Hansa Silver (Pty) Ltd v Obifon (Pty) Ltd t/a The High Street Auction Company

The sellers (third to fifth appellants, represented by Mr Serfontein) mandated High Street auction house (respondent) to sell Thaba Phuti Safari Lodge by auction with a reserve price of R25 million. The mandate, dated 28 August 2011, authorized High Street to bid on behalf of the sellers up to the reserve price. The auction was conducted on 2 November 2011 by Mr van Reenen (the auctioneer). The auction rules, which complied with the Consumer Protection Act 68 of 2008 and its regulations, stated that sales were subject to a reserve price and that the auctioneer could bid on behalf of the seller up to the reserve. These rules were advertised in advance, available on the website and at High Street's offices, and read out at the commencement of the auction. Mr Ichikowitz (second appellant) attended the auction on behalf of Hansa Silver (Pty) Ltd (first appellant) (collectively "the purchasers"). He registered as a bidder and signed a registration form acknowledging that he had read, understood and was bound by the auction terms and conditions. The lodge was sold to Mr Ichikowitz for R20 million after bidding that included vendor bids by the auctioneer and bids from Mr Ichikowitz and a third party bidder, Dr Hoseini. During the auction, the seller reduced the reserve price from R25 million to R20 million. Three written sale agreements were concluded on 9 November 2011, with the total purchase price of R20 million. The purchasers paid commission of R2.28 million (10% plus VAT) to High Street. Hansa took occupation on 1 January 2012. After viewing video recordings of the auction in February 2012, following media reports of alleged misconduct at another auction, the purchasers claimed the auctioneer had engaged in sham bidding by making vendor bids without identifying them as such. On 15 May 2012, they notified High Street that they did not consider themselves bound by the sale agreements and demanded a refund of the commission. On 27 August 2012, while simultaneously signing second addenda to the sale agreements that provided for certain transactions and a credit of R2 million, the purchasers launched an application to invalidate the sale agreements.

• Whether an auctioneer who intends to bid on behalf of a seller at an auction must comply with regulations 26(3) and (4) of the Consumer Protection Act regulations requiring production of letters of authority
• Whether vendor bids made by an auctioneer on behalf of a seller must be expressly identified as such at the time they are made
• Whether the failure to identify vendor bids as such constitutes a misrepresentation that invalidates a sale agreement
• Whether the sale agreements were induced by misrepresentation
• Whether the matter should be referred to trial for the hearing of oral evidence on the allegations of fraud
• Whether the third party proceedings were properly instituted under rule 13 of the Uniform Rules of Court
• Who should bear the costs of the third party proceedings

1. The appeals of the appellants were dismissed with costs, including the costs of two counsel. 2. The cross-appeal was upheld with costs, including the costs of two counsel, and the order of the court a quo was supplemented by adding: "The applicants are jointly and severally ordered to pay the costs of the third party proceedings, including the costs of two counsel."

The binding principles established by this judgment are: (1) Regulations 26(3) and (4) of the Consumer Protection Act regulations, which require persons bidding on behalf of others to produce letters of authority, do not apply to auctioneers bidding on behalf of sellers, as their purpose is to identify and enable communication with successful bidders, not auctioneers whose identity is already known and required to be disclosed. (2) Neither section 45 of the Consumer Protection Act 68 of 2008 nor its regulations require contemporaneous identification of vendor bids as such. Section 45(4) and (5) require only that advance notice be given that the sale is subject to a right to bid by or on behalf of the owner or auctioneer. (3) The enquiry into whether failure to identify a vendor bid invalidates a sale must center on whether the non-disclosure constituted a misrepresentation in the particular facts and circumstances of the case. If it does constitute a material misrepresentation that induced the sale, the sale may be avoided in accordance with general principles of contract law. (4) The language used by an auctioneer such as "I have it at..." or "I am back at..." can, in context and where prior notice of vendor bidding rights has been given, sufficiently identify vendor bids. (5) An experienced bidder who has been given advance notice of the possibility of vendor bidding through auction rules that he or she acknowledged reading and understanding cannot claim to have been misled by vendor bids made in accordance with those rules. (6) Where a bidder makes a deliberate decision to raise a bid to meet a reduced reserve price after vendor bidding has occurred, any prior misrepresentation does not induce the resulting sale agreement. (7) Rule 13(1)(b) of the Uniform Rules of Court may properly be employed where an issue between the applicant and respondent is substantially the same as an issue between the respondent and a third party, and this applies to auction disputes where both the purchasers and sellers rely on the same alleged conduct of the auctioneer.

The court made several non-binding observations: (1) It noted that "there is much to be said for the argument that the purchasers did not cancel the sale agreements qua the sellers and therefore cannot approbate and reprobate," but found it unnecessary to decide that issue. (2) The court observed that it is common knowledge that the auctioneer is the agent of the seller and that the purpose of an auction is to obtain the best possible price for the seller's benefit, not to provide the public with opportunities to obtain bargains. (3) The court commented that no person is compelled to bid at an auction or to bid higher than what they are willing to spend, and that a vendor bid up to the reserve price does not deprive a bidder of a sale below the reserve price - that is the result of the reserve price itself. (4) The court noted that the sellers should have approached the trial court for an order regarding the costs of the third party proceedings rather than appealing, though this did not affect the outcome. (5) In discussing referral to trial, the court observed that "the exercise of this discretion should to a large extent be guided by the prospects of viva voce evidence tipping the balance" in favor of the party seeking the referral, particularly in allegations of fraud.

This judgment is significant for clarifying the law relating to vendor bidding at auctions in South Africa under the Consumer Protection Act 68 of 2008 and its regulations. The court established that: (1) regulations requiring bidders to produce letters of authority do not apply to auctioneers bidding on behalf of sellers; (2) contemporaneous identification of vendor bids is not required by statute, provided advance notice of the right to vendor bid has been given; (3) whether failure to identify a vendor bid constitutes a misrepresentation depends on the facts and circumstances of each case; (4) the language used by an auctioneer (such as "I have it at..." or "I am back at...") may sufficiently identify vendor bids in context; (5) vendor bidding (lawful with prior notice) must be distinguished from sham bidding (unlawful). The case reinforces the principle that parties are bound by auction rules that have been properly communicated, even if they fail to pay attention to them. It also clarifies the proper use of third party procedure under rule 13 in the context of auction disputes involving multiple parties with overlapping issues. The judgment provides important guidance for auctioneers, auction houses, sellers and purchasers regarding their respective rights and obligations at auctions subject to reserve prices and vendor bidding rights.