11. Auctioneers

The Auctioneers Act 1928 is included in the suite of consumer law being reviewed in this Discussion Paper. The Act provides for the occupational regulation of a person selling property by auction (an auctioneer). An auctioneers licence is required to authorise the holder to carry on business as an auctioneer (section 24), and it is an offence for any person to conduct any sale by auction (section 32), or to hold themselves out to be an auctioneer without a licence (section 33).

A sale by auction is defined under section 2 of the Act as:

“the selling of property of any kind … by outcry, by the auctioneer saying ‘I’ll take’ and commencing at a higher figure and going to a lower figure, by what is known as Dutch auction, knocking-down of hammer, candle, lot, parcel, instrument, machine, or any other mode whereby the highest, the lowest, or any bidder is the purchaser, or whereby the first person who claims the property submitted for sale at a certain price named by the person acting as auctioneer is the purchaser, or where there is a competition for the purchase of any property or any interest therein in any way commonly known and understood to be by way of auction; and shall be deemed to include the selling of any property by outcry in any public place, as the same is defined in the Summary Offences Act 1981, or in any room, or mart, or place to which the public are admitted or have access, whether or not the sale of the goods has been advertised to take place.”

The reference to “outcry” in the beginning of the definition applies to the various different auction methods referred to in the definition. The methods include the very specific (e.g. Dutch auctions), and the very general (e.g. a competition for the purchase of any property … in a way commonly known and understood to be by way of auction).

The concept of “outcry” is important because it applies to all the auction methods referred to in the definition. To further clarify the definition of sale by auction, “outcry” is also defined in section 2 of the Act as “any request, inducement, puff, device, or incitement made or used by means of signs, speech, or otherwise in the presence of not less than 6 people by any person for the purpose of selling any property offered or available for sale, whether such property is or is not the same as that shown or referred to by him when making or using such request, inducement, puff, device, or incitement.” The fact that not less than 6 people must be present means auctions cannot take place in private. The Auctioneers Act definition of auction only applies to auctions where it is possible for the bidders to be physically present with the auctioneer (and other witnesses).

One of the issues with the prohibition on anyone who is not a licensed auctioneer conducting a sale by auction is that community and charity fundraising auctions are technically caught under the Auctioneers Act, and it is not unusual for auctions of low value or donated goods for fundraising purposes to be conducted by people who are not licensed auctioneers. This aspect of the Act is clearly not enforced in practice, and there is a question as to whether the requirement for community and charity fundraising auctions to be carried out by licensed auctioneers is necessary or appropriate.

There are separate rules that may apply to auctioneers auctioning land and motor vehicles. The Real Estate Agents Act 2008 allows individuals licensed under that Act to sell or offer to sell any land without having to be licensed under the Auctioneers Act. Licensed auctioneers may also sell or offer to sell land by auction without being licensed under the Real Estate Agents Act⁶³. The interface between the Real Estate Agents Act and any changes that might be made to the Auctioneers Act would need to be carefully worked through. Motor vehicle auctioneers can also choose to be registered under the Motor Vehicle Sales Act 2003.

The actual rules for conducting auctions of goods are in section 59 of the Sale of Goods Act 1908, and a similar section covering the sale by auction of land is found in the Property Law Act 2007. These rules concern the sale of property by lots, the completion of auctions and the withdrawal of bids, vendor bidding and reserves. The Consumer Guarantees Act specifically does not apply to the supply of goods by auction or competitive tender under section 41(3).
The implications of the meaning of the term “sale by auction” in relation to the Consumer Guarantees Act and online auctions are discussed below in the Consumer Guarantees Act section at 12.1.1.

