Last week’s Fair Go raised an old IT law issue. The item involved a faulty car bought by auction on Trade Me. The seller was a commercial car yard. Inevitably (as it was on Fair Go), the car broke down shortly after purchase, and the owner sought legal advice on whether she had any rights against the car yard under the Consumer Guarantees Act 1993 (CGA).
The legal advice was that the Consumer Guarantees Act did not apply, as the Trade Me sale was a sale “by auction”, and therefore not covered by the Consumer Guarantees Act (because goods bought at auction are not covered by that Act – see section 41). However, the question of whether an online auction is legally an “auction” for the purposes of the Consumer Guarantees Act has still never been before the Courts. The answer matters for 2 reasons:
- If it is not an “auction” in the eyes of the law, then consumers who buy goods at a Trade Me sale (under the bidding model) will be covered by the CGA when buying items such as cars, from dealers via Trade Me.
- If it is an auction, then consumers will not be covered by the CGA.
The main legislation regulating auctions in the Auctioneers Act 1928. This act does not actually define what an “auction” is, but it does define “sell by auction” from which a definition of “auction” can be logically derived. While the definition of “auction” in the Auctioneers Act cannot be applied to the term “auction” in the Consumer Guarantees Act, it is still relevant when determining whether or not a Trade Me sale is an “auction”.
Trade Me takes a fine position on the Auctioneers Act. It has long maintained that it is not subject to the Auctioneers Act (which it would be if it “sold goods by auction”):
“We provide a venue for buyers and sellers to meet. The Auctioneers Act doesn’t apply to us.” – NZ Herald
This view is echoed (though not in exactly the same terms) in Trade Me’s terms & conditions:
“… even though some of the services are being referred to as an auction, Trade Me is not an auctioneer (whether under the Auctioneers Act 1928 or otherwise)”
But such statements do not affect whether or not the Auctioneers Act actually does apply. The Act defines “sell by auction” to include:
the selling of property of any kind, or any interest or supposed interest in any property, by outcry, by the auctioneer saying “I’ll take” and commencing at a higher figure and going to a lower figure … or any other mode whereby the highest, the lowest, or any bidder is the purchaser … or where there is a competition for the purchase of any property or any interest therein in any way commonly known and understood to be by way of auction
“Outcry” is defined as “any request, inducement, puff, device, or incitement made or used by means of signs, speech, or otherwise in the presence of not less than 6 people …”.
In its report Electronic Commerce Part Two, the New Zealand Law Commission assumed (at paragraph 96) that the words “by outcry” in the definition of “sell by auction” applied to the entire definition (it referred to the only known case on the matter where the judge appeared to imply, but did not decide, that an auction must be “by outcry”). The Commission therefore considered that the relevant enquiry was whether an electronic auction was “by outcry” (paragraphs 98-99).
However, there does not appear to be any reason (and none was given) why the words “by outcry” must apply to the entire definition 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.
It may be possible to quibble over specific aspects of an online sale process to try to avoid falling with the catch-all part of the definition, but the broad and inclusive nature of the definition and the rule of giving legislation a “fair, large and liberal construction” (which still applies under the Interpretation Act 1999 – see Combined Rural Traders Society Ltd v Batcheler, 12 February 2009) and a purposive approach means that Trade Me is indeed “selling by auction” and is therefore subject to the Auctioneers Act 1928.
Therefore the definition clearly applies to Trade Me on two grounds:
- It applies under the “any other mode” definition.
- It applies because a bidding-sale on Trade Me comfortably fits the description of “a competition for the purchase of property in a way commonly known and understood to be an auction”. In fact, Trade Me’s website (and its terms and conditions) refer to its sales as “auctions” dozens of times.
However, this is where practical problems arise. Not surprisingly, a law passed in the 1920s could not have foreseen the advent of “automated auctions” such as we commonly have now. It would simply not make sense for Trade Me and other online/computerised auction systems to be subjected to rules formulated decades ago and premised on a traditional, physical auction process. To do so would be detrimental to the development of e-commerce in this country (not to mention internationally embarrassing).
Fortunately, the relevant Government agencies have taken a pragmatic approach to all this and not attempted to impose outdated regulations upon online auctions (to the understandable chagrin of the Auctioneers Association, whose “bricks and mortar” members are subject to the 1928 Act regulations). The Consumers Institute’s view is that the Act should not apply to online auctions, but that the Consumer Guarantees Act should.
Returning to the question of whether Trade Me bidding sales are “auctions” for the purposes of Consumer Guarantees Act, the most likely answer is yes, for the following reasons:
- The common usage of the term “auction” today surely includes online auctions.
- There is nothing in the Consumer Guarantees Act to suggest that the exclusion for goods sold at “auction” does not extend to goods sold by that method over the internet.
- An online auction such as Trade Me clearly falls under the Auctioneers Act 1928, at least in theory (which for reasons of statutory interpretation is likely to be relevant to the question).
Therefore consumer goods bought from a dealer / retailer on Trade Me or a similar online auction site, using a bidding model, will not be covered by the Consumer Guarantees Act. However, this means that Sale of Goods Act 1908 does apply. While often not considered, this Act can provide a consumer with some limited remedies in certain events.
Successive Governments have flagged an overhaul of New Zealand’s consumer laws (and conducted various research and reviews to that end), and the current Government has signalled that it will progress this. With the huge growth in online commerce and the challenges that raises, it is hoped that the changes will strike an appropriate balance between maintaining robust consumer rights and facilitating open, free and competitive e-commerce in an international marketplace.