Auction City (Pvt) Ltd v El Elion Investments (Pvt) Ltd

The appellant was an auctioneer acting on behalf of Conte Shoes (Pvt) Ltd in Liquidation. In June 2012, the appellant auctioned industrial shoe making equipment. The respondent successfully bid for the equipment at USD 100,000. The respondent paid a 10% deposit of USD 10,000 but defaulted on paying the balance within 7 days (or the extended 14 days granted). The appellant cancelled the agreement of sale. Clause 9 of the Notes and Conditions of Sale provided that any deposit paid would be refunded less the agent's commission (including VAT) and any expenses incurred by the liquidator or her agents in conducting the sale and its aftermath. After cancellation, the respondent sought a refund of its deposit. The appellant advised that the agent's commission and expenses exceeded the USD 10,000 deposit, so no refund would be made. The respondent sued in the magistrates' court and was awarded USD 8,277. The appellant appealed.

• When is a contract formed in a sale by auction?
• What terms and conditions govern an auction sale contract?
• When does an auctioneer's commission become payable?
• Whether Clause 9 of the Notes and Conditions of Sale is valid and enforceable?
• Whether VAT is payable on the auctioneer's commission before the sale is completed?
• Whether security costs incurred by the liquidator can be deducted from the deposit under Clause 9?

The appeal was allowed with costs. The judgment of the magistrates' court was set aside and substituted with an order dismissing the plaintiff's (respondent's) claim with costs.

The binding legal principles established are: (1) In an auction sale, a contract is formed when the auctioneer accepts a bid, applying ordinary principles of offer and acceptance; (2) An auctioneer's commission becomes payable upon conclusion of the sale (when a buyer is secured and an agreement of sale is entered into), not upon complete performance of the contract by all parties; (3) A purchaser's subsequent breach and cancellation of the sale contract does not disentitle the auctioneer from earning commission, as the auctioneer has fulfilled its mandate by conducting a successful auction; (4) Contractual terms providing for deduction of commission and expenses from deposits in the event of purchaser default are valid and enforceable; (5) VAT on auctioneer's commission is governed by section 6(1)(a) of the Value Added Tax Act (VAT on supply of services), not section 6(1)(d) (VAT on goods sold through auction); (6) Expenses incurred by either the auctioneer or the liquidator (or principal) in conducting the sale may be deducted from the deposit where the contract so provides.

The court observed that to hold that an auctioneer is not entitled to commission because a party to the contract defaulted would work unduly harshly against auctioneers, as they would have to wait until parties fulfilled all their contractual obligations before getting paid. The court noted it is not the auctioneer's obligation to ensure that parties fulfill their contractual obligations. The court also commented that the resale of the property after the respondent's default was a natural consequence of the cancellation and confirmed that a valid agreement of sale had been entered into. The court further observed that for terms and conditions of auction sales to be effective, they must be read out at the beginning of the sale or reasonable steps must be taken to bring them to the notice of buyers, and such conditions will be binding even on bidders who arrive late, since they could have asked for information on them.

This case is significant in Zimbabwean commercial law as it clarifies key principles regarding auction sales: (1) it establishes when a contract is formed in an auction (upon acceptance of a bid); (2) it confirms that an auctioneer's commission becomes due upon conclusion of the sale, not upon complete performance by the parties; (3) it upholds the validity of contractual terms allowing auctioneers to deduct commission and expenses from deposits when purchasers default; (4) it clarifies the application of VAT legislation to auctioneer services versus goods sold at auction; and (5) it protects auctioneers from losing their commission due to a purchaser's subsequent breach of contract. The case reinforces that auctioneers are entitled to their fees once they have fulfilled their mandate of securing a buyer and concluding a sale, regardless of subsequent performance issues between the contracting parties.