History of the Auctioneers Act

The Hansard debates prior to the passage of the Auctioneers Act indicate that auctioneers were to be licensed in order to more accurately and strictly define who was to be entrusted with the right of selling goods by auction, especially in light of an auctioneer’s role involving the handling of other people’s property and money⁶⁴. The Hansard debate noted that auctioneers have the potential to cause significant financial harm to consumers if they conduct themselves inappropriately when they deal with other people’s property and money.
The second reason given in the debates refers to the class of auctioneers known as “itinerant auctioneers” who set up auctions one day and leave the next. This was deemed to be an “undesirable form of trading” because it was difficult to obtain redress against itinerant auctioneers⁶⁵.

Requiring auctioneers to be licensed was intended to ensure that only those of fit and proper character would be eligible to obtain an auctioneer’s licence. As consumers⁶⁶ generally deal with an auctioneer infrequently, they may not be able to effectively judge the character or competence of an auctioneer. Licensing fit and proper persons as auctioneers could therefore protect consumers from reckless or incompetent auctioneers, by preventing people who are not fit and proper from obtaining a licence.

Occupational regulation under the Auctioneers Act

The Auctioneers Act provides for the District Court to determine whether a person applying to be a licensed auctioneer is a “fit and proper person”, who can be trusted to deal with people’s property and money. This is a “negative licensing” system, because people who are not fit and proper persons are prevented from being licensed auctioneers, and can therefore not conduct any sale by auction.

The District Court makes the decision on whether an applicant is a fit and proper person based on:

• an affidavit or statutory declaration regarding the financial position of the applicant (the applicant cannot be bankrupt)
• two character testimonials which are dated no later than 6 months before the application, and contain the names and addresses of the referees
• the proposed form of the advertisements – two advertisements for the local newspaper with the largest coverage, to be advertised between 7-10 days apart, and
• a police report which states the application is not opposed by the Police.

The requirement for the police report presumably helps decrease the likelihood that an auctioneer would knowingly auction stolen goods, although the Act does not stipulate the basis for the Police to form a view on whether someone is a fit and proper person. The applicant is also required to lodge a $1,000 fidelity bond with an insurance company or other financial institution.

The fee for becoming a licensed auctioneer is $300, and local authorities in the area where the auctioneer conducts business receive 90% of the fee ($270). Only $30 of the fee is applied as a partial contribution towards the cost of administering the Act. It is understood that the basis for assigning 90% of the fee to local government is to defray the additional costs to local government due to the number of auctions being held. For example, when the Act was passed, the majority of auctions held were for livestock. Local authorities had costs related to cleaning the mess from the streets following outdoor livestock auctions.

dditionally, funding was considered to be necessary for building and maintaining roads, as the number of auctions attracted increased road use.

Ongoing relevance

Aspects of the regulatory system which apply to the occupational regulation of auctioneers seem to be either unusual or clearly archaic (e.g. councils receiving funding for removing effluent from streets and the requirement for a $1,000 fidelity bond).

There are three questions that need to be addressed

• Whether the occupational regulation of auctioneers is either necessary or appropriate in its current form?
• Whether the legal rules that apply to auction sales are appropriate?
• Whether the scope of the definition of “auction” is appropriate for the purpose of the occupational regulation of auctioneers, or for the rules that apply to sales by auction?

Is occupational regulation of auctioneers necessary?

Occupational regulation can take many forms, and can either be carried out by the government, or by an occupational group or industry. The purpose of occupational regulation is to protect the public from the occupation being carried out incompetently, recklessly or dishonestly.

There are some assumptions behind occupational regulation. These are that:

• intervention by the government in occupations should generally only occur when there is a problem or potential problem that is unlikely to be solved in any other way, or where the alternatives will be inefficient or ineffective
• the amount of intervention should be the minimum required to solve the problem, and
• the benefits of intervening must exceed the costs.

Government intervention in an occupation is not always necessary. With respect to auctioneers, the primary issue is whether there is a possibility that incompetent or dishonest service by auctioneers could result in significant harm to the consumer and/or a third party and what is the nature of the risk of significant harm. Given that intervention in occupations incurs compliance costs, it is important to only intervene where the potential harm would be significant.

