Walk Away To Bid Another Day

[Author – Tim ODwyer]

Walk away to bid another day – but not before the auction is over.

Picture yourself as a duly registered, cashed-up bidder at the auction of a seaside mansion.  Bidding starts at $6.5 million.Not Sold!  Sold?You join in as bidding progresses to $7.5 million.

Then the auctioneer announces that the property is “on the market” – meaning that the reserve price has been reached and any higher bid will, on the fall of the hammer, secure the property.

Another bidder (let’s call him “Cheng”) bids $7.525 million.  You counter with $7.53 million.  Cheng responds with $7.535 million.  At this point the auctioneer asks for Cheng’s bidding number.  Surprise, surprise, the man is not registered.  So the auctioneer reverts to your $7.53 million bid.  Going once, going twice.  Suddenly the auctioneer says he will “hold it over”.

“No, stop,” you shout, “this is illegal!”  While the auctioneer moves on to other properties, a salesman from the owner’s real estate agency accompanies you from the auction room.  You are in an emotional state.  After the salesman assures you “it would all be settled”, and checks on you between auctions, you go outside for a smoke.  Not wise.

Cheng, in the meantime, is registered as a bidder.  The auctioneer then announces that all bidding registrations, with the owner’s approval, are in place for this property.

He further announces that all previous bidders are present except yourself, whereupon the salesman reports that you have left the building and are unreachable on your mobile phone.  The auction restarts immediately with Cheng’s revived bid of $7.535 million.  There are no other bids.  The property is knocked down to Cheng who promptly signs a contract with the owner.  When you find this all out later, you are livid.  What to do?

With sound legal advice, you might sensibly walk away to bid another day.  Not so the real life bidder (let’s call her “Ellen”) who missed out when the above scenario played out recently on the Gold Coast.

Within days solicitors lodged a caveat on Ellen’s behalf against the title to the property.  This effectively halted both the Cheng sale and the owner’s subsequent purchase of another property.

The caveat stated that Ellen claimed an interest as purchaser pursuant to a contract made with the owner on the auction day.  This alleged contract comprised the Auction Conditions (read out and advertised before the auction) and the standard sale contract presented at the auction.

The matter came before the Supreme Court where the litigants included Ellen, the owner, the agency, the auctioneer, the salesman and Cheng.  Six barristers appeared, including one Queen’s Counsel and one Senior Counsel.

Despite the case pressed by Ellen’s lawyers, the judge ruled that at no time did she become the buyer under the Auction Conditions.  These had clearly stipulated three requirements for the highest registered bidder to become the buyer:

  • The fall of the auctioneer’s hammer
  • The highest bidder’s signing of the sale contract
  • Payment of the deposit

None of these followed Ellen’s final bid.

It almost went without saying, the judge remarked, that there was no signed contract between Ellen and the owner satisfying the requirements of the Statute of Frauds.

The judge directed the removal of the caveat, and ordered Ellen to pay the other parties’ legal costs.  Nevertheless he indicated, in passing, that she might have other more sustainable claims (but only for damages) against the owner, the auctioneer, the agency and the salesman – not only because the auction was conducted contrary to the auction conditions, but also because of likely misleading, deceptive and unconscionable conduct.

Ellen had also sought to restrain the owner from selling to Cheng.  Her legal team argued that the auction conditions imposed an enforceable legal (or equitable) obligation on the owner to enter into a contract to sell to her for the price she bid when the property went on the market.

Rejecting this argument, the judge said it defied common sense to suggest that parties to an auction would be contractually (or equitably) bound by a promise that all registered bids would be unconditionally ‘accepted’.  Such a notion was, he concluded, “contrary to the inherent competitive nature of the auction process.”

(This article first appeared in Australian Property Investor magazine)

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