Professional Negligence and Liability
Chapter 17
AUCTIONEERS
1. INTRODUCTION
1. Importance of sales by auction
17.1 Sales by auction involve important economic activity that goes on most weeks at auction houses throughout the UK. A wide variety of assets and securities are the subject-matter of specialist auctions at regular intervals, some firms dealing exclusively with one commodity only. Examples are plant and machinery, livestock, life policies, motor vehicles, firearms, books and postage stamps. In so far as standard conditions of sale exist, at least some of these conditions will vary according to the subject-matter of the auction. Plant and machinery or vehicle sales, for instance, require special conditions of sale to take account of safety legislation. Auctioneers obtain items for their sales from varying sources but primarily from private sellers, personal representatives and traders realising their stock. The auction serves the vital function of reducing assets into money quickly and by a specific date, particularly if no reserve is placed. Sellers, liquidators and receivers often take the view that although prices realised at auction may be lower than in a sale by private treaty, this discount is more than balanced by the saving in administrative effort and time which might be needed to find a suitable private treaty purchaser.2. The impact of the internet
17.1.1 Recent years have seen the burgeoning phenomenon of the internet affect the auction scene. There are completely virtual auctions, such as the hugely successful eBay; in addition, many live auctions now use the internet not only to publicise sales and lots but to enable bidders to bid online. In virtual online auctions, bids are invited for lots over a stipulated period of time and the highest bid, above any set reserve, received by the expiry of that time secures the lot. There may be some question whether these virtual auctions qualify as auctions at all. The problem lies in the absence of much of the traditional facilitation functions of the auctioneer; but the lots are advertised, bidding is invited, the bidders are aware of competitive bids, the highest bid wins and a virtual hammer can be said to fall. The better view, it is submitted, is that online auctions of the type described are auctions properly so called.1 This would make such auctions, in common with traditional auctions, outwith the provisions of the Distance Selling Regulations.2 A buyer under a purely online auction sale would, however, potentially be a consumer for the purposes of the Unfair Contract Terms Act 1977 (“UCTA”) (see below) since an individual buyer does not have the opportunity to attend the sale in person. 17.1.2 Decisions of the courts in Germany3 and France4 have imposed obligations on eBay in respect of sales of counterfeit goods. The German Federal Supreme Court held that operators of an internet platform for third-party auctions had a duty not only to block sales of infringing goods once they had been informed of a clear breach, for example, of a trade mark, but also a duty so far as possible to prevent future breaches. These decisions evidence a trend to reject the contention of such platform providers that they are mere conduits. The German court was astute, however, not to require eBay to take measures which would jeopardise their entire business model. Thus, they would only be liable for negligent or wilful wrongdoing.5 As to the position in England, the common law liability of eBay in respect of sales of trade mark infringeing articles was considered in L’Oreal SA and Others v. eBay International and Others.6 In this case the question was whether eBay were liable, inter alia, as joint tortfeasors for trade mark infringements committed by their sellers. Whilst Arnold J found that eBay facilitated the infringements, he also found that this did not suffice to constitute them joint tortfeasors and that they were under no legal duty to prevent such infringements. A reference was also made in that case to the European Court of Justice inter alia, to determine the scope of relief which Article 11 of EC Directive 2004/48 required national courts to grant against intermediaries such as eBay. The answer from the European Court7 was that Article 11 requires member states to ensure that the national courts are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. It was said that such injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade. The continued relevance of this decision post Brexit remains to be seen.3. The incidence of litigation
17.2 Litigation involving rights and liabilities arising out of auction sales has been relatively sparse. A glance at a textbook on the law of auctions reveals a plethora of Victorian cases, some on land auctions and others on auctions of chattels. The comparative lack of reported litigation in more recent times may be because application of the conditions of sale makes disputed territory much harder to find, or may reflect the auctioneer’s desire to settle disputes out of court on behalf of their principals or on their own behalf.8 Compromises can often be reached in less serious cases by re-offering the disputed goods for sale and, if necessary, compensating the injured party in an appropriate amount over and above the net amount realised on the resale. Those cases which have been reported, some of them being of considerable significance, often show the court’s reliance on expert evidence as to the commercial practices widely involved but far from widely understood. Statutes, too, have tended to leave auction sales alone or make special provision for them. For example, section 12(2) of the UCTA states that “the buyer is not in any circumstances to be regarded as dealing as consumer (a) if he is an individual and the goods are second-hand goods sold at public auction at which individuals have the opportunity of attending the sale in person; (b) if he is not an individual and the goods are sold by auction or competitive tender”.9 Similarly, the formalities required to conclude a contract for the sale or disposition of an interest in land do not apply to auction sales.104. Specialist and general auctioneers
