When A Successful Auction Bidder Renegs On Signing

Tim O'Dwyer M.A., LL.B

Tim O’Dwyer M.A., LL.B

by Tim O’Dwyer M.A., LL.B
Consumer Advocate

From time to time some consumer advocates suggest to successful auction bidders, who might have a sudden change of mind, that they should refuse to sign anything and walk away. This is dangerous advice because in most parts of Australia auctioneers may lawfully sign a sale contract on behalf of a reluctant buyer (and hesitant vendor). (See “Winning Auction Bidders Beware“). Even if no signed post-auction contract, a successful bidder who walks away may still wind up defending a damages suit – as happened to experienced property investor Jack Singh.

On 11th June Singh was the only genuine bidder at the auction of the Rossmoyne (Western Australia) home of Jim and Jenny Flynn. He  placed a bid of $3.6 million. With the reserve price of $3.9 million not reached, auctioneer Mark Mahon told those present he would seek the owners’ instructions whether the property could be sold at the price of the last bid. He soon returned to advise the property was on the market and that, if there were no more bids, it would be sold. He re-opened the bidding, received no other bids, called the price three times and knocked the property down to Singh.

After congratulating Singh and his wife Mahon invited them into the home to sign the contract. As they walked into the home, he asked if they had their chequebook. Mrs Singh tapped her handbag and said, “Yes, we’ve come prepared.” Once inside Singh asked if the vendors would accept a 60 day settlement. No, replied Mahon who explained that the auction terms provided for settlement on 12th July. But when Singh was asked to sign the contract, he said he no longer wanted to buy the property. He and his wife then left.

Singh ignored later written demands from Flynns’ solicitors, no deposit was paid and no settlement occurred on 12th July. Or at any other time. The property was placed on the market again, did not sell and was subsequently rented out. In due course Singh was sued by Flynns for damages on account of his misleading and deceptive representations with respect to future matters contrary to Section 4 of the Australian Consumer Law. There were two key aspects to Flynns’ claim: firstly that Singh’s bid was a misleading and deceptive statement as to a future matter and, secondly, that his conduct in allowing the auction to continue without withdrawing his bid, together with his saying and doing nothing to indicate he was not proceeding, misled Flynns and “other persons associated with the auction.” Flynns’ claim relied on the aggregate effect of Singh’s conduct.

As to the making of the bid, the judge found no breach of Section 4 because he was satisfied that the bid not only constituted a representation that Singh would comply with the auction conditions to complete the purchase, but also demonstrated an intention to acquire the property with Singh having the financial means to do so. “It was an honest representation,” His Honour concluded before addressing the question of the “post-bid conduct.”

“I find that conduct (including silence),” the judge ruled, “to have been misleading and deceptive in any event.”

Singh in the meantime had argued that, at the point when the auctioneer returned and sought other bids, he decided not to proceed with his bid. And when he and his wife went inside the property at the conclusion of the auction, he was ‘confused and shocked’ and thought he was being invited to re-negotiate the price. In these fairly plausible circumstances Singh could, in the judge’s view, still reasonably have been expected to take steps to ensure “his new position” was understood by the auctioneer: “His silence would have misled as to his intentions at that point, or would have misled as to his state of mind at that point as to whether he considered he had acquired the property.”

Unfortunately for Flynns the next question was whether their post-auction losses were “because of” Singh’s misconduct. Trouble was, although his bid was genuine and not misleading, Singh’s later mischievous silence caused a loss only of an “opportunity” to restart the auction. As this loss was of “theoretical significance”, Flynns’ claim was dismissed.

(This article first appeared in Australian Property Investor magazine where real names were not used – The case citation is Carter & Anor v Delgrove Holdings Pty Ltd & Anor[2 September2013] FCCA 783].

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