Consumer rights Reforming statutory implied conditions and warranties

Auctions

Existing regulation

Australia

Goods which are sold at auctions are currently excluded from the statutory implied terms in the TPA, apart from the implied terms of title, encumbrance and quiet possession.²⁷¹

Not all States and Territories exclude sale by auction from their statutory implied terms regime.²⁷²

Overseas

The NZ CGA excludes goods supplied by auction, or by competitive tender, from the statutory consumer guarantees.²⁷³

The European Commission’s Consumer Protection (Distance Selling) Regulations 2000 do not apply to contracts that are concluded at auctions. ²⁷⁴ The Regulations set out minimum information disclosure requirements for suppliers who use distance communication to sell goods or services.

Under the statutory consumer guarantees

Auctions

The concept of ‘auctions’, as used for the purposes of the statutory implied terms regime in Part V, Division 2 of the TPA, includes the following features:

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  a marketplace for goods to be bought and sold, and often providing a means for goods to be cleared away;
  
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  interested buyers or their representatives being physically present and with the opportunity to see and examine the goods prior to placing a bid to purchase the goods;
  
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  interested buyers competing to purchase the goods by offering higher bid prices;
  
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  the seller or the auctioneer considering the highest bid price on offer before accepting the bid and selling the goods at that price (for instance, if there is a reserve price); and
  
• 
  buyers often being able to purchase goods at bargain prices.
  

‘Auctions’, for the purposes of the statutory implied terms, provide consumers with the opportunity to examine goods for defects and compare them with the description and offer a price (bid) based on that inspection. In addition, auctions often allow consumers to purchase new and used goods at bargain prices. Accordingly, these factors need to be weighed against the exclusion of auctions from some of the statutory implied terms when deciding whether to purchase goods at auctions.

Unlike in store transactions, auctions provide consumers with the opportunity to examine goods, note defects and then make a bid based on an evaluation of the value of the goods to the consumer. Further, auctions often act as a clearing house, allowing consumers to purchase new and used goods at bargain prices. Accordingly, the case for auction based consumer transactions to receive the same consumer protections as other transactions is less clear.

On the issue of whether auctions should continue to be excluded from the statutory consumer protections, CCAAC received submissions both for and against the exclusion. The Australian Industry Group, Professor John Carter and the Australian Finance Conference all expressed their support for continuing to exclude goods sold by auction.²⁷⁵ On the other hand, the LCA argued that there was little justification for excluding goods sold by auction on the basis of the nature of the sale channel, and supported extending the statutory protections to auctions.²⁷⁶

In the light of the above features of ‘auctions’ for the purposes of the statutory implied terms, CCAAC considers that goods which are sold at an auction should also be excluded from the statutory consumer guarantees, apart from the following guarantees:

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  the supplier has the right to sell the goods;
  
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  the goods will be free from any undisclosed security; and
  
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  the consumer will have undisturbed possession of the goods.
  

Online auctions

Online auction websites provide a virtual marketplace for buyers and sellers to trade new and used items. The low operating fees and the opportunity to reach a wide potential customer base are features which make auction websites an attractive channel for suppliers to sell their goods. For consumers, the variety of goods and services available, often at relatively low prices, has made online auctions an increasingly popular way to shop.²⁷⁷

Most auction websites operate differently to ‘auctions’ as envisaged for the statutory implied terms regime in the TPA, and do not possess many of the above features of a traditional auction. Rather, auction websites merely provide another channel for suppliers to sell goods and services to consumers. Although online auctions provide a marketplace (albeit virtual) for goods and services to be sold through a competitive bid process — much like traditional offline (in person) auctions — a significant difference between online and offline auctions is that consumers are unable to physically examine goods prior to purchasing. That is, consumers are unable to check goods for defects and are unable to check whether goods offered for sale correspond with their description.

Another distinguishing factor between online auctions and traditional auctions is that auction websites often allow buyers and sellers to interact directly, without the need for an auctioneer or the protections that are offered when an auctioneer acts on behalf of a seller. Further, auction websites often explicitly disclaim the types of liabilities that an auctioneer would have when conducting a traditional auction.

CCAAC acknowledges that the inability to physically examine goods is a risk which consumers accept given the convenience and choice offered by online shopping. However, the ability for consumers to physically examine goods is an important feature of offline in person auctions and is an important reason why auctions will be excluded from most of the statutory consumer guarantees (and are currently excluded from most of the statutory implied terms). In addition, auctions that operate without recourse to the seller (in respect of warranties or other claims) play an important function within the economy by allowing goods to be cleared quickly in appropriate circumstances (such as insolvencies and deceased estates).

CCAAC recognises the increasing use of the Internet by consumers to shop and the growing popularity of auction websites as a means for consumers to shop online, which has made the market for goods to be bought and sold very different to 30 years ago when the TPA was enacted.²⁷⁸

In the light of these factors, CCAAC considers that many so called ‘online auctions’ are not ‘auctions’ as originally envisaged for the purposes of the statutory implied terms regime in the TPA. Accordingly, CCAAC is of the view that such online auctions should not be excluded from the statutory consumer guarantees. To do so may encourage faulty goods to be offloaded to unsuspecting and unprotected consumers.

The auction exemption should continue to apply in respect of traditional auctions conducted by auctioneers, whether or not such auctions are conducted in person or online. This will ensure that consumers who buy goods from businesses are protected either by the liabilities assumed by a responsible auctioneer or by statutory guarantees.

CCAAC also considers that Australia’s consumer agencies should actively monitor auction websites and investigate potential actions for false, misleading or deceptive representations by the use of the term ‘auction’.

Findings 11.1 Consistent with the intention of the Australian Consumer Law, the new statutory consumer guarantees should apply to all sectors of the economy.

11.2 For consistency, the Australian Consumer Law should include a national approach to the limitation of liability for recreational services, including a consistent definition of ‘recreational services’. CCAAC considers that the definition of ‘recreational services’ in the Trade Practices Act 1974, which also applies in a number of other jurisdictions, is too broad given the stated policy intention that the limitation should only cover ‘inherently risky’ activities.

Findings (continued) 11.3 The national statutory consumer guarantees should continue to exclude goods and services purchased at auctions conducted by an auctioneer, including those that are conducted online.

11.4 Goods and services sold by businesses directly to consumers through so called ‘online auctions’ (except for those conducted by an auctioneer) should be covered by national statutory consumer guarantees. The legislation should clearly state that such ‘online auctions’ do not fall within the definition of an ‘auction’ for the purposes of national statutory consumer guarantees.