Auction: pre-agreement that only one party will bid for each lot: conspiracy to defraud?

In HKSAR v Chan Wai Yip ((2010) 13 HKCFAR 842) the Government’s Food and Environmental Hygiene Department (‘FEHD’) organised an auction of cooked food stalls at a new market. The people invited to bid had been stall holders at an old market (presumably the new one replaced the old). The bidders made arrangements to ensure that only one of them would bid for each stall. As a result, each stall went for its reserve price. The bidders had been sent in advance the rules for the conduct of the auction; one of these provided that the participants would not influence any other person with regard to bidding for a stall. The bidders were all successful but were then convicted of conspiracy to defraud in the Magistrates Court and sentenced to terms of imprisonment. This was overturned by the Court of Appeal and the Government appealed to the Court of Final Appeal. This appeal failed: the pre-auction agreement did not amount to a conspiracy to defraud.

The Government’s case was that the FEHD had been deceived into thinking that there was only one bid for each lot and so renting the stalls out at the bid price. But the FEHD had not been deceived into anything.The CFA referred to the definition of conspiracy to defraud in Mo Yuk Ping v HKSAR.

Sir Anthony Mason NPJ summarised the relevant English jurisprudence on such agreements: ‘there is strong English authority to support the proposition that an agreement by potential buyers not to bid at an auction .. in order to keep the price down, is neither unenforceable as being contrary to public policy nor criminal.’  Sir Anthony Mason went on to point out that such an agreement was assumed to be legal in Pallant v Morgan.

The Court of Final Appeal certainly did not seek to approve or endorse the type of agreement in question; it merely concluded that this agreement did not amount to a conspiracy to defraud. It acknowledged that the agreements could be criticised on the grounds that they are, ‘dishonest and anti-competitive and strike at the very essence of a competitive auction.’ (para 74).

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