The use of an auction is still a popular way to buy and sell goods in South Africa. Whether online or in person, many people enjoy this forum for its simplified process and exciting atmosphere. However, many buyers attend auctions without knowledge of the legal consequences inherent in the auction process. Here are three things that you should know before you bid.
1) AUCTIONS ARE STRICTLY REGULATED
Auctions are regulated by Section 45 of the Consumer Protection Act 68 of 2008 (“CPA”) and CPA Regulations 18-33, with the exception of Regulation 30, which applies exclusively to online auctions. These Regulations deal in more detail with the requirements for a valid auction, including advertising compliance, mandatory rules and prohibited behaviours, among other things.
Under the legislation, an auction must meet several requirements before it can operate and may be entirely invalidated if essential documentation is lacking. For example, in terms of Regulation 21(1) an auctioneer is required to publish a written set of auction rules for public use, at least 24 hours before the auction begins. The Regulations further detail mandatory information to be contained in the rules and limits on the exclusion of liability in certain cases. These Regulations provided useful protection for consumers and can be found here.
2) NO SECTION 55 REMEDY FOR DEFECTS
Section 55 of the CPA provides a remedy for consumers who purchase defective goods. Section 55(2)(b) states that consumers have the right to receive goods that are “quality, in good working order and free of any defects”. In terms of s 55(1) CPA items bought at an auction are specifically excluded from section 55 and are not afforded the same protection. Goods sold on auction are generally sold in their current condition, “as is”. As a consumer it is therefore crucial to consider the quality and condition of the item you plan to purchase before you bid, because you will not be afforded a warranty for any defects you may discover later.
The only exception to this rule is an intentional or fraudulent misrepresentation by the seller. In Auction Alliance (Pty) Ltd v Netluk Boerdery CC and Another  ZAGPJHC 87 an auction house was held liable after making fraudulent misrepresentations in their advertising of the property up for auction. The Court held them liable for the misrepresentations and the sale was cancelled.
3) BEWARE THE HAMMER FALL
It is important for a consumer to understand the point at which they become liable for the purchase price of an item bought on auction. Section 45(3) of the CPA specifies that “a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in any other customary manner, and until that announcement is made, a bid may be retracted”. This means that once the auctioneer brings the hammer down, one may no longer withdraw a bid and a sale agreement is formed between the bidder (purchaser) and the seller.
Should it appear later that they cannot pay the full purchase price, the purchaser may still be liable for a percentage of the goods and possibly for other costs, such as storage and advertising. It would be prudent to read the terms of conditions supplied by the auction house before bidding, to ensure you are aware of the costs for which the bidder becomes liable in such a case.
Regulation 24(d) also provides certain protection in that an auctioneer may not:
“Charge or receive any fee or commission from the purchaser, if the purchaser defaults, exceeding ten per cent of the purchase price or the total cost of advertising and conducting an auction and such additional costs as may have been reasonably incurred in accordance with regulation 21(2)(l), whichever is the lesser”.
This regulation limits the amount for which the defaulting purchaser can be held liable. However, depending on the price of the item, it may still allow for the claim of a large sum, and it is therefore safer to ensure that you can afford the item by preparing a budget before you bid.
If you have any queries in connection with the above, please contact us here.