Breaking stories in the news over the past week have placed the
auctioning business under a spotlight.
In the past there weren't many laws directly governing
auctioning and it was a substantially unregulated industry in South
Africa. However, with the advent of the Consumer Protection Act 68
of 2008, which became effective on 1 March 2011, the auction
business was squarely brought within the ambit of the legislature.
The act now governs the industry and consumers should be aware of
their rights in this regard.
One of the issues raised recently includes concerns surrounding
vendor or auctioneer-appointed bidders used to drive an auction
price up, which appear to be common practice in certain circles in
the auctioning arena.
In an attempt to clear up any uncertainty, the act sets out very
specific provisions relating to bidders and the bidding process,
and the rights and obligations of the persons involved in that
process.
An auctioneer is now obliged to have a bidders' record at every
auction. The purpose of a bidders' record is to record the
identity of all bidders at the auction
concerned.
It is the auctioneer's responsibility to ensure that every
prospective bidder has registered his or her identity in the
bidder's record prior to the commencement of an auction, and
such registration must, with the necessary changes, meet the
requirements of the Financial Intelligence Centre Act (commonly
known as FICA) in respect of establishment and verification of
identity. Each prospective bidder must then sign that entry. It is
prohibited behaviour for an auctioneer to accept a bid from a
person unless he or she is registered in the bidder's record. A
bid taken from an unregistered person is invalid.
The act furthermore demands that a person who intends to bid on
behalf of another person at auction must make that fact clear, and
the auctioneer is to ensure that such representative bidder
produces a letter of authority expressly authorising that person to
bid on behalf of another person. Once again FICA requirements
must be complied with.
If a person is bidding on behalf of a company, the auctioneer must
make certain that the letter of authority appears on the letterhead
of the company, and must be accompanied by a certified copy of the
resolution authorising such bidding.
Accordingly, unless notice is given in advance that a sale by
auction is subject to a right to bid by or on behalf of the owner
or auctioneer, the owner or auctioneer must not bid or employ any
person to bid at the sale. In the absence of such notice, the
auctioneer must not knowingly accept any bid from a person employed
by the vendor and/or auctioneer to bid at the auction. In the event
of non-compliance with this requirement, the consumer may approach
a court to declare the transaction fraudulent and void.
For purposes of effecting consumer rights, the bidders' record
is available for public inspection at any time in order to view the
names of the bidders and the bidder numbers.
Access to the bidders' record should be available, free of
charge, during an auction at the premises where the auction is
being held, and before or after an auction at the auction house or
auctioneer's place of business during normal business
hours.
A bidder's name must appear in the bidders' record together
with a bidder number for him to bid, and he should receive a paddle
or other device to which the bidder number is attached in a way
that it is clearly visible to all present at the auction.
Once at the auction, all duly registered and authorised bidders may
bid, and no fee may be charged for participation in an auction
(other than refundable deposits).
In the bidding process, it is important to understand the concept
of a reserved or "upset" price: a price for goods
available on auction that needs to be met or exceeded by a bidder
in order for the goods to be sold at the auction. This means that
an auctioneer may refuse a bid from the highest bidder, if that bid
did not equal or exceed the reserved price.
When the seller has requested a reserved price for sale of goods,
notice must be given in advance that a sale is subject to a
reserved price; however, the act does not require that the amount
of such reserved price be disclosed. Where there is a seller or
auctioneer appointed-bidder who has been properly registered,
disclosed and authorised, that appointed bidder should not be
entitled to bid more than the reserved or "upset"
price.
On conclusion of bidding proceedings at an auction, the auctioneer
is required to:
- Announce that the auction has come to an end;
- Sign the vendor's roll (a document which contains, among other documents, the bidders' roll); and
- Certify that the proceedings of the auction were to the best of the auctioneers knowledge conducted in accordance with the act and any other applicable law and the rules of auction.
When the auctioneer announces the completion of the sale by the
fall of the hammer, (providing all bidding requirements have been
complied with) the highest bidder is the purchaser of the
goods.
It is clear that auction houses now need to revisit their business
processes and policies in order to ensure compliance with the law,
and important for the public, who are particularly impacted by
these policies and practices, to understand their rights.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.