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MAJLIS PELELONG MALAYSIA
(THE AUCTIONEERS COUNCIL OF MALAYSIA)

OBJECTION OF EBIDDING
PREJUDICE OF IMPLEMENTATION
E- BIDDING (ELECTRONIC BIDDING)
FOR
JUDICIAL FORECLOSURE
ON IMMOVEABLE PROPERTIES

PREJUDICE 1-
EBIDDING IS NOT TRANSPARENT
JUDICIAL FORECLOSURE THROUGH THE PRESENT CONVENTIONAL PUBLIC AUCTION SALE IS TRANS- PARENT, STRAIGHTFORWARD AND BEYOND REPROACH.

The present conventional Public Auction Sale adhering to accepted standards in the Courts as commanded by the National Land Code, Auctioneers Enactment and Rules of Court 2012, is a procedure prescribed as “transparent, normal and fair competition”. Indubitably, this conventional methodology is adopted for receiving maximum consideration in a normal and fair competition. The subject conventional public auction, is a well recognized process and procedure in fundamental principle for disposing the Defendant’s property. This conventional public auction sale not only ensures for fair price and maximum returns, it also militates against any allegations of favouritism on the part of Courts as a Government body while disposing the defendants’ property. It also again and again emphasized upon that the present public auction sale as a transparent mean of disposal of Defendants property. The principles which can be culled out from the aforesaid conclusion are the following:
i). The demarcated approach for disposal of Defendants property, in contradiction to the disposal of private property, is that it should for public purpose and public interest
ii). Disposal of Defendants property partakes the character of trust towards the Courts.
iii). For getting the undisputed sale, the Defendants property should be put to conventional public auction by inviting with open public participation i.e. ensure maximum live public participation. This ensures transparency and such a conventional public auction would be free from bias or discrimination and thus beyond reproach and accountability.
iv). Abstruse and Intricate system like ebidding, not witnessed by the public in the Courts should always be avoided as it cannot withstand public gaze and cast reflection on the Government or its officials in disposing Defendants immoveable property and is also against social and public interest.
v). The Courts cannot depart from conventional public auction to dispose Defendants’ property because the present conventional public auction process is constitutionally recognized for public purpose.
In conclusion, the management of conventional public auction sale by the courts for judicial auctions will have to ascertain the maximum protection for the defendants by good governance of the procedure in being transparency, accountability, non discrimination and fairness and equity as measured by public confidence. The efficiency of the public auction process has to be effectiveness of outcomes, security of process and public value for money. It too includes transactional efficiency, open competition and equality of access. The sale of Defendants property by the courts through the present conventional public auction sale is to ensure transparency in the public auction, to promote healthy competition among the bidders, to provide for fair and equitable treatment to all bidders, and to eliminate irregularities, interference and corrupt practices. The ebidding system may not be transparent to civil oversight or accountable and it may also be a burden rather than a benefit to public and such a framework may restrict interoperability and may not be consistent with competition or transparency.

PREJUDICE 2.
EBIDDING DOES NOT FOLLOW PUBLIC POLICY AND PUBLIC SALE PROCESS.

Public auction bids must be visible to the public, Auctioneer, Defendant, Banks and other bidders at the public sale. If there is a dispute of the bids, the faults can be highlighted immediately in the sale process. The so called error could easily be collusion, fraud or price manipulation. In Ebidding, there is no way for this to be easily determined, as it takes place outside the public eye.
PUBLIC POLICY PROCESS
The highly structured statutory regulations under the National Land Code, Rules of the Court 2012 and Auction Sales Enactment for judicial foreclosure sale is reliable because it is open and transparent, and as public policy, the public eye is the insurance that the Legislature put in place to keep the process correct and fair. This will not allow any person after the close of the public auction sale that proceeded according to the statute, to claim a mistake that was invisible to the public, and attempt to back out of the sale blaming manipulation and fraud in a process, that the Legislature created to be structured, clear, open and reliable. This is against public policy. It will not allow the setting aside of the mandated pubic process by the participants dissatisfied with the process at the foreclosure sale by giving them the option of claiming ‘mistake’ to back out of the deal. Whereas, the Ebidding will undermine the public policy process, allow fraud and encourage litigation.

