As a matter of interest I too investigated the law with regard to “fraud” on auctions and I here post a copy of the findings of my research that were originally included in my submission thereon to the ACCC on 17 February 2009; the ACCC were not at all impressed.
(Unfortunately the formatting of the text is disrupted by an apparent conflict between the “list” command and every other formatting code. Any formatting code will switch off the “list” code.)
The whole submission at:
http://www.auctionbytes.com/forum/phpBB/viewtopic.php?t=23585&highlight=&sid=f343b6ee38f0bb0e2d7b91efcf21e405APPENDICESTHE AUSTRALIAN TRADE PRACTICES ACTAs far as the law in Australia is concerned, not being a lawyer, I can only quote the Australian Competition & Consumer Commission (ACCC) “SCAMwatch” website (my bolding):
“The ACCC administers the
Trade Practices Act 1974 (Cth). The purpose of the Trade Practices Act is to enhance the welfare of Australians by promoting competition and
fair trading and providing for
consumer protection. The Trade Practices Act applies to corporations as well as sole traders and partnerships
whose activities cross state boundaries or take place within a territory. Part V of the Trade Practices Act (the consumer protection provisions)
also applies to sole traders and partnerships whose activities are conducted by telephone or post, or use radio or television. …
“Section 52 of the Trade Practices Act is designed to stop corporations engaging in conduct which is
misleading or deceptive, or which is likely to mislead or deceive. Generally, sellers are required to tell the truth or
refrain from giving an untruthful impression. This provision is the one most likely to apply to scams in general. However there are some more specific sections of the Trade Practices Act which could apply. …
“Section 53 of the Act prohibits making
false or misleading representations. This includes claims about the age, quality, sponsorship, approval,
price or benefits of the good or service. …”
[/list]I particularly like the proscription of “conduct which is misleading or deceptive, or which is likely to mislead or deceive”. Yet, surprisingly, the ACCC advised me in 2008 that this blatant facilitating of the fraud of “shill bidding” was not an area in which they could be of any help: apparently the TPA only prohibits the
making of a “false or misleading representation” but not the
facilitating of the making thereof! The NSW Office of Fair Trading took the easy way out and simply parroted eBay’s nonsensical claim that “eBay is only a notice board provider and can place whatever conditions that they like on the use of their notice board”.
THE LAW ON SALE OF GOODS BY AUCTION AND ON FRAUDThe underlying U.K. and NSW Sale of Goods Acts with respect to “auction sales” are effectively identical:
Sale of Goods Act 1979 (U.K.)
Section 57: Auction sales(1) Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.
(2) A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.
(3) A sale by auction may be notified to be subject to a reserve or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller.
(4) Where a sale by auction is not notified to be subject to a right to bid by or on behalf of the seller, it is not lawful for the seller to bid himself or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person.
(5) A sale contravening subsection (4) above may be treated as fraudulent by the buyer.
(6) Where, in respect of a sale by auction, a right to bid is expressly reserved (but not otherwise) the seller or any one person on his behalf may bid at the auction.
Sale of Goods Act 1923 (NSW)
Section 60: Auction sales(1) where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale,
(2) a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner: until such announcement is made any bidder may retract his or her bid,
(3) where a sale by auction is not notified in the conditions of sale to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person: any sale contravening this rule may be treated as fraudulent by the buyer,
(4) a sale by auction may be notified in the conditions of sale to be subject to a reserved price, and a right to bid may also be reserved expressly by or on behalf of the seller,
(5) where a right to bid is expressly reserved, but not otherwise, the seller, or any one person on the seller’s behalf, may bid at the auction.
[/list]It is incomprehensible to me that, in the circumstances where a vendor may lawfully bid on his own goods, both these Sale of Goods Acts are silent on whether or not such vendor bids should be disclosed as such at the time they are made, and so it has apparently been standard practice in the “live” auction industry in Australia and the U.K. to “milk” buyers by the practice of
undisclosed vendor bidding, at least up to any “reserve” price. Surely, if such vendor bidding is
not disclosed as such then the provisions of the local “Fraud” Acts should apply. And, surely eBay’s deliberate facilitating of any such
undisclosed vendor bidding activity, notwithstanding the unlikelihood that it may be an unintended consequence of some other policy, should be required to cease.
