Civil
Appeal
CHITAKUNYE
J:
This
is an appeal against the judgment of the Magistrate Court sitting at
Harare in terms of which appellant was ordered to pay to the
respondent a sum of US$8,277.00 plus interest.
The
appellant is an auctioneer. The appellant acting on behalf of Conte
Shoes (Pvt) Ltd in Liquidation (represented by Theresa Grimmel)
auctioned industrial shoe making equipment in June 2012.
The
respondent successfully bid for the equipment at a price of
US$100,000-00.
Upon
the successful bid being accepted, the appellant proceeded to call
upon the respondent to pay a deposit of US$10,000-00 being 10% of the
tendered amount. The respondent paid the said deposit and in terms of
the condition of the sale was to pay the balance of the purchase
price within 7 days.
The
respondent defaulted in the payment of the balance of the purchase
price despite being granted an extended time of 14 days within which
to pay at its request. The appellant subsequently cancelled the
agreement of sale upon realising that applicant was not forthcoming
with the balance of the purchase price.
A
term of the sale by auction was that any deposit paid by a tenderer
would be refunded less the agent's commission (including VAT) and
any expenses incurred by the liquidator or her agents in the process
of conducting the sale and its aftermath. (Clause 9 of the Notes and
Conditions of Sale).
After
the agreement of sale had been cancelled the respondent sought the
refund of its deposit.
By
letter dated 5 March 2013, the appellant advised the respondent that
the agent's commission and the expenses incurred in the process of
conducting the sale and its aftermath exceeded the $10,000-00 deposit
that the respondent had paid and so appellant would not be refunding
respondent any amount.
The
respondent, being dissatisfied, sued appellant for the refund in the
Magistrates' Court. After a contested trial the trial magistrate
ordered the appellant to pay to plaintiff the sum of $8,277-00.
The
appellant has thus appealed against the trial magistrate's order.
The grounds of appeal were that:-
(1)
The court a
quo
grossly erred and misdirected itself in finding that Clause 9 of the
Notes and Conditions of Sale agreed to by the parties is invalid and
unenforceable at law.
(2)
The court a
quo
erred and misdirected itself in finding that the Appellant could only
charge Value Added Tax (VAT) and Commission after the conclusion of a
sale.
(3)
The court a
quo
grossly erred and misdirected itself, which misdirection amounts to
an error of law in finding that the Appellant could not deduct costs
for security because the receipt was not in the appellant's name.
From
the arguments presented by counsel for both parties the following
issues emerge:-
(a)
when is a contract formed in a sale by auction;
(b)
what terms and conditions govern such a contract;
(c)
when does an auctioneer's commission become payable;
It
is pertinent to firstly ascertain when a sale by auction is said to
be formed in an auction.
Ordinary
principles of contract law apply to transactions arising pursuant to
a public auction. These maybe stated as the principles of offer and
acceptance.
When
is a contract formed in a sale by auction?
In
his book, Business
Law in Zimbabwe
2014 (Juta) at p 35, R.H. Christie states that:-
“Calling
for tenders and conducting auctions are methods of endeavouring to
obtain the best contractual terms by inviting members, or selected
members of the public to bid in competition with each other. It is
characteristic of tenders that they are not revealed to rival
tenderers, and of auctions that bids are made publicly. What concerns
us here is who makes the offer, thereby putting the conclusion of the
negotiations out of his further power. …… The auctioneer calling
for bids is inviting offers, and each bid is an offer which, so far
as the bidders are concerned, he may accept or reject at his
discretion.”
It
is thus clear that what constitutes an offer to purchase the property
is the bid at the bidded price. Once accepted by the seller or the
auctioneer, a contract for the sale of the auctioned property comes
into being. In other words, the bidder makes the offer and the seller
or auctioneer has the option to accept the offer or reject it. The
terms and conditions of such a sale will usually be as per the terms
and conditions the seller or auctioneer will have put up in inviting
offers. Anyone making an offer will be expected to be familiar with
the terms and conditions for the intended contract once his offer is
accepted.
In
Christie's The
Law of Contract in South Africa,
6th
ed. 2011 (LexisNexis) at p 47, the learned author states that:
“More
frequently, the terms on which the auction is to be held are drawn up
by the seller or auctioneer in the form of 'conditions of sale'.