The actions of auctioneers that have the potential to cause harm, be it significant or otherwise, are:

• the manipulation of the auction process by the auctioneer
• the auctioneer making false or misleading representations about the property being sold
• the auctioneer selling items for much lower prices than could have been obtained
• collusion between the bidders, or between the auctioneer and a bidder
• the auctioneer failing to carry out their services to the seller with reasonable care and skill (services such as inspection and cataloguing items for auction, and arrangement of advertising and other marketing for the event)
• the auctioneer failing to account to the seller for the proceeds of sale, and
• the auctioneer selling stolen goods.

Of these risks, the most significant are likely to be where the auctioneer fails to account to the seller for proceeds of sale, or sells stolen goods.

As noted, the Auctioneers Act places the discretion about whether a person is fit and proper to deal with people’s property and money with the District Court. The District Court is involved in the regulation of some occupations, but it is more usual for a specific licensing authority or registrar to carry out this function⁶⁷.

The justification for placing occupational regulation of auctioneers with the District Court was originally that District (or Magistrates) Courts would have local knowledge about people applying to be licensed auctioneers, so local police and court staff between them could effectively operate the negative licensing system. This justification is no longer valid. The District Court can only consider the papers presented to it when it makes its decision on whether an applicant is a fit and proper person to be a licensed auctioneer and this is not an efficient use of District Court resources.

Another unusual aspect of the occupational regulation of auctioneers is that there is no centralised “register” of licensed auctioneers maintained by the licensing authority. Each District Court maintains its own register of auctioneers which may be searched by members of the public, but there is no official national register of auctioneers registered under the Auctioneers Act. The only form of national “register” of auctioneers is held and maintained by the Auctioneers Association of New Zealand. An agreement exists between the Auctioneers Association and the Ministry of Justice whereby within one month of issue of an auctioneer’s licence, a copy is sent to the Association so they can update their central register. The licensed auctioneers on the register maintained by the Auctioneers Association are not necessarily members of the Association.

If it is considered that the risks of incompetent or dishonest auctioneers are sufficient to justify their continued occupational regulation, there are four possible options:

• licensing by a specialist licensing authority along modern lines requiring the meeting of defined competency standards
• a negative licensing regime such as that for motor vehicle traders under the Motor Vehicle Sales Act 2003
• including licensing of auctioneers alongside secondhand dealers and pawnbrokers under the Secondhand Dealers and Pawnbrokers Act 2004 (which is a specific form of a modern negative licensing system), and
• an industry-led licensing approach with an approved industry body.

Another option is to effectively remove the external regulation of the auction industry, and to rely on the industry to set its own standards for conduct and ethics. If this option is adopted, the Auctioneers Act in its current form would be repealed, although some form of legal underpinning could still be required to support industry self-regulation.

Licensing of auctioneers by a specialist licensing authority

Specialist licensing authorities exist for a number of occupations. There are licensing authorities that set competency standards that must be met for registration and to obtain a practising licence. These licensing authorities also have a disciplinary role and competency and conduct breaches can lead to the revocation of a licence. Positive licensing of this nature occurs across a range of disciplines, for example, electrical workers, teachers, and dentists. In many cases, the professions are in the health sector or cover other occupations where the work of the tradesperson or professional could damage life or property if not undertaken competently.

Authorisation (a form of licensing) of financial advisors and Qualifying Financial Entities (QFEs) by the Securities Commission is an example of a positive licensing system which could have some relevance to possible positive licensing of auctioneers. Authorised financial advisors and QFEs need to comply with a code of conduct and meet minimum competency and training requirements.

The existing Auctioneers Act provides a form of negative licensing system, but there are more modern and effective models available. For example, motor vehicle traders licensing under the Motor Vehicle Sales Act (MVSA) may have some relevance to auctioneers. Under the MVSA, a person may obtain a licence provided they have not breached certain conducts, for example, been convicted of a crime of dishonesty in the preceding 5 years. Negative licensing requirements are more lighthanded than positive licensing and do not require applicants to meet competency requirements or to comply with codes of conduct.