17.3 A further important preliminary point is the distinction, in terms of professional responsibility, which is made between provincial auctioneers and the “leading auction houses”11 The difference is the same as the difference between medical specialist consultants and a general medical practitioner.12 Traditionally, very rare and valuable items which have found their way into the London auction houses since authentication by, for example, Sotheby’s, whilst not always necessarily passing unchallenged, are taken internationally to be as near a “gold standard” as it is feasible to get, and this is of comfort to the buyer. Accordingly, with the benefit of an unequivocal indication from a source such as Sotheby’s, a rare or unique item is likely to attract higher bids than one would normally expect in a provincial auction. This seems to be the justification for the different standards expected of the general auction house on the one hand and of the “Big Three” on the other. However, where the auction house is a general auction house, it must be aware of its own limitations and be aware of its lack of specialist knowledge.13 17.4 It is also important to realise that auction sales regularly take place at the other end of the spectrum from that occupied by Sotheby’s, Christie’s and the like. It is by no means universal even to have a catalogue for general sales in some auctions in the provinces. The auctioneer simply goes round the lots, makes some attempt at an oral description and sells them off as quickly as possible to bidders amongst the assembled audience who will have had an opportunity to view what is on offer. Intermediately are numerous auction houses in the provinces or, indeed, in London outside “the Big Three”, where their catalogues are modest and the Conditions of Sale brief and not always well drafted.5. Professional qualifications
17.5 There is no legal requirement to have any particular qualification to practise as an auctioneer, nor are auctioneers required to join any professional association. The Auctioneers Act 1845 required auctioneers to take out a licence renewable annually and costing £10. Failure to produce such a licence was a criminal offence. The revenue engendered was in the nature of taxation and this Act was in most respects repealed by the Finance Act 1949. The only remaining section, section 7, continues to require auctioneers to display their full names and addresses prominently in the auction room. The sanction is a criminal one. Similarly, auctioneers may be required to take out excise licences (for instance where wine and spirits are sold) or register as a firearms dealer. In addition Westminster City Council and the Royal Boroughs of Kensington and Chelsea have produced conditions for auctioneers operating within their areas under the Greater London Council (General Powers) Act 1984, section 28(3). Whilst many of these conditions concern safety issues, there are also conditions relating to the conduct of sales, bidding practices and similar matters. However, none of these provisions directly affects the right of any person to set up in business as an auctioneer, though, in practice, many auctioneers will be members of the Royal Institution of Chartered Surveyors which from 1 January 2000 merged with the former Incorporated Society of Valuers and Auctioneers.14II. AUCTIONEERS’ DUTIES TO SELLER
1. Introductory
17.6 The object of this chapter is not to expound in detail the general principles of law concerning professional negligence which apply to all providers of services in the UK, but rather to isolate the application of those principles which are peculiar to auction sales and which are likely to be relevant in practice where a dispute erupts between buyer and seller, seller and auctioneer or auctioneer and bidder involving an alleged breach of duty by the auctioneer. The “basic law” is that of contract and agency. The auctioneer is almost always acting for a principal whose name is not usually disclosed but whose existence is known.15 However, in addition to this primary liability the auctioneer owes duties to buyers and bidders, either because these are imposed via the auctioneer’s own Conditions of Sale, as in De Balkany v. Christie Manson & Woods Ltd 16 or because the courts have held there to be a duty of care in some circumstances outside the contractual nexus. As between auctioneer and seller, modern authorities discussed extensively elsewhere in this book suggest that there will be a concurrent duty of care in tort owed by the former to the latter, but it is submitted that in the auction situation it will rarely, if ever, be appropriate to invoke it.17 The duties of an auctioneer to the seller may be summarised as follows:- (1) duties arising out of agency;
- (2) a general duty to act with skill and care;
- (3) a duty to secure a binding contract;
- (4) a duty to describe the property accurately;
- (5) a duty to conduct the sale properly;
- (6) a duty to care for the goods.