PUBLIC SALE PROCESS
A public sale is just that, a sale occurring in public, open to competitive bidding. Nowhere in the foreclosure statute, is ebidding by the Courts allowed. In fact, the Legislature’s intent in mandating this public sale process was to disallow private agreements, secret bids and bidding irregularities. Allowing “bids” made outside the public eye into the public sale process is to make the public auction process meaningless.
A sale by public auction by the Courts must be conducted in strict compliance with the National Land Code, Rules of Court 2012 and Auction Sales Enactment. The sale must be conducted fairly, openly, reasonably, and with due diligence and sound discretion to protect the rights of the Defendants and others. Those protections have come to extend to all that participate in the public sale process. The duty may thus fairly be said to be extended to all participants in the sale, including prospective bidders.
The National Land Code, Rules of Court 2012 and Auction Sale Enactment was enacted to protect the Defendants and others by mandating a predictable, transparent system. All participants to the sale, including the buyers, are entitled to the benefits of the protections given by that system.
It is against public policy to allow internal practices, privilege deals or cryptic bids to overtake the public sale process. Ebidding system is contrary to the requirements of the enactments; it wants the public auction sale to no longer be held in public. A bidder at a ebidding process would never know if he/she is participating in a valid auction because there may be a silent, secret credit bid lurking outside the public sale process. And, it would provide an easy out for participants that are unhappy with the proceeds of the sale, to later claim there was a mistake or a secret bid. The predictability and reliability that are fundamental to the public auction sale process would be lost.
The Legislature mandated by the National Land Code, Rules of Court 2012 and Auction Sale Enactment that a foreclosure sale be conducted in public, and in the county where the property is located. By this public sale system, it ensures fairness, transparency and predictability in the process. Bidding occurs within the public eye at the public auction sale. Ebidding supported by internal direction is considered supporting bidding in abstruse, outside public eye, invites collusion, manipulation of the system, distrust and fraud and, as such, is contrary to public policy. The courts should reject the ebidding and upheld the transparent public process adopted by the present conventional Public Auction which advocates public policy.

FULFILMENT OF PUBLIC INTEREST
The Courts’ conventional Public Auction Sale is aimed at the fulfilment of a public interest towards the satisfaction of the Chargees’ rights. In light of this public interest, the Court Auctions are run under supervision of a Court official and in compliance with rules set out by the Rules of the High Court. At the same time, the appointed Auctioneer prepares a comprehensive Proclamation of Sale outlining the legal and physical characteristic of the property to be auctioned off. The Courts oversees the property throughout the proceedings and ensures that no conduct is carried out that might jeopardise the property to be auctioned off. At the same time, bearing in mind public interest, the Auctioneer sees to the proper publicity of the auction and liaises with possible bidders, providing them with information and accompanying them to visit the property prior to the auction date. For public interest, the Auctioneer disseminates all relevant information and documentation regarding the property to be auctioned off is made available. Thus the intending bidders can benefit from the safeguards offered by the Courts, the Auctioneers commitment and undertaking, on the other, can easily examine the documentation regarding the properties to go to the auction and, if interested, can arrange to visit the properties personally.

PREJUDICE 3 –
EBIDDING WITH NO PROTECTION AND RESTRAIN ATTENDANCE OF DEFENDANT.

