute began in 2003, and Lucian Freud’s Hotel Bedroom, estimated at $5 million at the time.

Legal bills from the U.K. dispute forced that foundation to sell Cherkley Court, the majestic country estate once owned by Lord Beaverbrook. The property is now being turned into a luxury golf course.