Auctions (Hansard, 25 June 2002)

§ Mr. Frank Doran (Aberdeen, Central)

I beg to move, That leave be given to bring in a Bill to make provision about the sale of goods by auction: and for connected purposes. I have had an interest in auctions for most of my adult life, attending my first auction when I was still in my teens. That was in the days before the "Antiques Roadshow" persuaded everyone that their granny's old vase in the attic must be worth a fortune and antiques prices spiralled.

There is an ancient tradition of auctioning goods in this country, from which has grown an international arts and antiques market worth between £2 billion and £3 billion a year. London is the centre of the international arts market, and more than 90 per cent. of that market is controlled by two companies, Sotheby's and Christie's, which are still thought of as British, but which are both now international companies. That market is probably the least-regulated sector of business in the United Kingdom, and one in which consumer protection is at its weakest.

The main purpose of my Bill is to deal with the buyers premium. Until 1975, auction houses were fairly simple. Someone who had something to sell would take it to the auction house, and if it was an everyday item—a piece of furniture, some jewellery, or perhaps granny's old vase from the attic—they accepted the house rules and agreed to pay the set commission on the sale price. If it was something grander—an impressionist painting or a Chippendale table—the seller might be in a better bargaining position and could negotiate a more favourable commission rate. If the seller was not happy, he or she could go to another auction house. As far as the buyer was concerned, it was even simpler—a bid was made, and the item was paid for and taken home.

In 1975, when Sotheby's and Christie's were in some financial difficulty, the directors of Sotheby's introduced the buyers premium. That was a commission charged to the buyer as a straight percentage on the sale price. The commission was set at 10 per cent. Christie's introduced its buyers commission, also at 10 per cent., almost simultaneously.

The arts and antiques world was in uproar. At a stroke, the purchase price at both companies' auctions of all goods had increased by 10 per cent., plus VAT on the commission. There was a great deal of anger, which led to attempts at boycotts, threats of legal action, and referrals to the Office of Fair Trading. The OFT received complaints about the buyers premium in 1975, 1978 and 1982. On each occasion, no formal investigation was carried out and no report published. All the opposition failed and, in the process, showed the weakness of the UK regulatory regime in this regard. The main ground for complaint was the alleged collusion between the two companies.

There are a number of serious problems with the buyers premium. First, in return for the premium, no services whatever are provided for buyers. They have the privilege of attending the auction houses for sales, but they had that before the premium. There are catalogues and other services, but those have to be paid for. All the services provided by the auctioneer are charged for separately.

749 Secondly, the buyers premium produces a serious conflict of interest for the auction house. The duty of the auctioneer is to obtain the best possible price for the client. Artificially increasing the price to the buyer inevitably leads to a trade-off against the interests of the seller. Most buyers will take into account the extra to be paid in commission, and bid less.

That is not so much of a problem for the sellers of valuable and important items. They can probably negotiate a lower commission, and for the most important artworks, perhaps even a zero rate. However, for the sellers of more modest items—that includes most of us—there is a real problem. They have to pay the sellers commission, usually 10 per cent., and accept the lower price that purchasers are prepared to pay because of the imposition of the buyers premium.

An example of how that operates in practice was provided to me by Mr. Peter Walton, who is an art dealer in Buckingham. He has led most of the campaigns against the buyers premium over the past 25 years. On a hammer price of £1,000, with the buyers premium of 17.5 per cent., which is not unusual now, the charge would be £175, plus VAT. The commission on the hammer price to the seller at 15 per cent. in Mr. Walton's typical auction house would produce a figure of £150. Of the hammer price of £1,000, £812 would be returned to the vendor, but the auction house would take £393.62 in Mr. Walton's example. That is a third of the sale price, which would go directly into the pocket of the auctioneers for a premium that did not exist previously. It is a rip-off—a very up-market one, but a rip-off none the less. I shall say a little about the current rates. I mentioned that Sotheby's and Christie's had introduced the rates at 10 per cent. in 1975. Sotheby's now has a buyers premium of 20 per cent. and Christie's rate is 17.5 per cent. The common rate in the rest of the country is between 15 and 20 per cent.

The most worrying aspect is the continuing evidence of collusion between the two major auction companies, Christie's and Sotheby's. There is evidence of collusion in 1975, when the buyers premium was introduced by both companies at the same rate within weeks of each other. Most of the attempted legal actions and OFT referrals failed for lack of evidence. However, there is now real evidence of long-term collusion between the two companies. That was presented at the trial last year in the USA of Mr. Alfred Taubman, who was chairman and principal shareholder of Sotheby's.

Mr. Taubman was jailed for a year and fined the equivalent of £5.3 million. He was prosecuted following investigations by USA anti-trust authorities, but also because the chief executive of Christie's, Mr. Davidge, provided evidence that the two companies had been colluding for years over commission and on matters such as the buyers premium. Mr. Davidge gave evidence to save his own skin. The only reason that he was not prosecuted was that he was lucky enough to get in first. That is not a very edifying spectacle for what were previously two of the most up-market of British companies. In America, there are laws to deal with these issues. In this country, the same practices have been in place for a generation and no action has been taken. Consumers remain unprotected.

My Bill would do two things. First, it would establish that the relationship between a seller of goods and an 750 auctioneer is one of agency. That is what the law is assumed to be at the moment, but the important legal cases in this area were decided before Sotheby's and Christie's made the fundamental change of introducing the buyers premium. Secondly, the Bill would abolish the buyers premium. It would be lawful for auctioneers to charge for services such as publication of catalogues, valuation and so on, but the imposition of a straight commission on buyers would be unlawful because it creates a clear conflict with the duty of an agent to his client.

The effect of the Bill is not limited to the two big auction houses. It would apply to every auctioneer in the country. Following the decisions of Sotheby's and Christie's in 1975, slowly but surely, the vast majority of auctioneers in this country have introduced the buyers premium. Most had no choice if they were to remain competitive, because their competitor companies were able to cut the sellers premium and take work away from them. There is as little a case for these auction houses to charge the buyers premium as there is for the two larger companies to do so.

If leave is given for my Bill to be brought in, I hope that it will be the start of the Government's taking a proper and considered look at the way in which auctions are regulated. I am very pleased to see that the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Welwyn Hatfield (Miss Johnson), is present. Yes, the two big auction companies make an important contribution to the economy and standing of this country, but as the court case in America shows, there have been serious deficiencies in the way in which the market has been run. I commend the Bill to the House.