In apparent contrast to the NSW Sale of Goods Act, in the case of auctions for residential property and rural land (Property, Stock and Business Agents Act 2002; Regulation 2003) it is made clear that the vendor is limited to one bid only and such bid must be declared as a ‘vendor bid’ at the moment it is made:
“Only one bid may be made on behalf of the seller by the auctioneer. The seller’s bid by the auctioneer cannot be used unless notice of the right to bid is notified in the conditions of sale, which must be clearly displayed and be available for inspection before the auction commences.
When the seller’s bid is made by the auctioneer, the auctioneer must state that it is a ‘vendor bid’.”
http://www.fairtrading.nsw.gov.au/Property_agents_and_managers/Rules_of_conduct/Real_estate_agents/Auction_laws.html (under “Auctioneers”)
“It is an offence against the
Property, Stock and Business Agents Act 2002 for a person to do any of the following:
?(a) make a bid as the seller,
?(b) make a bid on behalf of the seller (unless the person is the auctioneer),
?(c) procure another person to make a bid on behalf of the seller.
Any bid made with the dominant purpose of benefiting the seller constitutes a bid made on behalf of the seller.
A bid may be found to be a bid made on behalf of the seller even though the seller did not:
?(a) request the bid, or
?(b) have any knowledge of the bid.”
http://www.fairtrading.nsw.gov.au/Property_agents_and_managers/Rules_of_conduct/Real_estate_agents/Auction_conditions.html (under “Other auction notices, Penalty for dummy bidding”)
[/list]There are, of course, the various Australian state Acts that cover “fraud” which, as state Acts, would appear to be somewhat redundant in this age of the internet and electronic commerce, eg:
CRIMES ACT 1900 (NSW)
Section 178BB Obtaining money etc by false or misleading statements(1) Whosoever, with intent to obtain for himself or herself or another person any money or valuable thing or any financial advantage of any kind whatsoever, makes or publishes, or concurs in making or publishing, any statement (whether or not in writing) which he or she knows to be false or misleading in a material particular or which is false or misleading in a material particular and is made with reckless disregard as to whether it is true or is false or misleading in a material particular shall be liable to imprisonment for 5 years.
[/list]Regardless, it is interesting to note that in the U.K. the law appears to have moved to a definite recognition that
undisclosed vendor bidding is a “false representation” and therefore a fraud on the buyer. The new U.K. Fraud Act 2006 is expressed in general terms and clause 2(5) is obviously aimed at today’s electronic commerce. Of course, getting unscrupulous auctioneers / vendors to observe the law is another matter: it will always be “buyer be very aware” at any attended live auction.
2 Fraud by false representation(1) A person is in breach of this section if he—
??(a) dishonestly makes a false representation, and
??(b) intends, by making the representation—
????(i) to make a gain for himself or another, or
????(ii) to cause loss to another or to expose another to a risk of loss.
(2) A representation is false if—
??(a) it is untrue or misleading, and
??(b) the person making it knows that it is, or might be, untrue or misleading.
(3) “Representation” means any representation as to fact or law, including a representation as to the state of mind of—
??(a) the person making the representation, or
??(b) any other person.
(4) A representation may be express or implied.
(5) For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).
[/list]The following interpretation of this “Fraud by false representation” section of the Fraud Act by the U.K. OFT (who probably had a hand in its drafting) prescribes the making of a “shill” bid, ie, an
undisclosed vendor bid to be a “false representation” and therefore a criminal fraud (and therefore surely eBay’s deliberate facilitating of such activity also should be unlawful). And I quote page 146 of the U.K. OFT publication
Internet shopping: An OFT market study, at:
http://www.oft.gov.uk/shared_oft/reports/consumer_protection/oft921.pdf):
“10.56. As discussed at para 10.28, shill bidding was the main form of deceptive practice suspected in our online survey (13.6 per cent). This is where a seller makes strategic bids, for example from an additional anonymous account or by an associate. Undisclosed shill bidding is illegal[309] and most auction sites expressly prohibit it.
…
“309 The Fraud Act 2006, which came into force in January 2007, makes it an offence for a person to commit fraud by false representation where the representation is made dishonestly and with the intention of making a gain for himself or another. Under section 57(4) of the Sale of Goods Act 1979, it is not lawful for a seller to bid himself or to employ any person to bid on his behalf at a sale by auction unless the auction is notified to be subject to such a right. A sale contravening this section may be treated as fraudulent by the buyer.”