Upon the order for sale, chargor does not completely lose his right. Here, the chargee is only excising his rights to formally sell the land. If the chargee committed anything that will negate his right to sell the land, (cause to contrary), the chargor will re-instate with the right to own the land.
Even after the order of sale has been made and when the auction sale was already in progress, but before a bid has been accepted, he still retains the right to tender payment of the amount which he owed the chargee and call off the sale. The chargor does not abrogate all his rights to the chargee at the making of the order for sale. He is merely compelled to abide by the Court’s order for his property to be sold in accordance with statutory safeguards on his interest as provided under NLC section 257 and 258. In other words there are statutory safeguards for the chargor to ensure that the sale is done with utmost transparency and that the best possible price is to be obtained where everyone interested to bid is allowed to in compliance with the Practice Direction and Auction Sales Enactment.
Section 266(1) of the National Land Code is clear:
“Any chargor against whom an order for sale has been made under this chapter may, at any time before the conclusion of the sale, tender the amounts specified in sub-section (2) to the Registrar of the court or, as the case may be, the Land Administrator (or, if the tender is made on the day fixed for the sale, to the officer having the direction thereof), and the order shall thereupon cease to have effect.”
The ebidding system is problematic for Defendants. From the Defendant’s point of view, there are several problems. For one, the ebidding process will solely and is totally within the Courts control. Defendants rarely retain a lawyer to represent them and virtually all applications for foreclosure and sale are undefended. For the most part, the process unfolds without the Defendant’s participation and in the absence of any information about their rights or about the foreclosure process itself. The Defendant’s continue to be responsible for incurred interest and cost which accumulate after the lender starts the foreclosure process itself. As such, any technical issues during ebidding process by the court results in cancellation of the sale will incur further interest and cost which is not the fault of the Defendant until the next auction sale.
The courts should uphold the conventional Public Auction, that anyone with requirements can attend and bid at the public foreclosure sale, including the effected Defendants to oversee the process. The rights of the Defendant to attend the foreclosure sale is fundamental. The Defendant possesses all rights to raise any objection during the process of bidding to the officer of courts if there is manipulation. The Ebidding process may not permit the defendant’s attendance and is no protection for the defendants. It disheartens the defendants for last minute negotiations for settlements. The Defendant has every right to apply to court to make the sale null and void if he is restrained from attending his property auction and furthermore, if he is restricted to watch the process of his property being auctioned.
With comparison to the judicial sale by conventional public auction as pursued presently by the courts, it would be unwarranted to criticize its implementation and mechanism practice for it is quite evident that the foreclosure process is primarily concerned with protection of defendants when dealing with sale procedures, sale price and the auction bidding process.

PREJUDICE 4-
EBIDDING WILL ENCOURAGE FRAUDULENT BIDDERS.

Bidders may experience “bid siphoning” when phony websites lure bidders off legitimate auction sites by offering to sell the “same” property and siphon off the deposits. Their intent is to trick the bidders into sending money like proffering the same property. By going off-site, bidders lose any protections the original site may provide, such as insurance, feedback forms or guarantees.
Fraudulent bidders or their shills may bid to drive up the price, and leave the bidding suddenly blaming technical issues.
Fraudulent bidders may submit very high bids to discourage other bidders from competing and then back off those bids by disappearing at their own excuse of technical controversy.

PREJUDICE 5 –
EBIDDING PROCESS CONFRONTS INTERNET FRAUD.

Electronic auctions although are continuing to grow in popularity, fraud seems to be a major problem. The courts must take into consideration that fraud is a major dilemma in ebidding auction compared to conventional public auction sales for immoveable property in accordance with National Land Code, Rules of Court 2012 and Auctioneers Enactment conducted by Licensed Auctioneer, will doubtlessly spring out to disputes by the defendant, which will directly affect the benchmark and bad apprehension towards the judiciary. Ebidding operated by the courts without the witness of public eye may result in manipulation and abuses during the internet bidding phase.
Typical abuses in Internet auction include the followings:
Bid Shielding
Bid shielding in which a high value bid is withdrawn at the last minute is against the system of conventional public auction and contrary to the National Land Code and Auction Enactment. It will be considered fraud if ebidding practices last minute bid withdrawals. Such actions will uproot further illegalities even though the sites maintain that it is necessary to allow bids to be withdrawn but claim to have measures to detect and remove abusers.
Shilling
Shilling introduces spurious bids in order to force up the price. The shill collaborates with other cartels and in the event of the shill in the verge of winning the auction, a disappearance act from online becomes disturbing to the auction proceeding. In conventional auctions shills can be detected through observation if they persistently offend, but this is harder to do on internet ebidding.
Sniping
Sniping is last minute bidding in the hope of preventing other bidders from responding. This applies mainly on sites which have a fixed bid close time although the possibility for delays through denial of service attacks on the internet may aid in making this real attack on any site. Even though software is apparently available to aid in the practice, many manipulations by sniping in ebidding will cause litigation issues.
Feedback
Feedback to bidders maybe given by ebidding auction which maybe positive or negative. An obvious problem with this practice is that it means that buyers are not treated equally (ebidding by may usually allows to reject bids without reason). In addition, obtaining and giving of feedback can be done fraudulently.
Special instruction/Caution
Special instructions, cautions or disclaimer by the courts for ebidding on judicial sale to sell immoveable property can be challenged and disputed. The courts suppose to allow qualified bidder to bid in the last minute/seconds by bidder which ebidding process will require bidders to avoid on their own interest. The courts /service provider should be responsible and answerable to the defendant if any lapse/failure (internet failure, power failure, etc.) on the part of the courts and bidder. From the Defendants point of view, when an auction commences, an excuse of technical issues should not arise to withhold, call off, and decision on falling back to earlier bid which will be detrimental and shall handicap the auction process.


