3. Specific Issues Associated with the Auctioneers Act 1928
This section of the paper is based on the assumption that there is a need to regulate auctioneers. It focuses on problems with the existing Act that have been drawn to the Ministry's attention. The Ministry has not researched the extent to which these issues represent significant weaknesses in the current regulatory regime for auctioneers.
Enforcement
The Police hold the responsibility for public enforcement of the Auctioneers Act. A number of auctioneers have conveyed to the Ministry that they believe the Police do not enforce the Act stringently enough.
Given that the Police have limited resources, they have to prioritise their activities. Their assessment is that enforcement of the Auctioneers Act is of a relatively low priority. The Police are generally able to obtain greater benefits by employing resources to enforce other areas of the law.
To cater for the Police's limited resources, the Auctioneers Act allows for private enforcement to occur. This is a reasonably common arrangement in the law; the Commerce Act 1986 and the Fair Trading Act 1986 are examples of other Acts that allow for private enforcement. The existence of provisions for both public and private enforcement recognises that the public interest can be promoted through actions taken to enhance private interests.
Private enforcement occurs where direct action is taken by a party with a grievance. There are many advantages to private enforcement. The parties are forced to confront each other directly, leaving open opportunities for more customised solutions through negotiated settlements. The injured party's right of action is not limited by the availability of public enforcement resources. Allowing the market to prioritise enforcement responses through private action minimises the risk of enforcement action being taken where the costs of that action are greater than the benefits. However, it is important to note that if aggrieved parties lack incentives to take action, private enforcement is not an effective substitute for public enforcement.
The Ministry would like to hear your views on the following matters:
- Is there any evidence that suggests that significant problems could arise through lack of enforcement of the Auctioneers Act?
- Do problems exist with the current provisions for both public and private enforcement?
Fines and Penalties
Penalties have a number of roles in the legal system including retribution, rehabilitation and deterrence.The penalties imposed under the Auctioneers Act do not need to protect society from continued violations to the extent that is required for violent crime, and those who offend are not generally in need of rehabilitation. Instead, the need is to punish today's offender with sufficient severity to discourage others from committing similar acts.
The current penalties imposed for committing offences under the Auctioneers Act are as follows:
- Offence of selling by auction without authority: Fine of $200
- Holding out as an auctioneer without a licence: Fine of $200
- Lending or hiring of licences: Fine of $100
- Not exhibiting licence on demand: Fine of $20
- Selling contrary to the Act: Fine of $20
- Neglect to render account or to pay over proceeds of sale: Fine of $20
- Misappropriation, theft, falsifying accounts: Liable on conviction to 2 years imprisonment
- General penalty: Fine of $10. This penalty applies to persons who commit any breach for which no penalty is provided elsewhere.
- Penalty for failing to give access to books, papers, etc.: Fine of $200
The Ministry would like to hear your views on the following:
- Is there any evidence that the current penalties are not set at deterrence levels?
- If there is a problem with the current penalties, at what level should fines be set at, or what types of other penalties should be imposed?
Electronic Commerce and Auctions
In recent years, a huge upsurge in the use of Internet auctions has occurred and this trend is expected to continue. Opinions vary on whether competitive bidding processes on the Internet actually are auctions, as opposed to a series of closed tenders. However, it is likely that technology will progress over the coming years to a level where "live time auctions" will be carried out. Given this, if there is going to be continued regulation of auctioneers, the Act will need to be flexible enough to properly address the issue of Internet auctions, or other forms of electronic transactions.
The risk associated with regulating electronic commerce transactions too heavily is that it could drive electronic commerce businesses offshore. Such businesses could still sell goods in New Zealand under a different regulatory environment, but New Zealand would lose out on the added value the business had to offer to the economy.
Cross-border electronic auctions are another issue that needs consideration. They raise questions about the coverage of New Zealand law to parties situated outside New Zealand running electronic auctions, where there is an impact on consumers in New Zealand. Further, even if New Zealand law does deal with such situations, the ability to enforce court judgements effectively across borders remains a key issue.
