Case Facts
The claimant, Paul Barry, attended an auction conducted by the defendant auctioneer. The lots in question were two new engine analysers, which the claimant bid on at £200 each. The auctioneer withdrew both lots from sale on the ground that the bids had not reached a level the auctioneer considered appropriate, notwithstanding that the auction was being conducted without a reserve price. The market value of the engine analysers was accepted by the court to be £14,000 each. The claimant brought proceedings against the auctioneer in the Northampton County Court, where Judge Charles Harris gave judgement in his favour on 6 August 1999, awarding him damages in the sum of £27,600.90. The auctioneer appealed to the Court of Appeal.
Held
The Court of Appeal dismissed the auctioneer's appeal. At an auction conducted without a reserve price, the auctioneer is bound by a collateral contract to sell to the highest bona fide bidder and cannot withdraw a lot simply because the bid is considered too low. The auctioneer's refusal to accept the claimant's bid of £200 per analyser therefore constituted a breach of that collateral contract, entitling the claimant to damages.
The measure of damages was assessed by analogy with s 51(3) Sale of Goods Act 1979, which provides that the measure of damages for non-delivery is the difference between the contract price and the market or current price of the goods at the time they ought to have been delivered. Although the action was brought against the auctioneer rather than the vendor, the court applied this provision by analogy, yielding the award of £27,600.90 that reflected the difference between the claimant's bids and the market value of the two analysers.
Ratio Decidendi
The ratio of the case rests upon three interlocking propositions.
First, when an auction is advertised or conducted without a reserve, a collateral contract arises between the auctioneer and each bona fide bidder to the effect that the lot will be sold to the highest bidder. This principle derives from the reasoning of the majority of the Court of Exchequer Chamber in Warlow v Harrison (1859), where it was held that the highest bona fide bidder at an auction without reserve may sue the auctioneer as upon a contract that the sale shall be without reserve. The Court of Appeal expressly adopted it as the foundation of its decision.
Second, the auctioneer's withdrawal of the lots — because the bids had not reached a level the auctioneer deemed satisfactory — was tantamount to bidding on behalf of the seller. Such conduct is unlawful unless the requirements of s 57(4) Sale of Goods Act 1979 are satisfied. Those requirements were not satisfied here. The highest bid cannot lawfully be rejected merely because it is not high enough where no reserve has been set.
Third, the collateral contract is supported by good consideration running in both directions. The bidder suffers a detriment in that, once a bid is made, it is capable of being immediately accepted and cannot be withdrawn without consequence. The auctioneer receives a benefit in that the absence of a reserve encourages competitive bidding, drives up the price, and increases attendance at the sale. Crucially, the court affirmed that there need be no completed contract between the purchaser and the vendor for a collateral agreement to exist between the auctioneer and the bidder; the two relationships are legally distinct.
Obiter Dicta
Not applicable.