E-auction sites need to heed traditional consumer laws

Electronic-auction market sites in New Zealand are appearing on the scene, with notable efforts coming from Trade Me and BidX. As reported in Computerworld, August 2, 1999, Trade Me experienced problems with pirated property for sale on its site.

Electronic-auction market sites in New Zealand are appearing on the scene, with notable efforts coming from Trade Me and BidX. As reported in Computerworld, August 2, 1999, Trade Me experienced problems with pirated property for sale on its site. Internationally, however, auction sites are experiencing more complex problems. The lessons to be learned from international sites are applicable in New Zealand, but need to be understood in the context of our antiquated commercial laws. Until the government makes more haste, auction site owners will have to work both under those antiquated laws and the more advanced requirements of other countries. International developments are illustrated by the investigation of the well-known auction site eBay. EBay is under investigation by the New York City Department of Consumer Affairs for possible illegal transactions in connection with its site. While eBay’s terms and conditions for trading on its site are extensive, they have not protected eBay from complaints by disgruntled users of the site. Illegal transactions have been a long, well-known problem for auctioneers. Auctioneers have dealt with the problems by refunding the money paid to the consumer. UK auctioneers Sotheby’s recently sold four antique Georgian chairs for about $4 million. These chairs, supposedly made in 1759, turned out to be 1990 reproductions. Sotheby’s have reportedly refunded the money to the buyers. The situation, however, is thought to be different for e-auction sites. There is an argument that an e-auction site is not an auctioneer in the traditional sense of the word. The Auctioneers Act 1928 defines an "auctioneer" as someone licensed under that act to carry on business as an auctioneer. The definition of "sales by auction" is much more extensive. The relevant portion of that definition is "where there is a competition for the purchase of any property … in any way commonly known and understood to be by way of auction". If an auction site falls within the parameters of the Auctioneers Act, it must have a licence to carry on business as an auctioneer. Several slave auction sites (sites which auction personal services such as "mistresses") refer to "auctions", but no licence is evident on their sites. It is doubtful that any international auction sites inviting offers from buyers in New Zealand have a licence under our Auctioneers Act. Local site BidX, however, claims in its terms and conditions to be an auctioneer licensed under the Auctioneers Act and provides the licence number. Whether inadvertently or not, some auction sites appear to circumvent the Auctioneers Act by claiming they are merely "venues" for the buyers and sellers to come together to trade. eBay and Trade Me are two examples. However, both the Fair Trading Act and the Consumer Guarantees Act could still catch transactions on these "venues". In terms of our consumer laws, the Consumer Guarantees Act 1993 does not apply to sale of goods by auction. But it is highly likely that if you are not an auctioneer under the Auctioneers Act, then you would not come within this exception. One example involving an auction house is Hammer Auctions NZ versus Williams. This 1997 case involved a claim of breach of Section 9 of the Fair Trading Act 1986. Section 9 prohibits misleading or deceptive conduct (or conduct that is likely to mislead or deceive) in trade. The High Court in that case held that Hammer Auctions was not an agent acting on behalf of an undisclosed principal and was not a mere conduit of information from the importer of the car to the buyer. The Court held that the auctioneer had played an active role in the sale of the vehicle. The key question is how far these "venues" go to become "involved" in a transaction. Most auction sites charge for advertising. But when they take a commission based on a portion of the sale price, the courts may view these arrangements quite differently. Auction Universe, for instance, charges a transaction fee of 2.5% of the final selling price. Place-a-Bid also takes a percentage of the final selling price. It may be possible for a buyer to argue that these "venues" are not just commission agents; they are more than that. While it may be a question of fact and degree, not every extensive disclaimer will get a site out of harm’s way. This is evident from the 1993 High Court decision on Smythe versus Bayleys Real Estate. The court held that Bayleys had breached the Fair Trading Act and that the disclaimer clauses in the agreement for sale and purchase did not provide a defence because the requirements of the act were mandatory. There are also obligations under our Antiquities Act 1975 if dealing with artefacts. For instance, an auctioneer (or a second-hand dealer) may not trade in artifacts unless they have a licence from the Secretary of Internal Affairs. There is no question that local auction sites will be under the scrutiny of local consumer legislation. While the laws may be different, overseas experience can often provide useful insights and lessons. With the recent alliance between Sotheby’s and online book seller Amazon.com and the emergence of German heavyweight AndSold, gaining a dominant market share continues to be an obsession. But the market-makers that will be around for a long time are the ones who strive to make the market safe. Craig Horrocks is the managing partner of Clendon Feeney and is part of Clendon Feeney’s technology law team. This article, together with further background comments and links to other Web sited can be downloaded from www.clendons.co.nz. Geraline Ooi-Khoo is an associate at Clendon Feeney specialising in e-commerce law and commercial law. Send email to techlaw@clendons.co.nz.

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