The Ministry would like to hear your views on the following matters:
- Should electronic commerce auctions be run under the same regulatory regime as traditional auctions? Do either of these types of auctions pose a greater risk to consumers, or are more likely to be used as a way of selling stolen property?
- If internet auctions were to be run under the same regulatory requirements as traditional auctions, are there any areas of inconsistency between the way Internet and traditional auctions are run that would need to be addressed within the Act?
- What risks could cross-border transactions create? What would be the best way to deal with these risks?
A point to bear in mind when considering these questions is that consumers buying items from Internet auctions are protected by many of the same consumer protection measures that apply to other types of auctions. These measures are described on the section Consumer Protection Issues.
Bonds
The Auctioneers Act stipulates that auctioneers must give security by approved bond. The required sum of this bond is $1000 for each licence applicant, or not more than $5000 when a company makes an application for two or more persons to conduct auction sales on the company's behalf. The purpose of the bond is to compensate clients of auctioneers for any loss sustained by the acts, defaults, or omissions of auctioneers.
Bonds have the potential to provide for greater levels of consumer protection by giving consumers an avenue through which to retrieve compensation for losses incurred. However, the bonding requirement imposes costs on auctioneers. It is therefore appropriate to consider whether benefits associated with having the bonding requirement in place are outweighed by their costs.
The bonds can be deposited with any insurance company or financial institution, subject to the Courts' approval. Given that the bonds are held by a number of different institutions, there are no central records stating how often such bonds have been claimed upon. However, the Ministry understands that the bonds are seldom, if ever, received by clients.
The Act does not specify which particular bodies can hold the bonds. This could give rise to inconsistencies in the ease in which the bonds could be drawn upon.
If it is considered that consumer compensation measures are necessary, it needs to be determined what the best means of providing this protection is. Possible alternatives for bonds are capital adequacy measures or indemnity insurance.
In this context, the Ministry would like to hear your views on the following matters:
- Does the requirement to post bonds serve any useful purpose?
If it does:
- What is the appropriate bond level?
- Are bonds preferable to alternatives such as capital adequacy measures or indemnity insurance?
Licensing Procedures
Annual Licensing
The Auctioneers Act requires all auctioneers to re-license annually. Alternative options would be to allow auctioneers licences to last a life time (unless the licence is revoked), or to require renewal less frequently. This would lower licensing costs incurred by auctioneers.
Regular re-licensing is an alternative to extensive post-licensing monitoring and enforcement. This means that instead of monitoring continued compliance with the eligibility criteria for the licence, the auctioneer is made to reapply. If the term of the licence was extended substantially, for example, to a level where the licence lasted indefinitely, it would probably require a greater focus and reassessment of the post-licensing regime. This could be achieved through consolidating a complaints process, or by establishing a range of offences for which licences can be cancelled.
The Ministry would like to hear your views on the following questions:
- Does re-licensing every year serve any consumer protection or stolen goods benefits?
- What approach is most appropriate in relation to re-licensing?
- Would post-licensing monitoring comprise an effective alternative to regular re-licensing?
Eligibility Criteria for a Licence
With each licence and licence renewal application, auctioneers must place notice of their intention to re-licence at least twice in a newspaper approved by the Court in which the application is filed. The purpose of this is to elicit submissions from the public in opposition of the applicant. The Police also perform checks on all applicants, then provide recommendations to the Courts on whether the applicant should be granted a licence. The Courts, however, have the final say on all licensing matters.
The current criteria for determining whether the applicant should be granted a licence is based on a subjective assessment of whether the applicant is a "fit and proper" person. In making this assessment, the courts take into account the character and financial position of the applicant. However, the ambiguity of this term can give rise to inconsistencies in the Courts' decisions on whether or not to support licence applications.
In practice, the "fit and proper" person test in occupational regulation statutes tend to be invoked due to the risk that an adverse decision will be successfully judicially reviewed. Accordingly, there is a general legislative trend to move away from using subjective criteria for granting entry into the occupation, towards using objective criteria. Objective criteria could include rejecting persons with specific criminal records, or those who are current bankrupts.
The Ministry would like to hear your comments on the following questions:
- Does the advertising requirement serve a useful purpose?
