At an auction with a reserve, the auctioneer makes several bids on the vendor's behalf without announcing them as vendor bids, and the property passes in. Under s 14A of the Fair Trading Act 1986, what is the position?
Correct Answer
C) The unannounced vendor bids are a false or misleading representation about price.
Section 14A(2) of the Fair Trading Act 1986 says a vendor makes a false or misleading representation about price if the vendor, or an agent such as the auctioneer, makes a vendor bid. Section 14A(3) allows a vendor bid only where there is a reserve, the bid is made before the reserve is reached, and it is clearly identified as a vendor bid. Section 14A(4) also makes it misleading to quote a vendor bid as the price at which the property passed in.
Why This Is the Correct Answer
The bids were not identified as vendor bids, so the s 14A(3) exception does not apply.
Why the Other Options Are Wrong
Option A: Vendor bids are always lawful at auction because the reserve protects the vendor.
Section 14A allows vendor bids only below the reserve and only when clearly identified as vendor bids.
Option B: They are lawful because the property passed in and no sale resulted.
The representation about price is made by the bid itself; passing in does not cure it, and quoting a vendor bid as the pass-in figure is also misleading.
Option D: They breach only the auctioneer's contract with the vendor, not the Act.
Section 14A treats undisclosed vendor bids as a false or misleading representation about price under the Fair Trading Act.
Background Knowledge for Compliance
Source: https://www.legislation.govt.nz/act/public/1986/0121/latest/whole.html
Exam Tip for Compliance
Vendor bids: reserve set, below the reserve, and clearly announced; otherwise they are misleading.
Common Mistakes to Avoid on Compliance Questions
- •Assuming any vendor bid below the reserve is fine even if it is not announced.
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