What are your rights when you're buying goods from an online auction?

Trick or trade

Trade Me deals gone wrong are keeping the Disputes Tribunal busy.

The Trade Me listing claimed the van “drives like new and all in very good condition.” But the Disputes Tribunal had a different view, describing the 1994 Isuzu campervan as a “dog”.

The successful bidder paid $21,000 for the Isuzu and needed to spend another $15,000 to get it back on the road. When this dog of a van had its day in court, the tribunal referee found the seller had deliberately misrepresented its condition. The buyer was awarded $11,000 in damages – the difference between the price paid and the tribunal’s generous estimate of the van’s actual worth.

Trade Me deals gone pear-shaped are providing steady work for tribunals around the country. Not surprisingly, “misrepresentation” of the goods is a major cause of disputes. That campervan, car or Playstation alleged to be in mint condition turns out to be anything but.

If you bought the goods from a shop, you’d have the Consumer Guarantees Act (CGA) and Fair Trading Act (FTA) to fall back on. But Trade Me deals struck between private individuals aren’t covered by these Acts.

Buying from private sellers

When a deal with another private individual turns sour, you have to rely on laws other than the CGA to see you right

Misrepresented goods

If a seller claims a product is in "top working order" but you're sold a dog, the Contractual Remedies Act (CRA) may help. This Act says that if the seller misrepresents the product and you're persuaded to buy it because of that misrepresentation, you can claim damages. If the misrepresentation leaves you seriously out of pocket, you have the right to cancel the deal.

Case study: the $11,000 campervan
A Toyota HiAce campervan was listed on Trade Me as "in perfect mechanical condition". The van sold for $11,000 but the buyer subsequently discovered it had an illegal warrant of fitness, uncertified modifications and needed $16,000 of repairs. The Disputes Tribunal held the seller had misrepresented the van's condition and the buyer was entitled to cancel the contract. The seller was ordered to repay the $11,000 and collect the van at his own expense.

Degree of influence

To succeed in a claim under the CRA, you have to do more than just prove the seller misrepresented the product. You also have to show the misrepresentation influenced you to make the purchase. The misrepresentation doesn't have to be the only factor you relied on – but it does have to be a significant one.

Case study: the $1500 car
A 1990 Honda CRX sold on Trade Me for $1500. The car subsequently failed to get a warrant and the buyer wanted to cancel the contract. Although the Disputes Tribunal found it was "more probable than not" that the seller had misrepresented the vehicle's condition, the buyer wasn't entitled to cancel. He had viewed the car on 2 separate occasions before buying and knew the vehicle had failed its last WOF inspection. As a result, the tribunal wasn't persuaded the seller's claims had induced the buyer to purchase and his case failed.

Repairs

The CRA also allows you to claim for damages if you've forked out for repairs on your purchase. But there are limits. The law says you have a duty to minimise your losses – so your claim's not likely to succeed if you've continued to repair some item with major faults.

Case study: the $6100 boat
The buyer of a second-hand boat went to the Disputes Tribunal claiming $7200 in repair costs. He'd paid $6100 for the boat, listed on Trade Me as in "excellent condition". The engine failed soon after the boat was delivered and required a series of major repairs. The tribunal was only prepared to award the buyer $1150 to cover the costs of the initial repairs. It held the buyer shouldn't have proceeded with the subsequent repairs when the costs became apparent.

Description errors

The Sale of Goods Act may also provide some comeback if you've bought a product that doesn't match its description. The Act says where goods are "sold by description" then they must correspond with that description. If they don't, you can reject them. "Description" usually means a statement about the kind or class of the good, rather than its condition or quality.

Case study: the $5500 motorbikes
2 Triumph motorbikes were sold on Trade Me for $5150. The buyer later discovered some of the parts were from a different make of bike (a Yamaha) and other parts were missing. The tribunal held the bikes didn't correspond with the description of a Triumph motorbike and ordered the seller to repay the $5150. The buyer was required to return the bikes once payment had been made.

Getting compensation

The Sale of Goods Act also gives you the right to keep the goods but claim damages for any financial loss resulting from the inaccurate description. The hitch is sellers can contract out of the Act – and if they do, these rights won't apply.

Buying from professional traders

If the Trade Me seller is a professional trader your rights are different.