PREJUDICE 6-
EBIDDING IS CHALLENGABLE COMPARED TO PUBLIC AUCTION SALE.
The process for the sale of property under the courts are contained in the National Land Code, Rules of Court 2012 and Auctioneers Enactment.
A judicial foreclosure by conventional public auction sale can be overturned only by a procedural error in the statutory foreclosure sale process. The bidding process for such sale is concluded witnessed by the public. The public eye becomes the justice eye on the bidding process to legitimize that the sale is done with open competition and in the state of being transparent. The presence of public too indirectly provides protection for defendants against any fraud and manipulation in jeopardizing the public auction process and harming the transparency.

The so called “technical error” may be rampant in the internet ebidding, can easily be contemplated as collusion, fraud or price manipulation. There is no way for this to be easily happening in the present court conventional public auction as it takes place within the public eye and the sale is highly structured judicial foreclosure sale. The present system is exceptionally reliable because it is open and transparent and the public eye is the insurance.

PREJUDICE 7-
BIDS AT THE PUBLIC AUCTION ARE IRREVOCABLE.

Each and every bid made by a bidder in the judicial foreclosure shall be deemed to be an irrevocable offer by that bidder to purchase the property being sold by the courts under judicial sale for the amount of the bid. Any second or subsequent bid by the same bidder or any other bidder for a higher amount shall be a cancellation of the prior bid. The sale is complete when the auctioneer accepts the highest bid and closes the sale. Any bid that is offered is irrevocable and cannot be withdrawn. As such the bid will only be cancelled by a higher bid or a postponement.
Ebidding process may often encounter abuses by the bidders by bid sniping, shilling and bid shielding which may confuse the bidders, by withdrawing at the last minute/seconds reasoning of power interruption or technical errors. The courts at this juncture cannot permit to accept the lower bid because the offer is irrevocable and cannot be withdrawn. The courts have no choice but to postpone the sale. This situation opens space for the defendant to dispute the ebidding process for not disposing the property to the highest bidder. The defendant may not buy the excuse of “technical errors” because he need to liable for all further interest and cost until the next auction is fixed.

PREJUDICE. 8-
OFFER AND ITS SIGNIFICANCE FOR FORMATION OF CONTRACT.

An offer or proposal is one of the essential elements for the formation of contract. The contracts must be entered by both offer and acceptance which are essential elements for formation of contract. The present court auctions, the successful bidder will have to sign the Memorandum of Sale/Contract immediately on the same day of the Auction Sale. It is a compulsory procedure to ensure the Contract is signed on the same day. Whereas, ebidding upon successful offer, the offerer might not be able to sign the contract. If it is not signed on the same day, the offerer may change his mind on the offer. Thus without the agreement on the subject matter of the contract, there can be no contract. This confusion will become the heart of the sale and will cause a fatal ambiguity in the public sale process. This is clearly an error within the public sale, because a contract for sale of the property was not formed. The bidder may argue, requesting for the return his whatever deposit forwarded for registration. A deposit maybe only forfeited if the bidder successfully becomes a purchaser after signing the Contract on the day of auction. Otherwise, the bidder still remains as an offerer only.

PREJUDICE 9-
EBIDDING IS IN COLLUSION WITH THE PRINCIPLES OF MEMORANDUM OF SALE.

