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Online auctions on Trade Me and other online marketplaces are typically private sales between individuals. However, your business may take advantage of the online auction process to sell your products. Many online stores sell their goods through auctions to draw customers and gain profit. Accordingly, the law has specific requirements for in-person auctions run by auctioneers. However, online auctions do not have an auctioneer or agent to manage them. So, what laws apply to these sales? In some cases, consumer law will apply, and you can face hefty fines for failing to meet these obligations. Therefore, this article will explain how New Zealand consumer law applies to online auctions and how this is relevant for your business.

What Is an Online Auction?

Auctioneers run in-person auctions, where they offer products or real estate for sale on behalf of a vendor. Potential buyers can place bids in real-time, either:

  • in-person;
  • over the phone; or
  • via internet livestreaming.

Auctioneers then determine they have sold the item when a certain time has passed or they have reached a specific price. They are licensed professionals and need to comply with the law that governs their profession. They also need to abide by their consumer law obligations.

However, online auctions do not usually involve an auctioneer that does the selling. On online marketplaces, the seller typically runs the auction and offers their products directly to buyers. Consumers then place bids online until the auction closes. Because an auctioneer does not run these auctions, the laws regulating this process may not apply. The auction site you sell on does not qualify as an auctioneer or agent, merely the place where the auction occurs.

For example, if you are an artist that sells your paintings through an auction house, they need to comply with consumer laws and regulations specific to the auctioneering profession. However, if you sell your art directly to customers on eBay through an online auction, those same consumer laws may not apply to sales.

Consumer Law Only Regulates Sellers in Trade

However, that does not mean that no laws protect your customers in an online auction. Two key pieces of consumer law could apply, namely:

These laws exist to ensure that consumers get a fair deal when buying from businesses. This includes when they do so via an online auction. 

These laws only apply to sellers that are ‘in trade’. It will vary according to context, but you are in trade if you:

  • regularly sell goods or services;
  • purchase or manufacture goods to sell them on;
  • have staff; or
  • operate from a company or other business structure.

When you run an online auction, and you are in trade, then you need to ensure you comply with consumer law when you do so.

For example, if you sell your custom-made drink bottles regularly via auctions on Trade Me to make a profit for your business, then you will likely qualify as being in trade. However, if you occasionally sell old clothes via auction on Trade Me, this is a private sale. Therefore, you likely will not be in trade.

Online Auctions as a Private Sale 

Private sales are transactions between consumers in their personal capacity. Sellers are not in trade. Therefore they do not need to comply with consumer law. However, sellers in online auctions still need to be careful not to misrepresent the products they sell. If a customer bids for a product in an auction and buys that product based on a lie, the seller would be legally liable.

Online Auctions as a Business

If your business sells products through online auctions, then you are likely in trade. Therefore, you need to comply with both the CGA and the FTA. You need to meet your consumer guarantees and ensure that your products are:

  • fit for purpose;
  • of acceptable quality;
  • sold legally;
  • delivered on time and in good condition; and
  • the same as you described.

You cannot mislead your customers about the nature of your products and their capabilities. If you do, you can face fines and court proceedings. You also need to ensure you inform your customers of your trader status. They need to know that you are in trade so that they know their consumer rights protect them. Some online auction sites, such as Trade Me, have a badge you can attach to your business’ profile on the site that indicates your trader status. If there is no capability such as this, you need to include it in your terms and conditions or profile description.

Key Takeaways

The law has clear regulations for in-person auctions. Online auctions do not run with the same format and do not have an auctioneer to manage the bidding. However, consumer law still applies to these sales when the seller is in trade, which your business likely will be. If you would like more information or help with how you can meet your consumer law obligations in online auctions, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is the Consumer Guarantees Act?

The Consumer Guarantees Act is a law that specifies certain guarantees when you sell goods or services to consumers. If you break one of these guarantees, you must provide a remedy to fix the problem.

What is the Fair Trading Act?

The Fair Trading Act is a law that regulates acceptable sales tactics and practices. In particular, it prohibits misleading your customers or making unsubstantiated claims.

What is a private sale?

A private sale is a transaction between two consumers in their personal capacity. Neither of the parties is in trade, therefore consumer law will not apply in most cases.

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