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Auctioneers get a hammering

Mar 27 2011 11:45
Elma Kloppers
Johannesburg - South Africa’s multibillion-rand auction industry will be changed dramatically by new legislation when the Consumer Protection Act comes into effect on April 1.

In terms of the new legislation, the auction industry, which realised sales of R15bn last year, will have to comply with more than 200 rules and regulations.

“This will be the first time in the industry’s history that auction procedures will be regulated and formalised,” says Rael Levitt, chief executive of Auction Alliance, the largest auctioneer in the country.

The Act will promote transparency on reserve prices, bidders and registration, making South Africa one of the most regulated auction markets in the world.

Levitt says that, among others, the new legislation will regulate what an auctioneer is allowed to say at an auction, how the auction companies advertise and how their contracts must be drawn up.

“For example, there are 20 regulations that apply to car auctions and what information the auctioneers must disclose to the public,” says Levitt.

No auctioneer may sell any goods at an auction unless he or she has a written agreement with the legal owner of the goods to do so. As far as bidders are concerned, one of the biggest changes is that every prospective bidder will have to comply with the requirements of the Financial Intelligence Centre Act, which is meant to root out financial crimes like money laundering and terror financing.

Levitt says the South African auction legislation is similar to the legislation that came into effect in Australia in July 2008. Because auctioneers’ activities will be strongly regulated in the future, it can lead to a shake-up of the industry. In Australia the industry got rid of many unsavoury operators, but at the same time it also grew thanks to greater transparency.

He believes that if the public becomes aware of the positive changes of the new legislation, especially in terms of the protection of consumers, they will find it easier to participate in auctions.

“Assets will be sold in a more transparent way and the opportunity to make buyers pay more than what they were willing to pay will be eliminated.”

However, the Act will present auctioneers with a minefield of challenges.

Levitt says companies that are not prepared for the commencement of the act run the risk of facing litigation and myriad disputes.

He believes there will be teething problems initially, as can be expected when there is a substantial change to a regulatory environment.

Smaller auctioneers that do not have large administrative teams will battle initially.

The new legislation comes at a time when the market is still recovering from the recession.

Beyond the auction industry, the legislation will also root out contracts that are unfair to consumers. This will change the way companies draw up contracts.

Ina Meiring, director at legal firm Werksmans, says if a contract is excessively unilateral, the whole contract can be deemed invalid.

There is no definition for excessively unilateral. Meiring had a look at two lease agreements of businesses in shopping centres. According to her, the contracts were ridden with clauses that were excessively unilateral, unreasonable, unfair and written in language that was difficult to understand.

“An average consumer with average literacy skills must be able to understand the document,” says Meiring.

“Terms such as ‘sole and absolute discretion’ have no place in contracts any more. It creates the impression that the owner of the leased property acts unilaterally.”

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