South Africa: Bringing The Hammer Down On Bidding Requirements

Last Updated: 15 March 2012
Article by Simone Monty

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.

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