To be effective, these must be read out at the beginning of the sale,
or other reasonable steps must be taken to bring them to the notice
of buyers. If this is done, the conditions will be binding even on
bidders who arrive late and have not read them or heard them read
out, since they could have asked for information on them. These
conditions may create rights and duties not only between the seller
and the bidders but between the auctioneers and the successful bidder
on such matters as the payment of the auctioneer's commission.”
It
is invariably the trend that the terms and conditions are put up for
the bidders to know in advance the terms and conditions of the sale.
Such conditions as the deposit required, the fate of the deposit in
the event of a successful or failed bid, the auctioneer's
commission and other attendant details for the auction.
When
does an auctioneer become entitled to its Commission
The
next issue is when does an auctioneer's commission become due? The
appellant's argument was that the commission was due upon the
acceptance of the respondent's offer as in any other contract. The
respondent on the other hand contended that commission was not yet
due.
Both
parties referred to the case of Crusader
Real Estate Consultancy (Pvt) Ltd
v CABS
1999 (2) ZLR 237 (S). In that case the court held that:
“An
auctioneer is employed to sell the property by auction on the
conditions arranged: if he sells the property he gets his commission:
if he does not sell the property he gets no commission.”
It
is thus clear that once it is shown that an auctioneer has sold the
property he becomes entitled to his commission.
In
the Crusader
case
(supra)
the acceptance of the bidded price was subject to confirmation by the
Sheriff hence when the Sheriff declined to confirm the sale as the
price was too low, court accepted that the sale had not been
concluded and so the commission was not due.
In
casu,
it is common cause that respondent's offer was accepted, after
which respondent was asked to pay the deposit which it duly did.
Clearly,
in my view, a contract of sale was concluded.
The
challenge that befell the contract was that respondent could not pay
the balance of the purchase price. The respondent's contention that
the contract was not concluded does not hold water. The auctioneer's
duty was to ensure a contract of sale was entered into and each party
to that contract was aware of their obligations. This the auctioneer
did. The failure by respondent to pay the purchase price in terms of
the contract should not be a bar to the auctioneer getting its
commission.
Clause
9 of the Notes and Conditions of Sale provided that:
“The
balance of the total amount of the invoice must be paid to Auction
City within 7 days of the notification of the outcome of the tender.
Should this condition not be met in its entirety, the sale may be
cancelled at the sole discretion of the liquidator. In such case, any
deposit will be refunded less agent's commission (including VAT)
and ANY expenses incurred by the liquidator or her agents in the
process of conducting the sale and its aftermath.”
As
aptly submitted by appellant's counsel, the appellant discharged
its duties as an auctioneer because the sale, the subsequent breach
notwithstanding, came about by the auction conducted by the
appellant. The fact of respondent's breach does not detract from
the fact that appellant rendered its services in conducting the
auction which led to the sale.
The
appellant's commission was pegged at 10% of the tendered price,
which in this case is US$10,000-00.
The
respondent's contention that the sale was not concluded and so the
appellant was not entitled to its commission is in my view misplaced.
To hold that because a party to a contract has defaulted and so the
auctioneer or agent is not entitled to its dues would work unduly
harshly against auctioneers as they would have to wait till parties
to a contract fulfilled all their obligations before getting paid;
but surely it is not the auctioneers' obligation to ensure that
parties fulfil their contractual obligations.
I
am thus of the view that the learned trial magistrate erred in
holding that there was no sale and that as such the appellant was not
entitled to its commission.
The
respondent's counsel also argued that as the appellant subsequently
sold the property after respondent had failed to raise the balance of
the purchase price, the sale was not complete and the appellant is
not entitled to its commission.
Unfortunately,
as already alluded to above, the respondent's failure and the
appellant's cancellation of the contract serve to confirm that the
two parties had entered into a valid agreement of sale hence its
cancellation. The resale was a natural consequence of the
cancellation. The auctioneer had fulfilled its mandate and earned its
commission.
The
trial magistrate's finding that clause 9 of the 'Notes and
Conditions of Sale' is illegal and cannot be enforced is, in the
light of the above, not sustainable.
Such
a finding was based on the conclusion that there was no sale. This
clause, in my view, is a key component of the terms and conditions of
the agreement respondent agreed to in bidding. This included that the
total amount must be paid within 7 days of the notification of the
outcome of the tender, and the consequence of failure to meet that
condition.
The
trial magistrate alluded to the fact that the VAT referred to in the
clause pertained to when the goods have been sold. In that regard she
referred to section 6(1)(d) of the Value Added Tax Act [Chapter
23:12]
and concluded that such VAT was not yet due.
