Vendor Bidding Clarified to Free Up Auction Process

Vendor Bidding Clarified to Free Up Bloodstock Auction Process

The ability of part-owners to legally participate in the auction process with the intention of buying remaining shares in a horse has been clarified after protracted negotiations.

Legislative changes in the Fair Trading Act (1986) with regard to vendor bids have been the subject of submissions by leading auction house New Zealand Bloodstock. Acting in conjunction with the NZ Racing Board’s Head of Government Relations Rajesh Nahna, NZB has been able to ascertain the boundaries within which vendors can act in their endeavours to secure any portion of a horse they don’t already own.

It has been a not uncommon practice for a horse to be offered for public auction with the intention to dissolve a partnership. That is seen as the most effective way to find a horse’s true market value at the same time as enabling any existing part-owner to gain full ownership.

Redrafting of the Fair Trading Act in the interests of consumer protection has led to tighter controls on vendor bidding, with specific reference to real estate offered at auction. Citing vendor bidding with an ulterior motive – known as dummy or shill bidding - as a means of inflating prices, the Commerce Commission has taken steps to clarify and emphasise the restrictions on that illegal practice.

Notwithstanding, dummy bidding by vendors or others remains illegal in a bloodstock auction context.

The tighter controls have implications for bloodstock auction sales, something that NZ Bloodstock acted to address in its own and client interests.

“NZB made lengthy submissions during the consultation process around the Fair Trading Act and many changes were made as a result,” said the company’s co-managing director Petrea Vela. “Unfortunately there was one issue that made it into law and has caused some confusion.

“As the legislation is currently drafted, strictly it doesn’t appear to permit legitimate bidding by a partner or syndicate member who wants to secure 100 per cent ownership in a horse that is sent to public auction to dissolve the partnership.

“We saw that as having the potential to have an impact on our own business and that of our clients. There did appear to be a lack of appreciation of the difference between the real estate auctioning business and ours of repetitive selling and all that it entails.

“We felt a duty to our stakeholders that any new legislation didn’t adversely affect the way we do business daily.”

NZB worked with the Racing Board’s Rajesh Nahna to address what it viewed as anomalous drafting in the new legislation to enable legitimate vendor bidding to still take place in cases of partnership dissolution.

In its response to the NZRB, the Commerce Commission stated that the new vendor bidding provisions around real estate were intended to regulate the use of bids where the ‘vendor’ has no intention of buying the property, and instead intends to push up the auction price.

However, it was further stated, in the case of a vendor wishing to gain full ownership of a part-owned horse, the new vendor bidding restriction would not apply.

“The overarching theme of the law is clearly to prevent conduct that is misleading or deceptive and that will continue to apply,” said Vela. “But it gives some comfort to part-owners that the intention of the law is not to prevent the practice of legitimate part-owner purchases from continuing.

“An ideal result would be to have this exception drafted into the current law, and it is NZB and NZRB’s intention to continue to pursue the matter in the hope of eventually effecting a drafting change to provide greater certainty.”

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