Under EU law, consumers buying goods from a trader at a distance, or from a trader face-to-face but outside the trader’s usual business premises, have the right to cancel the contract of sale within the so-called ‘cooling off period’ without giving any reason. They simply notify the trader that they no longer want the goods, and return them.
In the case of distance purchase, the consumer is not able to see the goods before concluding the contract, accordingly, so the argument runs, he should be given the opportunity to inspect them when they reach him and ‘repent’ within a short period of time after the goods have been delivered to him. Note, however, that the right to cancel is not available to a consumer buying at a distance from another consumer.
Consumers also have the right to cancel the contract of sale when they negotiate the contract with the trader away from trader’s business premises, for example in the consumer’s home or workplace. The rationale here is that in an off-premises context, the consumer may be under psychological pressure or may be confronted with an element of surprise. Accordingly, he should be given the right to ‘repent’ once he is free from the pressure or element of surprise.
Consumers must exercise the right to cancel the contract during the ‘cooling off period’. In the case of distance contracts, that period currently expires at the end of a period of seven working days beginning with the day after the day on which the consumer receives the goods. From June 2014, when the new Consumer Contracts (Information, Cancellation and Additional payments) Regulations 2013 are scheduled to apply, the cooling off period will be extended to 14 calendar days.
The right to cancel cannot be excluded by contract.
The right to cancel is fundamentally incompatible with the sale at auction of art, antiques and collectible items, whether the bidder is standing in a room or bidding on line or on the telephone. Once an artwork has been publicly marketed for sale at auction, if it does not sell during the auction, it has lost its freshness, and some of its appeal to collectors, resulting in a loss in market value. Three concerns would arise if the buyer at auction were able to exercise the right to cancel. First, it would encourage bidders to bid irresponsibly, in the knowledge that if they secure the lot, they can cancel the sale. This, in turn, would artificially distort published auction prices. Secondly, a cancelled sale would leave the seller with a devalued, less attractive and potentially un-saleable artwork. Thirdly, the preparation for sale of a unique artwork can be expensive. Who will cover the costs of the auctioneer if the artwork is sold, and the sale is then cancelled?
This incompatibility between auctions and the right to cancel led to auctions being excluded from the EU Directive of 1997 on the protection of consumers in respect of distance contracts. That exclusion was in turn reflected in the Distance Selling Regulations 2000 implementing the Directive in the UK. This means that consumers buying at auction by means of distance communications such as the Internet or the telephone, do not have the right to cancel.
This is set to change.
The Consumer Rights Directive
In 2011, the EU introduced the Consumer Rights Directive. It replaces the Distance Selling Directive of 1997. The Consumer Rights Directive is set to be implemented in the UK by the Consumer Contracts (Information, Cancellation and Additional payments) Regulations 2013. The regulations are still in draft. They are due to be adopted before the end of the year, and to come into force in June 2014.
In a surprising twist, contracts concluded at auction are no longer outside the scope of the regulations. This means that when the regulations come into force next year, consumers buying at auction by means of distance communications such as telephone and online bidding, will have the right to cancel the sale for any reason within the ‘cooling off period’, unless the auction qualifies as a ‘public auction’ as defined in the regulations (see below). This, and other provisions of the regulations, are likely to have damaging consequences for the British art market, some of which may not have been fully grasped by the authors of the Directive and the regulations.
The Directive distinguishes between, on the one hand, online platforms such as eBay where consumers and traders sell goods directly to other consumers and traders through a bidding process, and on the other hand, traditional live auctions which consumers can attend in person. The argument is that consumers participating in the first type of auctions (eBay type) should have the right to cancel, whilst consumers bidding remotely in live auctions, should not.
The regulations define “public auction” as a method of sale where property is offered by a trader to consumers, who attend or are given the possibility to attend in person, through a transparent, competitive bidding procedure run by an auctioneer, and where the successful bidder is bound to purchase the property. The definition points to a traditional live auction. Take the example of a lot purchased by a consumer at Sotheby’s or Christie’s. Say that the consumer, instead of bidding in the auction room, bids online or on the telephone. If he is the highest bidder above the reserve, a sale contract will be concluded. That contract qualifies as a ‘distance contract’ so in principle, the consumer will be able to exercise the right to cancel. However, that sale also falls within the definition of ‘public auction’: the lot was offered to a consumer through a transparent, competitive bidding procedure run by an auctioneer, the consumer was given the option to attend in person (even though he may have decided not to) and the successful bidder was bound to purchase the lot. Accordingly, in that scenario, the consumer will not be allowed to exercise the right to cancel.
The definition of ‘public auction’ is fairly narrow: if you hold a traditional auction in physical premises, consumers bidding remotely will not be entitled to exercise the right to cancel. If, however, you operate a virtual auction on the traditional model (through a virtual auctioneer), you will have to offer consumers the right to cancel even though they may be given the opportunity to inspect the goods before they bid. This is illogical. If consumers are given the opportunity to inspect the goods in person before they bid, why should they have the right to cancel if the auction itself is virtual? They are able to ascertain what they are buying, in the same way as when they buy from a trader in a shop. It does not seem to make sense to give them the right to cancel the contract after they have agreed to buy goods they have inspected, or could have inspected. Equally, why should they be denied the right to cancel simply because they have the opportunity to attend the auction in person? By the time the consumer stands in the auction room, he is only able to see the lot on which he bids from a distance, if at all.
This is not the only puzzling element of the definition. To assert that only live auctions qualify as ‘public auctions’ is bizarre: virtual auctions are just as public, in fact, assuming that anyone can register to participate, they can potentially attract a substantially larger public than a traditional auction.
If the aim was to ensure that consumers buying on eBay type platforms had the right to cancel the contract, why not say so, rather than undermine auction models that neither follow the eBay model nor the traditional live auction model?
