Vendor bids are legal and separate from shams
THE LEGALITY of vendor bidding has been confirmed by a Supreme Court of Appeal judgment related to alleged sham bidding at an auction where a prominent businessman acquired a lodge and game farm for R20 million.
The court action by Ivor Ichikowitz, the executive chairman of private defence company Paramount, was prompted by media reports in 2012 that prominent businesswoman Wendy Appelbaum realised she was bidding against a ghost bidder while making a R55m bid for the Quoin Rock Winery and Manor Estate in Stellenbosch at an auction conducted by Auction Alliance in December 2011.
Auction Alliance and its chief executive, Rael Levitt, were subsequently investigated, along with others, for a wide range of suspected criminal offences, including fraud.
Video recordings
Ichikowitz, in a founding affidavit, said video recordings of the Thaba Phuti Safari Lodge auction showed that after the price of R15m had been reached, the auctioneer continued to gesticulate, implying that bids were emanating from genuine bidders in the room when there were none.
Acting Judge of Appeal CHJ van der Merwe said in summary the case of the purchasers was that the video recordings had shown evidence of fraudulent conduct and sham bidding by the auctioneers and other representatives of High Street Auction.
Ichikowitz said the sale agreements and first addendums to them were invalid because of non-compliance with the regulations. This was because the auctioneer was not permitted to bid at the auction at all, and he was obliged to identify his bids on behalf of the sellers but failed to do so.
The appeal followed an unsuccessful High Court application by the purchasers to invalidate the sale agreement because of the bids of the auctioneer on behalf of the sellers and a demand for a refund of the R2.28m commission paid.
The appellants were Hansa Silver, an entity through which Ichikowitz was interested in acquiring the lodge, Ichikowitz and the sellers of the lodge – comprising Jan Jonathan Serfontein, Erf G of the Farm Dukerbuilt 360 CC and Thaba Phuti Safari Lodge.
Van der Merwe said vendor bidding, and bidding by or on behalf of the auctioneer, was expressly recognised by the Consumer Protection Act, subject to notice being given in advance that a sale by auction was subject to a reserved or upset price or a right to bid by or on behalf of the owner or auctioneer at the auction.
He said vendor bidding, which done by or on behalf of the seller, must be distinguished from sham bidding.
“Instances of 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. Sham bidding is, of course, illegal,” he said.
Right to bid
Van der Merwe said advertisements about the auction stated the rules of the auction and made clear that the auctioneer had the right to bid on behalf of the owner.
The auctioneer had, at the commencement of the auction, read out the rules and Ichikowitz had signed the standard bidder registration form acknowledging that he had read, understood and was bound by the terms and conditions of the auction.
Van der Merwe accepted a submission by High Street that the auctioneer’s bids on behalf of the sellers were “identified as such in the context in which they were made”.
He also ruled that the buyers had not shown that the auctioneer’s bids on behalf of the seller constituted material misrepresentations inducing the sale agreements.
The High Street Auction said this week its reputation as a leading brand and property auction house had been vindicated by the landmark court ruling.