Auctioneer’s Right To Refuse A Bid By Paul Anderson | February 2006
The recent case of Seivewright v Brennan contains an interesting examination by the Chief Judge in Equity of an auctioneer’s right to refuse a bid.
Facts Mr McIntyre was the registered proprietor of a property in Port Macquarie which he proposed to develop as an industrial site. He arranged finance from various sources including a third mortgage from a Mr Brennan. Mr McIntyre defaulted and Mr Brennan took possession and listed the property for sale by auction. The plaintiff was a Mr Seivewright. The auction commenced and bids were made by various parties, including the plaintiff. The auctioneer indicated at one stage the property was “on the market”. Another bidder bid $2.9 million before the plaintiff offered $2.901 million. The auctioneer then said words to the effect – “the bid is with this gentleman” pointing to the plaintiff. There was a break in the proceedings and when the auctioneer returned he announced – “I have been instructed not to accept any more bids from this gentleman” pointing to the plaintiff. “This gentleman’s bid of $2.901 million is now going to be withdrawn and we will be reverting back to the bid of $2.9 million.” The plaintiff protested and said “are you telling me that in this public auction in a commercial transaction you are refusing my bid?” The auctioneer replied “that is correct.” The property was subsequently knocked down to the other bidder for $2.9 million despite the plaintiff making a further bid of $3 million which was rejected by the auctioneer. The motivation for the auctioneer’s stance appeared to be a concern that the plaintiff was an associate of Mr McIntyre and the two of them were organising an attempt to frustrate the auction. The plaintiff instituted proceedings against Mr Brennan and the auctioneer.
Submissions The plaintiff’s case relied heavily upon regulation 18 of the Property Stock and Business Agents Regulation 2003 which sets out conditions of sale by auction. Regulation 18 (1)(c) provides – “the highest bidder is the purchaser, subject to any reserve price.” The plaintiff argued that Regulation 18(1)(c) made him the purchaser and there was a statutory obligation on the auctioneer to sign the Contract.
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Decisions Chief Judge in Equity Young relied heavily upon a prior decision of Justice Holland in AGJ (Advances) Limited v McWhirter. A bidder at an auction was not a conditional purchaser and was no more than an offeror. No contract could come into existence until his bid was accepted by fall of the hammer. Regulation 18(1)(e) was relevant in this regard in that it provides – “the auctioneer may refuse to accept any bid that, in the auctioneer’s opinion is not in the best interest of the seller.” The plaintiff accepted that this was a correct statement of the law but alleged that his bid had been accepted. The Court held that Regulation 18 did not change the general law of auctions, namely that it was only when the hammer fell that there was a concluded deal. This rule is not affected by an announcement before the auction that the highest bidder would be the purchaser or an announcement during the auction that the property was now on the market. The bid of $2.901 million had been “accepted” by the auctioneer but an “accepted” bid does not give rise to the formation of a contract until the hammer falls. Until that time, a bidder may withdraw his bid and an auctioneer may reject or refuse to consider a bid already accepted. An “accepted” bid does not give rise to a contract. If it did, there would be a breach of contract every time a higher bid was accepted. As a result, the plaintiff failed and the property was validly sold for $2.9 million.
Conclusion The decision is both interesting and useful in that it provides practical guidance to all parties concerned in an auction to the legal principles underpinning the process.
For more information please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au
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