Secondhand dealers and pawnbrokers are also covered by a negative licensing regime. As well as having to satisfy certain conduct tests, a police check is required. The Secondhand Dealers and Pawnbrokers Act 2004 is focused on the risk of people dealing with stolen goods, and in particular it imposes particular recordkeeping requirements to assist with the traceability of goods which are bought and sold. This Act provides for secondhand dealers and pawnbrokers to be licensed by a Licensing Authority, but it does not deal with more general occupational regulation issues apart from those aimed at avoiding the sale of stolen goods.

Negative licensing can be expected to cost less than positive licensing because there are no competency or training requirements for a negative licensing system, although the trade-off is that a negative licensing system (even following a modern model) provides minimum protection to the public.

In all cases, specialised licensing authorities maintain a register of licensees which is accessible to the public.

Application to auctioneers

As noted, a requirement to hold an occupational licence should be justified by a problem or potential problem that is either unlikely to be solved in any other way, or where the alternative is inefficient or ineffective. Referring to the earlier discussion on the original justification for licensing auctioneers, there were two primary concerns: those relating to entrusting auctioneers with other people’s property and money; and itinerant auctioneers.

Itinerant auctioneers who are considered to be undesirable because they set up auctions one day and leave the next are no longer an issue.

Regarding the need to licence auctioneers because they are entrusted with other people’s property and money, this essentially concerns whether there is a possibility that incompetent or dishonest service by auctioneers could result in significant harm to the consumer and/or a third party. The risk primarily lies with the owner of the goods being sold, because the auctioneer is the seller’s agent. It is the seller’s property and money which the auctioneer holds, and the seller is the client of the auctioneer.

There have not been many cases in the New Zealand courts where auctioneers have been held to account for breaches of the Auctioneers Act, including for breaches of their duty to account for the proceeds of sale. However there is clearly the potential for auctioneers to harm their own clients who are selling property and third parties. It is an open question as to whether this risk is substantial, but it seems likely that some form of oversight of auctioneers is needed.

The checks and balances in the current negative licensing system are a fairly weak fit and proper person test. The Auctioneers Association of New Zealand Code of Ethics that applies for some auctioneers adds slightly to the current negative licensing regime, but not much.
Having a full positive licensing system, as noted, needs considerable justification and it is not clear that such justification can be established for auctioneers. A full positive licensing system will likely also impose considerably more cost on auctioneers than the present licensing system.

It is useful to consider how Australia regulates in this area. Whilst some States and Territories such as Queensland, Northern Territory and Western Australia have auctioneer licensing, others including Victoria and New South Wales no longer have general licensing of auctioneers (although there is specific licensing of auctioneers regarding real estate and motor vehicles). From discussions with Australian officials, it is understood that auctioneers’ licensing in Victoria and other parts of Australia was no longer considered necessary as auctioneers were in established and reputable businesses and issues suggesting the need to licence auctioneers entrusted with other people’s property and money were not evident. Self-regulation appeared to be the most appropriate and efficient response.

The United Kingdom also ended licensing of auctioneers some years ago. It does, however, have the Auctions (Bidding Agreements) Act 1969 which sets out specific rules related to anyone conducting an auction. These are discussed below in the context of the rules for conducting auctions.

Industry-led models

Currently, in New Zealand, auctioneers are able to voluntarily become members of the Auctioneers Association of New Zealand. Those auctioneers that choose to become members of the Association subscribe to a standard of ethical behaviour, which is found in the Association’s Code of Ethics⁶⁸. The Code of Ethics emphasises integrity by auctioneers among themselves and in relation to their clients and the public.

