Hammer falls on Ichikowitz

Supreme Court auction shock for arms-maker

BILLIONAIRE weapons-maker Ivor Ichikowitz has lost a threeyear battle against High Street Auctions, which he accused of faking bids to inflate the price of a property he was buying.

Ichikowitz bought Thaba Phuti, a lodge and game farm near Rustenburg, for R20-million in 2011. But a video of the auction appears to show auctioneer Joff van Reenen pretending to take bids from nonexistent buyers in the room to push up the price.

After a bid of R15-million was reached, Van Reenen seemed to pretend there were other bidders in the room and kept increasing the price. But the only real bids, as Van Reenen continued to up the price, came from Ichikowitz.

The farce continued until a price of R19.75-million was reached when Van Reenen called “you are out”, implying a competing bidder had dropped out.

The auctioneer did not specifically say before each bid that they were being placed on behalf of the farm’s seller — a process known as “vendor bidding”.

Van Reenen told Business Times this week that to preface a bid by describing it as a “vendor bid” was impossible because of the “speed of the auction”. However, the video shows him pausing at times during the auction.

After watching the video, Ichikowitz demanded the auction house return the 10% commission he paid as part of the purchase price, and for the sale to be deemed invalid.

But the Supreme Court of Appeal ruled on March 30 that High Street had been clear enough, and that Ichikowitz had “only himself to blame for ignorance of the possibility of vendor bidding by the auctioneer”.

The ruling confirms that ‘vendor bidding’ is legal as long as potential buyers are made aware of it and the price is nudged up no further than the reserve price.

Vendor bidding is not allowed if there is no reserve price.

A furious Ichikowitz said this week that “this shows the law really is an ass”. Speaking from a CAVEAT EMPTOR: Paramount’s Ivor Ichikowitz plane on which he was about to fly to West Africa, Ichikowitz said the video clearly showed that no one else was bidding.

Ichikowitz is chairman of the Paramount Group, Africa’s biggest privately owned arms group, which makes armoured vehicles, surveillance drones and warships. Paramount, which makes about $1-billion a year (about R12-billion), is a major supplier to Africa’s war zones.

The Thaba Phuti sale has echoes of the 2012 auction of wine estate Quoin Rock, which led to the downfall of Auction Alliance.

There, Auction Alliance was accused of using ghost bidders to drive up the sale price. It was the Auction Alliance debacle that prompted Ichikowitz to probe deeper.

This week, Van Reenen said High Street “never thought the ruling would be any other way” as the auction had been conducted by the book. “We followed procedure,” he said.

The ruling is the first time the issue of vendor bidding — sometimes called “ghost” bidding — has been tested in court.

The court agreed that High Street had not stepped out of line, and dismissed Ichikowitz’s appeal with costs.

The court said vendor bidding, where an auctioneer raises the price on behalf of the seller, is different from sham bidding, which is clearly illegal.

“Sham bidding are bids in terms of an underhand arrangement to artificially raise the sale price, or a non-existent bid represented as a real bid,” it said.

The problem was that Ichikowitz had not read the small print in which High Street said it would be acting for the sellers and making bids on their behalf. This was clear on the sale advertisements and the registration form that Ichikowitz signed.

According to the court ruling, Van Reenen also read out the rules of the auction before it began. Ichikowitz admitted “he had not paid attention”.

Even so, not all auctioneers are comfortable doing it. Ruarc Peffers, a senior specialist at fine art auction house Strauss & Co, said: “We don’t do it. The practice isn’t held in the highest regard.”

Instead, Peffers said, Strauss & Co auctioneers typically started by stating prices in increments up to the reserve price. Only after this price is announced are bids taken — if there are no bids, the piece remains unsold.

Another auctioneer, who asked not to be named, said vendor bidding was common but only to stimulate demand. “If I’ve got 20 registered buyers, who all want to buy the thing, I’m not going to vendor it.”

He said the practice could go horribly wrong. “You can vendor it and vendor it, and then the seller says okay, and then there’s no buyer.”

Another auctioneer said that in the light of the confusion around the issue, “today, I believe that auctioneers should identify the vendor bidder as they take the bid from him”.

It is the first time vendor or ‘ghost’ bidding has been tested in court

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