The
appellants' argument was to the effect that the VAT in issue
pertains to the service provided by the auctioneer for which a
commission is due. In that regard, the relevant section is 6(1)(a)
and not 6(1)(d). Section 6(1)(a) states that:
“6.
Value Added Tax
(1)
Subject to this Act, there shall be charged, levied and collected,
for the benefit of the Consolidated Revenue Fund a tax at such rate
as may be fixed by the Charging Act on the value of..
(a)
the supply by any registered operator of goods and services supplied
by him on or after the 1st
January, 2004, in the course or furtherance of any trade carried on
by him.”
The
VAT in question is on the value of the auctioneer's services which
in this case is $10,000-00 and not on the purchase price.
Counsel
for the appellant thus argued that the trial magistrate erred in
referring to section 6(1)(d) as the applicable section for the VAT
being claimed by appellant. Section 6(1)(d) relates to value added
tax on goods sold and would be calculated on the purchase price.
Section
6(1)(d) which the trial magistrate alluded to states that:
“Subject
to this Act, there shall be charged, levied and collected, for the
benefit of the Consolidated Revenue Fund a tax at such rate as may be
fixed by the Charging Act on the value of goods and services sold
through an auctioneer (as defined in section 56(6)) by persons who
are not registered operators.”
An
analysis of the two subsections confirms that they relate to two
different scenarios. Subsection (a) relates to supply of services
whilst (d) relates to goods and services sold through an auction.
The
term service is defined in section 2 as –
“Services
means anything done or to be done, involving the granting,
assignment, cession or surrender of any right or the making of any
facility or advantage but excludes the supply of goods, money or any
stamp, as contemplated in paragraph (c) of the definition of goods.”
From
the above I am of the view that the appellant provided a service as
per section 6(1)(a).
I
am inclined to agree with the appellant's counsel that the
appellant did provide a service for which a commission was due and so
was the VAT in relation to that commission. That service comprised
conducting a successful auction sale in which a buyer was secured and
an agreement of sale entered into.
Whether
or not security costs were due
The
appellant's counsel argued that the trial magistrate erred in not
accepting the evidence pertaining to the provision of security
services in the sum of $8,000.
The
relevant part of the learned magistrate's judgment on this issue
reads as follows:
“The
defendant relied on a receipt written under Groovemark Security in
the name of one Mrs Grimmel. During the leading of the evidence the
witnesses for the plaintiff confirmed that the premises were manned
not by a uniformed security guard. Such piece of evidence [sic] was
not rebutted by the defendant and the witness for the defendant
refused to shed more light on that issue. The receipt is not in the
defendant's name Auction City and this court cannot use it as a
piece of evidence.”
The
above reasoning was attacked on the basis that it seeks to ignore the
clear provision of clause 9.
Clause
9 of the conditions of sale allowed for the deduction of 'any
expenses incurred by the liquidator or her agents in the process of
conducting the sale and its aftermath.'
It
is common cause that the receipt was in the name of Mrs Grimmel who
from the record of proceedings was the liquidator. The fact that the
receipt was not in the appellant's name should not have been the
deciding factor as the condition clearly provided for costs incurred
by the liquidator as well.
The
issue the trial magistrate ought to have exercised his mind on is
whether the security costs were incurred in the process of the sale
and its aftermath.
I
am of the view that whether the receipt for security services was in
the name of either the auctioneer or the liquidator did not make a
difference as long as the costs were incurred in the process of the
sale and its aftermath.
The
trial magistrate seemed to take issue with the fact that the security
guard was not in uniform.
That
in my view is of no consequence as it was not part of the condition
that those providing security services must be in uniform. All that
was required of the appellant is to show that the security services
were provided leading to costs being incurred.
In
conclusion therefore, it is apparent that the trial magistrate
misdirected himself when he held that the appellant had not earned
its commission as the sale was not completed but had been cancelled.
He also erred in concluding that clause 9 of the 'Notes and
Conditions of Sale' was illegal and not enforceable.
In
the circumstances the appeal is hereby allowed with costs. The
judgment of the court a
quo
be and is hereby set aside and is substituted by the following:-
The
plaintiff's claim be and is hereby dismissed with costs.
Coghlan
welsh & Guest,
appellant's legal practitioners
Mundia
and Mudhara,
respondent's legal practitioners