The present court auction, the conditions of Sale provides that a Memorandum of Sale must be signed by the successful bidder, the plaintiff or his solicitor and a court official who witnessed the auction on the same day the sale was made.
Once an order has been made, the Chargee is required to prepare the conditions of sale in accordance with the terms of the said order and any determination thereunder by the Registrar of the Court, which is provided in section 258(2) of the National Land Code 1965. The conditions of Sale in this regard , also provides that a Memorandum of Sale must be signed by the successful bidder, the plaintiff or his solicitor and a court official who witnessed the auction on the same day the sale was made.
It is settled law that in a forced sale pursuant to section 256 of the National Land Code 1965, the chargee at whose instance the sale is effected is to be regarded as vendor. The order for sale and the conditions of sale are to be regarded as the sale and purchase agreement (see Malayan United Finance Bhd, Johore Bahru v Liew Yet Lan (1990) 1 MLJ 317 and Mohamed AZMAL Noor v Arab Malaysian Finance (2003) 4 MLJ 455).
Having stated the law, there is not the slightest room for doubt that, the orders for sale, the conditions of sale and Memorandum of sale constitute a sale and purchase agreement. That being the case, in the event of any breach of the terms of the conditions of sale, the contract secured under the public auction would lapse and become null and void.

PREJUDICE 10-
IMPORTANCE OF AUCTIONEER’S AFFIDAVIT OF SERVICE.

The defendants or the successful bidder under oath by way of an affidavit may have opportunity to rebut any disputes. An affidavit of the Auctioneer, as required by the Practice Direction, shall be prima facie evidence, can be submitted as evidence of proper procedure adapted before the property was put up for Auction.
The Auctioneers are appointed by the Court under the National Land Code and Rules of Court 2012 on basis of that he/she being issued License by the respected authorities after knowledgeable of their capability and qualified to engage in the business of or act as an auctioneer.
The Licensing authority takes into consideration the following criteria to issue the said license:

1. The Auctioneers have appropriate knowledge of technical terms commonly used in or related to auctioneering.
2. An understanding of the problems likely to be encountered in carrying out an auction;
3. Appropriate reading comprehension, writing and spelling skills, knowledge of basic mathematics;
4. Understanding of the types of misconduct for which disciplinary proceedings may be initiated against a licensed auctioneer.
5. Understanding that the said Auctioneer does not conform to said pertinent provisions of the Auctioneers Enactment, said license shall be revoked and said individual shall not engage in the business of or act as an auctioneer.
Under the Auctioneers Enactment, the detailed notice of sale has to be prepared by auctioneer and shall before conducting a sale by public auction, give ‘public notice’ of the auction sale.
Having stated the law, the public notice has to be carried out by the auctioneer in disseminating information of the auction to the public.
It is important to note that, the Auctioneers duty performed in according to the enactment and their duties of marketing the property by notice distribution and pasting as required by the Practice Direction, will be exhibited as Affidavit of Service before the conduct of Auction.

PREJUDICE 11-
EBIDDING MAY CONSTITUTE TO BE AGAINST PUBLIC ATTENDANCE TO BID “IN PERSON”.

The Section 6 of the Auctioneers Enactment clearly states that all sales by public auction has to invite all the public and held in places open to the general public and large enough for the accommodation of as many persons as may reasonably be desired to bid.

This Section in the Enactment thus beyond doubt clearly dictates gives invitation to the public to attend “in person” in the place of auction to offer their desirable bids. The person will be free from restrictions, control and will have absolute freedom to attend the public auction and offered unlimited chances to bid.
Still by far the most popular way for bidders is to participate in person at the foreclosure auctions. It remains the best way for bidders to get involved and have the benefit in the bidding process. Attending an auction in person means that the bidder can get involved in the atmosphere, make inquiries and talk to the auctioneer, solicitors, court officials and generally get involved with the auction atmosphere. The bidders can have real feel of the current marketplace of the property they are interested during the bidding.

PREJUDICE 12-
EBIDDING CONTRAVENES RULES OF COURT 2012 AND NATIONAL LAND CODE IF AUCTIONEER NOT APPOINTED TO CONDUCT SALE.

