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Monday Jan 26, 2015

Don't ignore the 'fall of the hammer' at an auction

It is important that potential sellers and buyers understand that certain terms and conditions attach to public auctions by virtue of the provisions of the Consumer Protection Act (CPA).

In particular, it is important to understand the legal effect of the "fall of the hammer" at a public auction, particularly in circumstances where a bid is received after the fall of the hammer that exceeds a bid immediately prior to it.

All public auctions are required to comply with the provisions of the CPA. Section 45(3) of the CPA provides that "a sale by auction is completed when the auctioneer announces its completion by the fall of the hammer." This provision justifies the exclusion of any offer received by the auctioneer after the fall of the hammer.

In Persadh v Wyles NO and Others (2012) ZAKZDHC 46 on August 10, 2014, an immovable property was intended to be sold by way of a public auction pursuant to a court order. In terms of the court order, the auctioneer was directed to conduct the auction of the property in accordance with the usual practice of such auctioneer in conducting such auctions as set out in the auctioneer’s standard terms and conditions applicable at the date of the sale, including the placement of suitable advertisements and in compliance with the CPA.

The principal issue that arose for determination by the High Court was the interpretation of the phrase "conduct a proper auction... in accordance with the usual practice of the... auctioneer in conducting such actions, set out in the standard terms and conditions". The background of the case was of importance to the court’s interpretation of the phrase. The order to sell the property was a result of litigation between co-owners of the property. For purposes of the auction of the property a reserve price was set at R14m. The conditions of sale attaching to the auction included a provision that the auction conditions were subject to change without prior notice.

In accordance with this provision, the conditions of sale were amended by the auction house to those more suited to a forced sale.

In particular, the default terms relating to further offers after the fall of the hammer and the requirement that the sellers confirm the sale within seven days were removed. Before the auction, the conditions of sale were read out.

At the auction, the property was sold for R14.5m, higher than the reserve price. After the auction, a further higher offer of R15m was made, but was rejected on the basis that it was made after the auction and therefore not in accordance with the amended terms and conditions applicable to it.

The court held that a proper auction is one conducted in terms of the usual practice of an auctioneer set out in the standard terms and conditions prevailing at the time of the auction. In this regard the court confirmed that the terms and conditions applicable were those which applied at the time that the auction was conducted and which complied with the CPA - in particular that the auction was concluded at the fall of the hammer.

The purpose was to achieve a fair sale price by public auction, with a reserve price of R14m. This was achieved.

Sellers and bidders at public auctions must be aware of the fact that the CPA provides that an auction is completed on the fall of the hammer - meaning that bids that are made after this time are to be disregarded.

Justine Krige
Senior associate Cliffe Dekker Hofmeyr
Weekend Argus (Saturday Edition)


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