RICS Draft Professional statement: Client money handling for livestock auctioneers, 1st edition

Introduction

RICS-regulated firms sell many different assets at auction. This document provides mandatory requirements and guidance for RICS firms acting as livestock auctioneers.

Background: sale by auction

During an auction, the auctioneer will seek open and competitive bids from prospective purchasers for the livestock entered by the vendors. Once the auctioneer is satisfied that the highest available bid has been made, they mark this with the fall of their hammer, setting the price for the sale. At that point, the highest bidder becomes the purchaser and is contractually bound to pay for the livestock. The auctioneer has a duty to account to the vendor for the price achieved, having taken their own commission and costs due under their terms of business.

It is the terms of the relationships between first the vendor and the auctioneer, and then the purchaser and the auctioneer, with regard to payment for the livestock that will dictate whether the money is received by the auctioneer as an agent or as a principal.

An auction conducted by an auctioneer for a vendor involves three contracts:

  • a contract between the vendor and the auctioneer instructing the auctioneer to act as the vendor's agent in arranging and managing the auction process - this can be called the 'instruction contract'
  • a contract between the vendor and the highest bidder (who becomes the purchaser on the fall of the hammer) for the sale of the livestock - this can be called the 'supply contract' transferring ownership, and
  • a contract between the purchaser and the auctioneer that will govern, among other matters, the payment arrangements under which the auctioneer may be either a principal or an agent according to the terms - this can be called the 'transaction contract' governing payment.

For further analysis, see the Court of Appeal decision in Chelmsford Auctions v Poole

[1973] 1 All ER 810, CA.