A PROFESSIONAL SUMMARY OF THE NEW FRAUD OFFENCES IN THE U.K. FRAUD ACT 2006(Source:
http://www.addleshawgoddard.com/view.asp?content_id=2458&parent_id=2439)
The UK Fraud Act 2006 came into force 15 January 2007. It has radically changed the law of criminal fraud.
The old law Before the Fraud Act came into force, the statutory fraud offences were based on deception. They included:
•?Obtaining property by deception.
•?Obtaining a money transfer by deception.
•?Obtaining a pecuniary advantage by deception.
•?Obtaining services by deception.
Each offence would only apply in specific circumstances.
In addition there was (and remains) a non statutory offence of conspiracy to defraud which is defined very widely. There is no need to intend deception or financial loss but there must be more than one participant in the fraud.
Defects in the old law The deception offences had become a bit of a mess. It was often confusing to work out which offence applied, and they frequently overlapped.
The excessive intricacy of the deception offences contributed to the length and complexity of trials. Moreover, the whole area was riddled with technical loopholes. For example, the court held that a machine (for example an ATM) cannot be “deceived” because it does not think.
The new law The Fraud Act swept all of the old statutory deception offences away. Instead a new offence of fraud has been defined as follows:
•?The defendant must have been dishonest, and have intended to make a gain or to cause a loss to another.
•?In addition, the defendant must carry out one of these acts:
??Making a false or misleading representation.
??…
The new offence of fraud is intended to be wide and also flexible, particularly as technology changes.
There is no reliance on the concept of “deception”. It does not matter whether the false information actually deceives anyone, it is the misleading
intention which counts.
The offence of conspiracy to defraud has not been abolished, but the government’s objective is that reliance on it by prosecutors should be very much less.
The impact of the change What will be the impact on business of the new act? This will probably not be very profound outside the criminal law enforcement field, but several areas should be highlighted:
•?The Fraud Act could be used to criminalise conduct which may previously only have amounted to a breach of contract or other civil law or moral obligation. Examples may include:
??…
??”Shill bidding” on online auction sites. This is where sellers bid up the price of their own items using a second identity.
??…
•?The Fraud Act significantly limits the right of defendant to claim privilege against self-incrimination (the right to refuse to disclose documents or give evidence if doing so would expose him to the risk of a criminal prosecution) where he is being charged with a fraud offence.
?…
My further comment thereonThe Australian
national consumer legislation, the Trade Practices Act (TPA), appears to suffer from the same deficiencies as the old UK law based on “deception”: too many “specific” circumstances, and “riddled with technical loopholes”. One can only hope that the ACCC will instigate changes to the TPA, similar to that in the UK Fraud Act, to cover these same modern technological circumstances; in particular, to bring to heel such unscrupulous organizations as eBay who are now, by the masking of bidder IDs, facilitating the perpetration of fraud by false representation on consumers.
A comment on Section 47(7) of the Australian Trade Practices Act (TPA)Expressed in simplified narrative terms that I can comprehend:
“A corporation also engages in the practice of exclusive dealing if the corporation refuses … to supply goods or services to a person … for the reason that the person … has not acquired, or has not agreed to acquire, goods or services of a particular kind or description directly or indirectly from another person
not being a body corporate related to the corporation.”
[/list]What is the point of the word “not” in the above clause; should it not read:
“A corporation also engages in the practice of exclusive dealing if the corporation refuses … to supply goods or services to a person … for the reason that the person … has not acquired, or has not agreed to acquire, goods or services of a particular kind or description directly or indirectly from
the corporation or another person
whether or not being a body corporate related to the corporation.”
[/list]That would appear to put a stop to eBay mandating that users offer PayPal.
A comment on the Section 53 of the TPA: False or misleading representationsI don’t think that there is any doubt that an
undisclosed vendor bid (a “shill” bid) is a “false representation” and the below underlined additional wording would appear to make eBay’s facilitating of such activity by “absolute anonymity of bidding” (effectively the ‘aiding and abetting’ of shill bidding) unlawful.
“A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services
make a false representation where the representation is made dishonestly and with the intention of making a gain for the corporation or another or aid and abet or otherwise facilitate the obscuring of the making of such a false representation including (but not limited to):
(a) falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; …”
[/list]