Caveat emptor: Ichikowitz loses auction appeal

OWN CORRESPONDENT

Ichikowitz is chairman of the Paramount Group, Africa’s biggest privately owned arms group, which inter alia makes armoured vehicles, surveillance drones and warships.

Ghost bidding, or vendor bidding occurs when an auctioneer pretends to have bids from non-existent bidders, to push up the bid. Ichikowitz had accused High Street Auctions of faking bids of a property he was buying. Ichikowitz in 2011 bought Thaba Phuti, a lodge and game farm near Rustenburg for R20 million.

Then there’s also “sham bidding”, which is illegal.

A video of the auction, according to Ichikowitz, showed auctioneer Joff van Reenen pretending to take bids from nonexistent buyers to push up the price. After a bid of R15 million was made by Ichikowitz, Van Reenen allegedly pretended there were other bidders in the room and only at a “bid” of R19,75 million, he called “you are out”, implying another bidder had dropped out.

What prompted Ichikowitz to review the auction sale, was Auction Alliance CEO Rael Levitt being accused of “ghost bidding”, when the 190ha Quion Rock estate in the Western Cape was auctioned on behalf of SARS in 2011. Another Jewish billionaire, Wendy Appelbaum, was one of six potential buyers who registered to bid for the estate. When Appelbaum would not go higher than her R55 million bid, “a person behind her” bid R60 million. He turned out to be a ghost bidder and Levitt confirmed Appelbaum’s R55 million bid as the winning one.

Although the sale was not concluded because the reserve price was R75 million, Appelbaum was furious when she realised she had not been bidding against a “real” bidder. Appelbaum laid a charge of fraud and it effectively meant the end of Auction Alliance.

But in Ichikowitz’ case, when he approached the court to have his 10 per cent deposit return to him and the sale declared invalid, the Supreme Court of Appeal on March 30 ruled that High Street had been clear enough and that Ichikowitz had only himself to blame for ignorance of the possibility of vendor bidding by the auctioneer.

The ruling confirms that “vendor bidding” is legal as long as potential buyers are made aware of it and the price is nudged up no further than the reserve price. If there is a reserve price, vendor bidding is not allowed.

The present court ruling is the first time the issue of vendor bidding has been tested in court. The court found that High Court had not stepped out of line and dismissed Ichikowitz’s appeal with costs.

The court found that “vendor bidding” is different from “sham bidding”, which is illegal. “Sham bidding are bids in terms of an underhand arrangement to artificially raise the sale price, or a non-existent bid represented as a real bid,” the court ruled.

Ichikowitz seemingly had not read the small print in which High Street said it would be acting for the sellers and would be making bids on their behalf. Van Reenen had also read out the rules before bidding started, but Ichikowitz admitted he “had not paid attention”.

Although “vendor bidding” seems to be common, not all auctioneers are comfortable with the practice and they suggested that an auctioneer identifying each bid, would go a long way to make the process more open and equitable.