But a video of the auction appears to show auctioneer Joff van Reenen pretending to take bids from nonexistent buyers in the room to push up the price. After a bid of R15-million was reached, Van Reenen seemed to pretend there were other bidders in the room and kept increasing the price. But the only real bids, as Van Reenen continued to up the price, came from Ichikowitz.
The farce continued until a price of R19.75-million was reached when Van Reenen called "you are out", implying a competing bidder had dropped out. The auctioneer did not specifically say before each bid that they were being placed on behalf of the farm's seller - a process known as "vendor bidding".
Van Reenen told Business Times this week that to preface a bid by describing it as a "vendor bid" was impossible because of the "speed of the auction". However, the video shows him pausing at times during the auction. After watching the video, Ichikowitz demanded the auction house return the 10% commission he paid as part of the purchase price, and for the sale to be deemed invalid.
But the Supreme Court of Appeal ruled on March 30 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.
Vendor bidding is not allowed if there is no reserve price. A furious Ichikowitz said this week that "this shows the law really is an ass". Speaking from a plane on which he was about to fly to West Africa, Ichikowitz said the video clearly showed that no one else was bidding.
Ichikowitz is chairman of the Paramount Group, Africa's biggest privately owned arms group, which makes armoured vehicles, surveillance drones and warships. Paramount, which makes about $1-billion a year (about R12-billion), is a major supplier to Africa's war zones. The Thaba Phuti sale has echoes of the 2012 auction of wine estate Quoin Rock, which led to the downfall of Auction Alliance.
There, Auction Alliance was accused of using ghost bidders to drive up the sale price. It was the Auction Alliance debacle that prompted Ichikowitz to probe deeper. This week, Van Reenen said High Street "never thought the ruling would be any other way" as the auction had been conducted by the book. "We followed procedure," he said. The ruling is the first time the issue of vendor bidding - sometimes called "ghost" bidding - has been tested in court.
The court agreed that High Street had not stepped out of line, and dismissed Ichikowitz's appeal with costs. The court said vendor bidding, where an auctioneer raises the price on behalf of the seller, is different from sham bidding, which is clearly 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," it said.
The problem was that Ichikowitz had not read the small print in which High Street said it would be acting for the sellers and making bids on their behalf. This was clear on the sale advertisements and the registration form that Ichikowitz signed. According to the court ruling, Van Reenen also read out the rules of the auction before it began. Ichikowitz admitted "he had not paid attention". Even so, not all auctioneers are comfortable doing it. Ruarc Peffers, a senior specialist at fine art auction house Strauss & Co, said: "We don't do it. The practice isn't held in the highest regard."
Instead, Peffers said, Strauss & Co auctioneers typically started by stating prices in increments up to the reserve price. Only after this price is announced are bids taken - if there are no bids, the piece remains unsold. Another auctioneer, who asked not to be named, said vendor bidding was common but only to stimulate demand. "If I've got 20 registered buyers, who all want to buy the thing, I'm not going to vendor it."
He said the practice could go horribly wrong. "You can vendor it and vendor it, and then the seller says okay, and then there's no buyer." Another auctioneer said that in the light of the confusion around the issue, "today, I believe that auctioneers should identify the vendor bidder as they take the bid from him".
Ruling may clear Levitt
Ichikowitz decided to investigate what happened at the auction after Auction Alliance CEO Rael Levitt was accused of sham bidding in another auction, just one month later. The Quoin Rock fiasco led to Auction Alliance shutting its doors amid accusations of years of collusion and kickbacks to liquidators. Paper trails allegedly showed fraud extended deep into the big four banks.
The glamorous 190ha Quoin Rock estate was auctioned on behalf of SARS in December 2011. Billionaire heiress Wendy Appelbaum was one of six potential buyers who registered to bid for the farm. Here, Appelbaum bid R55-million on the estate, and then refused to bid higher. Levitt then took a bid for R60-million from a person behind Appelbaum, who turned out to be a ghost bidder, Gideon Leygonie.
Levitt then urged Appelbaum to increase her offer and she refused. Levitt then turned to Leygonie and pretended there had been a mistake, saying: "Oh, sorry sir, was R60-million not a bid?". He then confirmed Appelbaum's R55-million as the winning bid. Even though the sale was not concluded because the reserve price was R75-million, Appelbaum became incensed when she realised the person she was bidding against wasn't a real buyer. When she approached the consumer commission and laid a fraud complaint with Stellenbosch police, the industry unravelled.
However, the Ichikowitz ruling raises the question of whether what Levitt did was actually above board. Levitt's attorney Alan Smiedt said this week that "at Quion Rock, vendor bidding was also disclosed prior to the auction".