Approximately 150 of the 500 auctioneers who are licensed in New Zealand are members of the Auctioneers Association. To be accepted as a member of the Association, the individual must be either a licensed auctioneer, a person approved by the court to conduct sales by auction on behalf of an individual or company, or a chattels valuer (who is not a licensed auctioneer). Membership fees are a $300 annual fee, plus a one-off cost of $112.50 for access to the Auctioneers Association’s interactive website.

If licensing of auctioneers is no longer required by government regulation, anyone could conduct an auction without any formal checks or balances. This may not be an issue if the Auctioneers Association had comprehensive coverage of auctioneers. Given the risks associated with the business of auctioneers, and that the Auctioneers Association covers only about 30% of auctioneers, there is some risk in not having any licensing of auctioneers.
The Auctioneers Association could consider the possibility of establishing itself as an industry self-regulatory body in place of government regulation. Membership of the Association could become akin to membership of similar established industry self-regulatory bodies such as the Registered Master Builders Federation (RMBF) or the Institute of Professional Engineers (IPENZ). Membership of the RMBF is voluntary. It conveys that the builder is a qualified and experienced tradesman, as well as having the experience and management skills to undertake the building work required. Becoming a member of the RMBF requires builders to meet a range of requirements around qualifications, period of service, financial stability of the business, and references. These requirements are similar to that of a licensing regime, but are industry managed.

An alternative industry-led approach requiring that auctioneers must belong to an approved industry body similar to chartered professional engineers might be a more appropriate option. Only chartered professional engineers registered with the IPENZ under the Chartered Professional Engineers Act 2002 are able to hold themselves out as being chartered professional engineers. For auctioneers, the approach could be that only auctioneers who are members of an approved industry body could undertake auctions exempted from the Consumer Guarantees Act.

Under Part 3 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008, there is a process set out for how to approve dispute resolution service providers. A similar process for approving auctioneers’ industry bodies could be established. Approval criteria could include that there are membership rules concerning the proper conduct of auctions, the holding of money earned from the sale of goods at auction in a separate trust account, fit and proper person criteria (perhaps similar to the criteria for negative licensing of financial service providers, secondhand dealers or pawnbrokers, or motor vehicle traders) and breaches of rules and codes of conduct.

Because of the small number of auctioneers in New Zealand, another consideration for approval of an auctioneers’ industry body could be that it has a representative number of members or there is adequate coverage under other approved industry bodies.

An industry-led approach would need a legal basis, which could be included in a new Auctioneers Act, or in an enhanced Fair Trading Act. If included in the Fair Trading Act, a benefit could be additional enforcement by the Commerce Commission to support the approved industry body (or bodies). In particular, enforcement might be needed if someone holds themselves out to be an auctioneer when they are not a member of an approved body.
The industry-led approach would also need to require that an approved industry body maintain a publicly available register of members. The register could include member contact details and other useful information. A more formal register of this nature could be helpful to consumers and would provide more information about auctioneers than is currently available. A public register of licence holders would also require a specific provision in legislation.

Auctioneers themselves would be expected to meet the costs of the approved industry body (or bodies) if regulation of the industry was to be industry-led. Any positive or negative licensing approach would also be required to be funded through licence fees. The self-regulating option with no external regulation would also need to be funded by the industry itself.

The views of auctioneers on whether they consider an industry-led approach would work for their industry are particularly sought, together with whether there are particular competencies or standards of conduct that should be required by the approved industry body if there was an industry-led licensing system. Other stakeholders will also have views on these issues. If industry-led regulation or self-regulation is not supported, any information to support the alternative approach of requiring more formal positive or negative licensing is also sought.

Rules for conducting auctions

The Auctioneers Act is silent on how auctions are to be run. The Auctioneers Act deals primarily with the licensing of auctioneers, and the various offences which exist in relation to auctioneers and auctions. In prescribing these things, a “sale by auction” is defined; however this is for the purposes of defining the coverage of the occupational regulation of auctioneers, rather than for the purposes of regulating the actual conduct of auctions.

