This article was originally published in Private Art Investor and can be accessed here.
Online Auctions During COVID-19: A Legal Perspective
Responding to the Government guidance on COVID-19 issued on 23rd March, auction houses throughout the UK have been forced to close their doors.
Those auctioneers that are already set up for online bidding, and so able to build on an existing online business, are in an advantageous place to weather this storm. In any case, auctioneers who intend to continue with sales during this challenging period will need to make significant adjustments to their pre and post auction logistics and consider the legal implications of any changes to the sale format. In particular, they need to check that their existing terms and conditions of business and compliance procedures are fit for purpose.
Sales that take place behind closed doors and cannot be attended by members of the public will be classified for legal purposes as ‘online only’ sales, even if an auctioneer is standing at a rostrum and taking bids on commission and via phone as well as online.
As bidders will not be able to inspect lots before the auction takes place, auctioneers will need to consider how best to give bidders confidence in making an informed decision about purchasing an item. Virtual reality and other technology can be used on key lots to give bidders an enhanced viewing experience, but it is unlikely to be practical for every lot. Auctioneers may want to provide bidders with additional photographs of lots and condition reports that are more comprehensive than usual.
From a legal perspective, terms and conditions that place all responsibility on the bidder for satisfying themselves about the characteristics and condition of the lot, and disclaim any liability of the auctioneer, should be reviewed in order to ensure that they are fair and valid in the current circumstances (and unlikely to be struck out by a court if a dispute arises), in particular, in the context of consumer transactions.
It may be appropriate to suspend certain provisions of terms and conditions temporarily, given the shift in auction format, the lack of pre-sale viewings and the inevitable changes to collection and delivery processes. As buyers will not be able to collect their purchases in person for some time to come in light of current restrictions in relation to non-essential travel, auctioneers will need to consider whether they extend their usual storage and insurance terms or insist on delivery through a chosen external provider.
As sales will be online only sales for legal purposes, auctioneers must have suitable online terms and conditions of business in place to govern the sales contracts made with buyers at auction. A key difference between contracts for online only sales, in contrast to those for traditional live sales, is that consumer buyers must be informed of their cancellation rights under The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. Failing to inform a consumer buyer before a contract is entered into that he/she has a right to cancel the contract, return the goods, and receive a refund within 14 days of receiving the goods, not only has the effect of extending the cancellation period but is an offence that may result in a fine.
Another important consideration is ensuring compliance with anti-money laundering and anti-financial crime rules (The Money Laundering and Terrorist Financing (Amendment) Regulations 2019). This is particularly significant because auctioneers will be transacting with buyers online rather than face-to-face, may be attracting new buyers who they have not previously done business with and, unfortunately, in times like these, it is inevitable that the risk of financial fraud will increase. Indeed, Europol issued a press release on 27th March 2020 about the speed at which criminals have seized opportunities to exploit the current health and economic crisis, including via enhanced cybercrime and telephone fraud.
For auctioneers still trying to get to grips with the implications of being part of the ‘regulated’ sector for anti-money laundering purposes since January of this year, this is the right time to focus on enhancing client due diligence measures, putting robust policies and procedures in place, and training staff to be alert to the risk of financial crime and how to respond appropriately. These measures are essential for protecting auctioneering businesses and their clients and avoiding sanctions.
There is no doubt that moving exclusively online at this time involves logistical and legal challenges, but auctioneers may find that expanding their online sales offerings is a profitable business initiative during the COVID-19 pandemic and beyond.