Law and technology

The Ministry of Consumer Affairs has released a discussion document on the proposed reform of New Zealand’s consumer law. One of the areas to be addressed is online auctions. Issues include whether online auctions should be regulated in some form, and whether the Consumer Guarantees Act should apply to goods and services bought via online auctions.

Regulation of online auction

A preliminary (and, lets be honest, entirely academic…) issue raised in the document is whether online auctions are presently subject to the Auctioneers Act. The document says no, on the basis that the Act only applies to auctions “by outcry”, which is defined as 6 people being physically present:

The reference to “outcry” in the beginning of the definition [of "auction"] applies to the various different auction methods referred to in the definition.

Based on that conclusion the documents goes on to say “the Auctioneers Act definition of auction only applies to auctions where it is possible for the bidders to be physically present with the auctioneer”. I take a different view from the good people at the Ministry. As I wrote previously, in my view “outcry” is not a necessary part of the definition:

there does not appear to be any reason … why the words “by outcry” must apply to the entire definition [of auction] while the other sub-clauses of the definition are read as alternates. Furthermore, to do so would limit the final key words “or where there is a competition for the purchase of any property in any way commonly known and understood to be by way of auction.” These final words are clearly a catch-all intended to prevent anything “commonly understood to be an auction” from being inadvertently excluded by the definition.

So my view is that online auctions are currently covered by the Auctioneers Act (which, as I said, is entirely academic). However, I also noted the craziness that online auctions should be “subjected to rules formulated decades ago and premised on a traditional, physical auction process”.

The fact is that specific regulation of online auctions is not currently enforced. Nor is it not necessary. Practical enforcement would be difficult. The UK, New South Wales and Victoria (among others), get by quite well without special legislation covering online auction providers. Hopefully, our new law will clearly exempt online auctions and other forms of e-commerce from unnecessary red tape.

Consumer Guarantees Act

The reform will also address the perennial issue of whether the Consumer Guarantees Act (or whatever its replacement will be) should apply to online auctions. There is no doubt that, generally, the same rules should apply for online “buy now” sales as for bricks-and-mortar sales. But what about online auctions?

The document says that whether online auctions are presently covered by the Consumer Guarantees Act is a “grey area”. But in my view there has never been much doubt: online auctions, if they are in fact conducted as an “auction” with bids etc, are not covered by the Consumer Guarantees Act (Trade Me probably wisely leaves it open for now). However the document gives a strong indication (for a discussion paper) of the preferred view:

There would appear to be justification, accordingly, to clarify that Trade Me style auctions should not be exempted from the Consumer Guarantees Act.

That would be a very sensible proposal, and my bet is this will be an outcome of the review. There will likely be some push-back from Trade Me-exclusive dealers, but most medium/large retailers (who also operate bricks-and-mortar shops) will support it. They already have full consumer obligations for all goods and services sold in their stores and online (non-auction style). So does every corner dairy and most small mum-and-dad shops. There are too many stories of shonky internet-only dealers who are only too happy that they are exempt from the consumer protection obligations that all these other retailers have. Trade Me does a great job in helping out where it can, but the answer is simple: close this unintended loophole. And it doesn’t create more red tape – it simply levels the playing field between dealers and simplifies the consumer protection regime.

Note that the proposal is not to extend the CGA to private online sellers and auctions. As per the current law, it will only apply to sellers “in trade” – i.e. shops, retailers and dealers.