Sales of immovable property by order of court under Order 31, Rule 4(g), states appointment of auctioneer with security, if the sale by public auction. The court directs under Order 31, r.3 (a), in case of public auction, the auctioneer who conducted the sale shall submit the result of the sale to the court and the court may require the certificate to be verified by the affidavit of the auctioneer or solicitor, as the case maybe.
Where an order is made, whether in court or in chambers, directing any immovable property to be sold by public auction, than it is necessary for the court to permit an auctioneer having the conduct of the sale to sell the property.
Section 258(1)(b) is directed to the Registrar to see that the sale is advertised publicly in accordance with any rules of Court or in the absence of such rules the customary practice in the State. There are no specific rules regulating the procedure
for advertising a judicial sale by public auction. However, there are provisions in Section 4 of the Auction Sales Enactment FMS Cap. 81 regulating what particulars a public notice or proclamation of sale should contain and the onus is on the Auctioneer, conducting the sale, to prepare and advertise such sale. With the need for public advertisement, there is not only openness, utmost transparency and full disclosure, but no one for anyone to accuse the chargee of the preceding anyone or some side deal has been done.

PREJUDICE 13-
EBIDDING ENCOURAGES CARTELS TO BE MORE ACTIVE IN THEIR PARTICIPATION.

The present conventional public auction sales seems there are complains of activity of cartels or syndicates influencing the sale. The easy access and active participation of these scrupulous cartels or syndicates are indirectly comforted by no strict laws to the curtail them. They are being left loose to be active because their activities are not termed as illegal under law. The courts will never ever able to eradicate these cartel if there is no strict laws governing such illegal cartel practices. Its miscalculated by the court authority that by implementing ebidding, cartels can be eradicated compared to conventional public auction. By implementing ebidding, the courts again encouraging the cartels to be active in a very organize manner. They will manage their operations well coordinated to participate in fraud and more scrupulously manner through the internet. The courts are taking a very high risk by comforting them of fraud activities and indirectly inviting legal issues from the Defendants.
The present conventional public auction is well placed and gives maximum protection to the Defendant, The transparency in conducting the sale in such manner perhaps will also show adherence to moral ethical principles and undiminished responsibility the Courts.
The conventional public auction can be further strengthen by endorsing in Parliament, Preventive Laws to eradicate cartels or syndication, By doing so, the
courts can be rest assured that the participation of cartels can be immediately encountered. The process of the foreclosure auctions in courts can be conducted without fear of their participation. The scrupulous activities of cartels will be at high risk and now they need to worry being drag to court under preventive laws.
The preventive laws that can be introduced by act of parliament as follows:-
1. Preventive Trade Practice Act
2. Bidding Agreement Act
3. Bidders Protection Act

PREJUDICE 14-
CONVENTIONAL PUBLIC AUCTION IS COMPATABLE FOR ALL RACES.

Unlike customary conventional public auction, ebidding will be conducted in a virtual environment where participants are remotely contacted, and higher fraud and deceit risks are present. From Muslims’ perspectives the main question that arises pertaining to the ebidding is the extent of compatibility of this new form auction with sharia principles. In ebidding there will be anonymous identity and unlawful payment method.
The ebidding may expose to prohibited contracts such as ‘najash’ ( prices inflation), ‘riba’ (interest), ‘maisir’ (gambling) or ‘gharar’ (uncertainty). The main important thing ebidding raises is the use of anonymous or fake identity. Sharia requires the use of true identity and accurate information to avoid uncertainty i.e Gharar. Payment is another important issue since most e-payments methods are currently not compliance with Sharia especially debt and credit cards because of many forms of interest taken.
Security challenges such as sniping and bid shielding may sometime allow time for extension which is considered from Islamic perspective somehow a cause of uncertainty.

PREJUDICE 15-
THE COURT HAS NO POWER TO SELL REAL ESTATE BY EBIDDING.

The court may order a sale whenever it is necessary for the purposes of the action but it is not intended to enable the court to sell real estate when otherwise it has no power to do so. It was held by the Federal Court in Phileoallied Bank (M) Bhd vs Bupinder Singh & Anor (2002) 2 MLJ 513 (see Re Robinson, Pickard v Wheater 91886) 31 Ch D 247 at p 240).

 

 

 

 

 

 

 

 

 

 
*The Auctioneers Council of Malaysia will continue to uphold professionalism and highlight the plight of the Auctioneers in Malaysia*
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