Law changes that took effect from 17 June 2014 require professional traders selling on internet sites to tell you they’re “in trade” so you know who you’re dealing with. Goods you buy online from a professional trader will be covered by the Consumer Guarantees Act (CGA) and the Fair Trading Act (FTA).

The CGA requires goods to be of acceptable quality and fit for purpose. You may have grounds for a claim against a trader if they’re not. See Consumer Guarantees Act for more information.

You’ll also have grounds for a claim if the trader has misled you. The FTA prohibits traders from making false or misleading claims about the goods they sell. See Fair Trading Act for more.

Disputes

Trade Me says most of the 12.5 million transactions that take place through its site each year complete with no problems. But that's not always the case. During 2010, Trade Me figures show that 439 sales resulted in Disputes Tribunal claims.

If you do end up with goods that fall well short of what was advertised, try to sort things out with the seller first. If that fails, your next step is usually the Disputes Tribunal. The tribunal can only hear claims up to $15,000 (or $20,000 with the agreement of both parties).

If you've bought a car from a motor vehicle dealer, you can take your case to the Motor Vehicle Disputes Tribunal. It can hear claims up to $100,000.

Whichever tribunal you appear before, you’ll need to be prepared:

  • Collect your evidence. Bills, receipts, quotes for repairs, emails, phone messages, photographs, any expert reports – they're all valuable.
  • Put together your evidence. Prepare a summary of your case with the key issues clearly stated.
  • Make sure any important witnesses can attend the tribunal hearing – if not, see if you can get a new date for the hearing or ask the court staff if it's possible for witnesses to attend by telephone.

If a shady seller dupes you, let Trade Me know. The site's terms and conditions require sellers to enter listings that are "accurate, current, complete and include all relevant information". Trade Me says around 140 members are banned each month for breaching this condition.

Trade Me has also developed a protocol with the Disputes Tribunal to assist people who want to bring a claim. It provides court registrars with a statutory declaration that claimants complete. When the declaration is filled out, Trade Me will release its formal record of the deal.

If you take a case to the tribunal and win, that's not always the end of the matter. The seller may not pay and you'll have to chase-up payment. You can request enforcement of a Disputes Tribunal order by the courts. This can be a lengthy process and it could well be some time before you get the money that's owed you.

Advice for buyers

Buying goods online, sight unseen, involves a big element of trust. You trust the seller is genuine – and they take a leap of faith you’ll pay up. But there are safeguards you can take to minimise the risk of something going wrong.

Before you buy:

  • Always check the seller's history thoroughly.
  • Check the site community message board regularly for advice and warnings.
  • Check the advice for safe trading on the website.
  • Use address-verified traders. And get an address from the trader before you pay them money – it might make them easier to trace if you need to contact them later.
  • Check the item's retail price. Don't get swept up in the thrill of the chase and bid more than the goods are worth.
  • Ask questions and make sure you know what you're buying. For example, it's not unusual to sell digital cameras and their memory card separately. Do the goods come with memory, battery, leads, charger, bag etc?
  • If you're buying a vehicle, check it has a WOF less than one month old (provided the buyer agrees, sellers have the option of selling without a WOF or with a WOF older than 1 month); arrange for a thorough mechanical inspection of any vehicle; and check the Personal Property Securities Register to find out if money is owed on the vehicle.
  • For high-value items, consider using an escrow service. This is where a third party holds money on behalf of the buyer and seller while the transaction is being settled (there’s a fee for using an escrow service). Trade Me’s escrow service is called SafeTrader.
  • Consider insuring expensive items against loss or damage in transit.
  • Pay by credit card if you can. You can reverse the transaction if the goods don't turn up – this is called a chargeback. Never send cash.
  • Don't deposit money in overseas bank accounts.
  • Print and keep a copy of the original auction posting and any communication with the seller. You'll need it to check the item you receive matches the item pictured or described.

Advice for sellers

  • Check the site's fees and factor them into your calculations.
  • Set realistic starting/reserve prices.
  • Describe the item accurately, and attach a photo if possible.
  • Make sure your terms of sale are clear, and give an indication of shipping costs.
  • If not using an escrow service, don't send the goods until you have been paid (and if paid by cheque, until the cheque has cleared).
  • Send the goods promptly, and according to your agreement with the buyer. We recommend using a post or courier service that allows you to track where your parcel is and whether it has been received. If the parcel never arrives you'll have to refund the buyer their money.