As noted above, section 59 of the Sale of Goods Act (and the equivalent provision in relation to the sale of land, which is section 42 of the Property Law Act 2007) addresses some aspects of the actual conduct of auctions. The Sale of Goods Act provides for:

• each lot at an auction to be subject to a separate contract of sale
• the sale to be complete on the “fall of the hammer” or other customary manner, and bidders may retract their bids up to the sale being complete
• the seller can only bid where the right to bid is reserved by the seller
• the fact that there is a reserve or “upset” price must be notified.

Section 59 therefore covers the most likely abuses of the auction process. The provisions are designed to protect the sellers whose goods are being auctioned, and the purchaser. The section covers the completion of the sale and the bidders’ opportunity to withdraw their bids, and the requirement for the seller to disclose the fact that there is a reserve price, or that the seller may bid itself. The seller may also be vulnerable to bids being withdrawn after the sale is complete, or to manipulation of reserve prices.

The statutory implied warranties in the Sale of Goods Act apply to the sale of goods by auction. These include the warranties as to fitness for purpose and merchantable quality in section 16 of the Sale of Goods Act. The broadly similar guarantees under the Consumer Guarantees Act do not apply to goods sold by auction because section 41(3) of the Act excludes the supply of goods by auction or competitive tender from coverage.

The main practical difference is that suppliers cannot contract out of the statutory guarantees on sales to consumers under the Consumer Guarantees Act, while they can contract out of the implied warranties in the Sale of Goods Act. Consumers buying goods at auction typically buy the goods on the basis of the goods being sold with no representations and warranties. Accordingly, they are usually taking a greater risk on the suitability or quality of the goods being purchased than if they were buying the goods directly from a supplier in trade. The onus is on the buyer to carefully inspect the goods being bid for, and theoretically the greater risk will be reflected in the auction price.

Even though auctions (and competitive tenders) are excluded from coverage under the Consumer Guarantees Act, they are still covered under the general unfair trading provisions in the Fair Trading Act. Any abuses of the auction process which are not already covered by section 59 of the Sale of Goods Act are likely to be a breach of the Fair Trading Act.
Any disputes between sellers, buyers or auctioneers following a sale by auction are also subject to the civil jurisdiction of the courts, and the standard doctrines of agency and contract law.

The specific rules in the United Kingdom Auctions (Bidding Agreements) Act 1969 (referred to above) that relate to the abuse of auction processes include:

• a dealer who agrees to give a gift or other consideration as an inducement for someone to abstain from bidding at a sale by auction, and a person who accepts such a gift or consideration, are punishable on summary conviction
• if someone is convicted under the above provision, the court may order that the person (or their representative) is not allowed, without the court's permission, for a period of either one or three years, to enter premises where goods for sale by auction are displayed, or to attend or participate in any way in a sale by auction
• the seller may avoid a contract where goods are purchased at auction by a person who entered into an agreement with others that they would abstain from bidding for the goods, and the purchaser or one of the other parties is a dealer, and
• where the purchaser has obtained possession of the goods under a contract that is avoided under the above provision and restitution is not made, the people who were party to the agreement to abstain from bidding are jointly and severally liable to make good the loss (if any) sustained by the seller.

Inducing potential bidders to abstain from bidding may be fraudulent, but it would probably not be caught as an unfair practice under the Fair Trading Act. We are not aware of any particular need for rules along the lines of those in the United Kingdom, but they are an option for New Zealand.

Questions

Footnotes

63 We understand the New Zealand Real Estate Institute requires its members who auction land to be licensed auctioneers.
64 Hansard, Volume 217, 26 July 1928.
65 Ibid.
66 Particularly as sellers, because it is sellers who are particularly exposed to auctioneers holding their property and sale proceeds.

67 Apart from auctioneers, the other occupational licensing groups currently administered by the District Court are: prostitution business owners, private investigators, security guards and sharebrokers.

68 www.auctioneers.org.nz/membership.asp.