- Does the existing "fit and proper" person criterion serve a useful purpose? Would objective criteria be preferable?
Requirement to License with a District Court
Licence applicants are required to file their applications with the court "nearest by the most convenient route to the place of business named in the application as the place of business or the principal place of business of the applicant". The reason behind this is that at the time the Act came into effect, there were a relatively small number of people living in each district which meant that the Courts would generally have some knowledge of the reputation of each applicant.
New Zealand has 66 District Courts. A number of auctioneers have drawn to the Ministry's attention that the decentralised licensing system is giving rise to inconsistencies in licensing procedures.
Assuming that the licensing regime for auctioneers will remain in place, an alternative would be to have a central licensing body through which all licence applications are made. The advantages associated with this could include a consistent approach to licensing throughout the country, and the fact that there would be a central register of licensed auctioneers. This could generate greater efficiencies in the enforcement of the Act, and would enable consumers to easily find out whether potential auctioneers are in fact licensed.
If a centralised licensing body were to be used, it would be important that the body had the institutional capacity to carry out such a role effectively. Institutional capacity could be derived from previous experience in licensing roles, and knowledge of the industry being regulated. A body that may be suitable for such a role is the New Zealand Companies Office. The information held on the registers of this organisation is available for public search, which may be done either in person at the registry where the information is held, or via the Internet. Another option could be to give the role to a self-regulating licensing body, from either within the auctioneering industry, or external to the industry.
The Ministry would like to hear your views on the following questions:
- Does having a decentralised licensing system serve any public benefits?
- Are there any compliance cost or equity problems associated with inconsistent licensing procedures amongst District Courts?
- If licensing was to be centralised, who should have the responsibility for licensing auctioneers? How should this body be structured?
Licensing Fees
The cost of obtaining or renewing a licence is $300. The cost to a company of adding the name of a person authorised to conduct auction sales is $130, and the cost of each additional named place of business is also $130.
The courts keep ten per cent of every licence fee they receive to cover the costs incurred in administering the licensing regime. The courts give the remainder of the fees to the local authority within the district the applicant proposes to conduct auction sales in. Where an applicant proposes to conduct auction sales in more than one district, the fees are divided among each local authority on the basis of the amount of business the auctioneer expects to do in each district.
The Ministry understands that the reason local authorities receive ninety per cent of licence fees is that at the time the Act came into effect, the majority of auctioneers derived their livelihood from livestock auctioneering, and local authorities incurred costs through livestock sales being held. However, they no longer incur such costs, and in effect do very little, if anything, to "earn" the component of the licence fees they receive. It appears, therefore, that this is a tax.
The Ministry would like to hear your views on the following matter:
- Is there any justification for the bulk of licence fees being paid to local authorities?
Persons Who Hold Auctions Occasionally
Another issue for consideration is that of auctioneers who hold one-off auctions, or auctions on an irregular basis. While the risks posed by intermittent auctioneers may not be any lower compared with other auctioneers (in fact, the risks could be greater), it is possible that the compliance costs associated with requiring regulation of these auctioneers may be unjustifiably large. The licensing requirement could effectively be preventing many "respectable" one-off auctions from being held, meaning that the current regime may comprise an unnecessary restriction on market activity.
Options for dealing with intermittent auctioneers could include:
- requiring these auctioneers to contact the Police if they are going to be holding auctions to give the Police the opportunity to inspect the goods to be sold;
- reduce licence fees to a level proportionate with the number of auctions to be held by that class of auctioneer;
- provide exemptions for specified classes of auctions; or
- remove the requirement for auctioneers holding auctions on an irregular basis to be licensed.
The Ministry would like to hear your views on the following matters:
- Is there a problem with "occasional" auctioneers that requires government intervention? If so, how should this matter be dealt with?
- What are your views on options a - d above?
Double Licensing Requirements
Motor Vehicle auctioneers are required to gain licenses under both the Auctioneers Act and the Motor Vehicle Dealers Act. Likewise, real estate agents are required to obtain licences under both the Real Estate Agents Act and the Auctioneers Act.
- Are these double licensing requirements necessary, or do they represent over-regulation?
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