2. The agency framework
17.7 The auctioneer acts primarily as agent for the vendor. If a person sends goods to an auctioneer, the auctioneer will have apparent authority to auction those goods. More usually the authority will be actual and this will usually be provided for in express conditions of consignment by which the vendor should be bound. Disputes about the extent of the agency conferred will be resolved by the court applying the ordinary rules of construction in order to ascertain the intention of the parties, though usages of the trade or the course of business between the parties may also be important.18 Conditions of consignment are often intermingled with conditions of sale generally. There are also cases, as will be seen, where the auctioneer is agent for a bidder or purchaser. The common practice of receiving “commission bids”, i.e. bids left with the auctioneer by potential buyers in advance of the sale and to be exercised by the auctioneers in the absence of the commissioner is an example of this.3. General duty to act with skill and care
17.8 An auctioneer, as a professional, is under a general duty under the common law to exercise proper skill and care in and about the sale of his principal’s property. As Lord Ellenborough put it in 181319: “In the present case the plaintiff appears to have been guilty of gross negligence and the defendant has suffered an injury instead of deriving any benefit from employing him…I pay an auctioneer, as I do any other professional man, for the exercise of skill on my behalf and I have a right to the exercise of such skill as is normally possessed by men of that profession.” That case decided that an auctioneer lost his right to commission in circumstances where he had had to return the purchaser’s deposit due to the failure of the vendor of a lease to show his lessor’s title. It was found that it was usual practice in such cases for the auctioneer to insert a proviso in the conditions of sale that the vendor was not to be called upon to show the title of the lessor and the auctioneer’s negligence consisted of the failure to include such a provision. Whilst this case concerned only the auctioneer’s liability to forgo his commission, he will also be liable in damages for loss occasioned to his principal by reason of his negligence. It is impossible to provide an exhaustive list of the circumstances in which such a liability may arise, but a number of instances are given below.204. The standard of skill and care
17.9 Lord Ellenborough referred to the exercise of “such skill as is normally possessed by men of that profession”. In the nature of things, some professionals are more skilled in certain aspects of their work than others. Moreover, when it comes to matters such as valuation, particularly in, say, the art world, it is recognised that some auctioneers are specialists whereas others may be more in the way of general practitioners. Recent decisions have established that the law takes account of such matters. 17.10 In Alchemy (International) Ltd v. Tattersalls Ltd 21 the defendant auctioneers were sued by the vendor of a colt for failing to obtain an appropriate price. The main issue in the case was whether the apparent highest bidder having disappeared, the auctioneers acted properly in delaying putting up the horse again whilst they sought (unsuccessfully) to trace and hold the successful bidder to his bargain. At the re-auction some days later, the colt achieved some 200,000 guineas less than originally. Experts were called by both sides and gave divergent views as to what was the proper or sensible thing for the auctioneer to have done in such a dilemma. The court applied a statement of the law adopted in a malpractice case, namely, Maynard v. West Midlands Regional Health Authority 22 in which the court endorsed an earlier dictum viz:“In the realm of diagnosis and treatment there is ample scope for genuine difference of opinion and one man clearly is not negligent merely because his conclusion differs from that of other professional men . . .