The fundamental issue is that the right to cancel is incompatible with the auction of art, antiques and collectibles. The Consumer Rights Directive was clearly aimed at consumer goods. Art, antiques and collectible items are typically unique, high value objects, often subjectively described. The value of a work of art depends on factors that are fundamentally alien to the determination of the price of manufactured consumer products. Buyers of antiques and collectibles rarely propose to use them for the purpose for which they were originally made: you would not buy a 16th century armour in order to wear it, nor would you buy an 18th century porcelain dish to eat your breakfast. It is simply wrong to lump together art, antiques and collectible items with consumer goods. Unique art, antiques and collectible items should simply have been excluded from the scope of the Directive and the regulations.
Requirement to Provide Information
A related concern is this: under the regulations, consumers will be entitled to receive certain information on the ‘trader’ before the sale unless (i) the sale is by auction, (ii) the auction qualifies as a ‘public auction’ and (iii) the contract of sale is a distance contract or an ‘off-premises’ contract.
In the case of public auctions concluded at a distance or off-premises, e.g. in a hotel, the regulations specifically provide that the information on the identity, address and contact details of the trader may be replaced by equivalent information on the auctioneer. This points to regulations treating the ‘trader’ and the auctioneer as two different persons, and suggests that the reference to ‘trader’ is to the seller of the property, not the auctioneer. The intention is clearly to allow the auctioneer not to reveal the identity of the seller if the seller is a dealer. Protecting the seller’s identity is in line with current auction practices, and the exception is welcome.
Unfortunately, this exception does not extend to sellers at auctions that do not qualify as public auctions. Does this mean that in the case of a virtual auction adopting the traditional auction model, the auctioneer must identify the seller if he is a trader? It would seem so. This is highly unattractive to sellers and auctioneers alike and runs counter to accepted auction practices.
If both the seller and the buyer are consumers, is the seller exempt from the obligation to identify himself to the buyer in advance? Again, that seems to be the case, although this undermines the level-playing field between collectors and dealers within the virtual auction market.
The issue is not simply one of disclosure. It is equally an issue in relation to the right to cancel. Must the consumer be offered the right to cancel only if the seller is a trader, but not if he is a consumer? The regulations do not answer that question. The difficulty for the virtual auctioneer will be this: if consumers have the right to cancel, the auctioneer must inform them in advance that they have that right. If he does not, the ‘cooling off period’ will be extended by up to 12 months. This means that for 12 months and 14 days from the date of delivery of the lot, the consumer may have the right to cancel the sale without giving reasons. The auctioneer could find himself in a difficult position if, having paid the seller, he is obliged to refund the buyer who exercises the right to cancel. If the auctioneer concludes that he must offer consumers the right to cancel, he may be well-advised to provide information to consumers on the right to cancel in advance of the auction, or shortly thereafter, in order to limit the ‘cooling off period’ to 14 days. Virtual auctioneers should equally ensure that private sellers contractually authorise them to offer consumers the right to cancel, to prevent the seller from arguing that, as a consumer, he is not obliged to take back the property from another consumer.
Turning again to the issue of disclosure, there is an anomaly which could have serious consequences. The exemption from disclosure of the seller’s details if the seller is a dealer, and the auction qualifies as a public auction, is found in Schedule 2 of the regulations. That schedule deals with information relating to distance and off-premises contracts. The exclusion provides that ‘in the case of a public auction, the information listed in paragraphs (b) to (e) may be replaced by the equivalent details for the auctioneer’. Paragraphs (b) to (e) deal with the identity and contact details of the ‘trader’. Schedule 1 of the regulations, however, deals with on-premises contracts. That schedule does not contain any exclusion for public auctions. Yet paragraph (b) of Schedule 1 requires disclosure of ‘the identity of the trader, the geographical address at which the trader is established and the trader’s telephone number’. Does this mean that if the auction contract (in the case of a public auction) is concluded at a distance or off-premises, the selling dealer is not obliged to disclose his details in advance of the auction, whereas if the auction contract is concluded in the room (say at Sotheby’s or Christie’s in London), the selling dealer must disclose his details in advance? That would seem to be the case although it can hardly have been intended. A related issue is whether in a live auction, the auction contract is concluded on-premises or at a distance if the successful bidder is absent, bidding through the Internet or on the telephone. If the answer is that the contract is a distance contract, the auctioneer is in an impossible position because he cannot predict before a sale whether the successful bidder will be in the room (in which case the contract will be concluded on-premises) or not (in which case the contract will be concluded at a distance). Should he disclose the identity of the professional seller, or should he not?
It may not be too late to amend the draft regulations to address these issues. The difficulty is that the Directive also provides that in the case of on-premise contracts, the trader must disclose his identity, the address where he is established, and his telephone number (Article 5.1(b)). There is no exception for auction contracts. If the regulations were amended to say that in the case of on-premise contracts, the information on the trader may be replaced by information on the auctioneer, there would be a conflict between the Directive and the regulations on this point.
The Directive exempts categories of goods and services from its scope, recognising that for certain types of goods and services, if the right to cancel applied, the seller of the goods or the provider of the services would lose out. This is precisely what will happen if the right to cancel is available to consumers in the context of auction sales of art, antiques and unique collectibles items, or if certain information must be disclosed in advance of the auction. It is regrettable that these issues were not considered more carefully.
As more and more auction activity takes place online, and collectors increasingly rely on images to buy art, the risk is that the right to cancel will make online auctions ultimately too unattractive for sellers of art. We could see online auctions prosper in the USA and the Far East, but losing ground in the EU. That would be a shame.
Articles published on this blog reflect the opinion of the stated author of the article only. The information they contain does not constitute legal advice.