Painting 'lost' in the post auctioned by Royal Mail for £20

Buyer returns missing canvas worth thousands of pounds by one of the Queen's favourite artists

A valuable painting that went missing in the post went under the hammer at a Royal Mail auction.

The work by the late painter Mathias Kauage, who is regarded as Papua New Guinea's most famous artist, had been sent to a prominent London art dealer, Rebecca Hossack.

Ms Hossack called in the police after she was approached by a man who said that he bought the untitled painting, thought to be worth thousands, for £20 at an auction. He told her he found her details on a label shipped with the painting.

Kauage's colourful artwork, which sells for up to £10,000, has made him a firm favourite with the Queen. Largely self-taught, he had several international exhibitions and was created OBE in 1998.

Ms Hossack said: "I was so angry I took it to the highest level. It is just unbelievable. The parcel had my name on it, so why did it end up in the auction? I have been trying to find out about this for months, but the Royal Mail complaints department is hopeless – I have never met so much incompetence in my life."

Royal Mail said it had launched an investigation but could not explain how the painting came to be offered for sale. It had travelled safely 10,000 miles from Australia – but went missing in the British postal system, ending up in the pile of thousands of items of lost post which are sold off every year.

Royal Mail said that items end up being offered for sale if they were not addressed properly, are too big for letter boxes and remain unclaimed or full postage has not been paid.

It refused to say how much it makes from selling post, adding that items are auctioned off after being taken to the National Return Centre in Belfast – a depot where "parcel detectives" are employed to look for clues for the true recipients.

Staff say they receive up to 500,000 lost items a week, around 15 per cent of which are sold off. Regulars at the auctions say they are seldom publicised because post users are unlikely to be enamoured with the fact Royal Mail sells off "lost" mail.

A Royal Mail spokesman said the package should never have been offered for sale because an address was clearly marked on it and so it did not fit the criteria for auction lots.

The painting's buyer said the auction sale made him the legal owner but agreed to return it to Ms Hossack's Fitzrovia art gallery. No arrests have been made.