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Court of Appeal ruling puts auctioneers on notice

Media Release
Issued 22 December 2003-04 / 077

Court of Appeal ruling puts auctioneers on notice

The Commerce Commission has received clarification from the Court of Appeal that auctioneers must make it clear when vendor bidding is taking place.

Justice Blanchard delivered the Court's judgment last week relating to the Commission's case against Christchurch based Grenadier Real Estate Limited.

"Auctioneers must make it very clear at the beginning of the auction if they are intending to use vendor bidding - it must be clear and unambiguous. Ambiguity may therefore be construed unfavourably to the auctioneer," said Justice Blanchard.

Commission Chair Paula Rebstock said the Commission is pleased to have received such a clear statement from the Court saying that vendor bidding should not be done in a manner which may mislead consumers.

"It is the Commission's role to seek clarification and court rulings on behaviour that may be in breach of the Fair Trading Act," said Ms Rebstock.

"There were several important issues concerning auctioneering practices and vendor bidding that the Commission wanted the Court to clarify. This was an important case for the Commission to take as auctioneering is increasingly being used as a sales practice in a number of industries. While this case focussed on auctioneering practices in the real estate industry, it applies equally to any auctions that use vendor bidding."

Ms Rebstock said while the Court of Appeal did not overturn the High Court's findings of facts, as there was not enough evidence to prove what actually went on at the auction in question, the Court did accept the Commission's general submission that if the auctioneer had conducted the auction in such a way that created an illusion of competition, then that would clearly breach the Fair Trading Act. The Court said the Commission's concern about people being drawn into bidding at an auction on a false basis was very understandable.

"Auctions, like other sales, must be conducted in a manner which does not mislead or deceive, and if this means that auctioneers' practices must change, then so be it. Plainly it will be misleading to create the illusion of real competition where there is none," said Justice Blanchard.

Ms Rebstock said the judgment resulted in four clear findings, namely:

* that the bidding process at an auction must not mislead or be deceptive for persons who attend the auction intending to either bid for the property or to make an offer if it is passed in;

* it is not realistic to expect people will be knowledgeable about auction procedures or have taken legal advice on them;

* consumers could be brought up to speed by the making of a statement before bidding begins for each property that there is a reserve price and the vendor reserves the right to bid until that price has been reached;

* even where consumers are educated in this way, it is still important that the auctioneer makes it clear whether a particular bid has been received from a bidder or on the vendor's behalf, and that auctioneers need to take care with the language they use.

This Court of Appeal ruling completes the Commission's case against Grenadier. In the High Court in December 2002, Grenadier admitted breaching the Fair Trading Act on two counts relating to misleading advertising of a Lyttleton property for auction in November 2000.

Prior to the auction, Grenadier's advertising stated "Bidding from $110,000" when the rateable value of the property was $205,000 and the vendor expected a sale price of $230,000-$240,000. In addition, advertising following the auction stated that "Bidding reached $190,000" when all bids were vendor bids. The Commission's case challenged advertising practices within the real estate industry, specifically advertising that uses techniques such as 'bidding from' and 'price banding'.

As a result of the earlier case, the Real Estate Institute developed a draft code of practice for the conduct of auctions. "The industry's code of practice was a good first step but will now need to be reviewed to ensure it is fully consistent with Justice Blanchard's findings," Ms Rebstock said.


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