Australian Competition and Consumer Commission v We Buy Houses Pty Ltd
[2017] FCA 915
•11 August 2017
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v We Buy Houses Pty Ltd [2017] FCA 915
File number: NSD 170 of 2015 Judge: GLEESON J Date of judgment: 11 August 2017 Catchwords: CONSUMER LAW – misleading or deceptive conduct – alleged breaches of ss 18, 29(1)(e), (f) and (g), 34 and 37 of the Australian Consumer Law – where alleged that the respondents represented that the respondents could teach consumers how to buy a house for $1, and/or without a deposit or a bank loan, and/or with little or none of the consumer’s money, and/or generate income and profit by dealing with property in various ways – alleged representation that first respondent had been successful in real estate by using the advertised methods – where representations made in a book, on several websites, at free seminars and in various training courses – whether alleged representations were made out – whether mere puffery – whether representations as to future matters – application of s 4 of the Australian Consumer Law – whether there were reasonable grounds for making of the representations – whether first respondent was directly or indirectly, knowingly concerned in, or party to, contraventions of the Australian Consumer Law by the second respondent – contraventions found
PRACTICE AND PROCEDURE – leave sought to rely on amended version of statement of claim served during trial – leave refused
Legislation: Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Evidence Act 1995 (Cth)
Trade Practices Act 1974 (Cth)
Real Property Act 1900 (NSW)
Cases cited: .au Domain Administration Ltd v Domain Name Australia Pty Ltd (2004) 207 ALR 521
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; (2014) 317 ALR 73
Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791; (2014) 143 ALD 136
Australian Competition and Consumer Commission v Flight Centre Ltd (No 2) [2013] FCA 1313; (2013) 307 ALR 209
Australian Competition and Consumer Commission v Henry Kaye and National Investment Institute Pty Ltd [2004] FCA 1363
Australian Competition and Consumer Commission v Pest Free Australia [2004] FCA 527
Australian Competition and Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326; [2001] ATPR 41-840
Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470
Australian Competition and Consumer Commission v Telstra Corporation Ltd [2004] FCA 987; (2004) 208 ALR 459
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342
Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Recs and Mgrs apptd) (in liq) (Controllers apptd) (No 3) [2013] FCA 1342
Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45
Cummings v Lewis (1993) 41 FCR 559
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Fraser v NRMA Holdings Ltd [1994] FCA 1397; (1994) 124 ALR 548
General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; (1993) 45 FCR 164
Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223; (2002) 193 ALR 629
Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2005] FCA 1647
Giorgianniv The Queen [1985] HCA 29; (1985) 156 CLR 473
Given v Pryor (1979) 24 ALR 442
Gore v Australian Securities and Investments Commission [2017] FCAFC 13; (2017) 341 ALR 189
Hadgkiss v CFMEU [2008] FCAFC 22; (2008) 166 FCR 374
Jainran Pty Ltd v Boyana [2008] NSWSC 468
Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1582; (2000) 104 FCR 564
National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369
Pappas v Soulac Pty Ltd [1983] FCA 3; (1983) 50 ALR 231
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
Procter & Gamble Australia Pty Ltd v Energizer Australia Pty Ltd [2011] FCA 1347
Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158
Robert Bax & Associates v Cavenham Pty Ltd [2012] QCA 177; [2013] 1 Qd R 476
Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2007) 168 FCR 46
Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648
Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (unreported, Lockhart J, 25 September 1981)
Sykes v Reserve Bank of Australia [1998] FCA 1405; (1998) 88 FCR 511
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc [1992] FCA 630; (1992) 38 FCR 1
Trade Practices Commission v J & R Enterprises Pty Ltd (1991) 99 ALR 325
Walker v Walker (1937) 57 CLR 630
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661
Heydon JD, Cross on Evidence (10th ed, LexisNexis Butterworths, 2015)
Oxford English Dictionary
Date of hearing: 29, 30, 31 August 2016, 1, 2, 5 September 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 521 Counsel for the Applicants: Mr S White SC with Mr T Glover Solicitor for the Applicants: Corrs Chambers Westgarth Counsel for the Respondents: Mr S Bell with Ms Z Shahnawaz Solicitor for the Respondents: Websters ORDERS
NSD 170 of 2015 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
First Applicant
SCOTT GREGSON
Second Applicant
AND: WE BUY HOUSES PTY LIMITED (ACN 094 068 023)
First Respondent
RICHARD KEITH OTTON
Second Respondent
JUDGE:
GLEESON J
DATE OF ORDER:
11 August 2017
THE COURT ORDERS THAT:
1.Leave to file the third further amended statement of claim dated 5 September 2016 is refused.
2.The applicants file and serve draft orders contended for to give effect to these reasons on or before 18 August 2017.
3.Proceedings be set down for the making of orders to give effect to these reasons on a date to be fixed in consultation with the Associate to Gleeson J.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
INDEX
Alleged misrepresentations [8] System and strategies representations [8] Representations about Mr Otton’s success in real estate [14] Testimonials supporting use of techniques [18] ACCC’s case [23] Leave sought to file third further amended statement of claim [27] Legal principles [30] Applicable statutory regime [31] Relevant provisions of the Australian Consumer Law [37] Proof [44] Representations as to future matters [45] Testimonials [47] Representations [50] Representations in advertising [60] Puffery [64] Half-truths [69] Misleading conduct as to the nature of services [73] Accessorial liability [74] Evidence [79] Mr Otton’s evidence [85] Assessment of evidence of Mr Donkin and Ms Siekaup [110] Respondents’ submissions about boot camp evidence [112] Findings [119] The respondents’ techniques (or strategies) [119] “Rent-to-buy” [123] Technique [123] Model of technique [125] “Sandwich lease option” [130] Model of technique [135] “Deposit builder” [139] Model of technique [144] “Handyman special” or “sweat equity” [149] Model of technique [153] “Vendor finance” or “purchase by instalments” [155] Model of technique [165] “Some now, some later” [169] Model of technique [171] General conclusions about the respondents’ techniques [172] The alleged wealth creation system [177] Mr Otton’s implementation of the techniques [181] Deception Bay property [186] Quakers Hill property [192] Willmot property [203] Marayong property [208] Cessation of respondents property business [215] Conclusions [218] Ms Siekaup’s evidence [222] No evidence from persons who gave testimonials or “Big Kahunas” [231] Witnesses unsuccessful attempts to implement the techniques [236] Witnesses beliefs that techniques can work [249] Can the respondents’ strategies be used to buy a house for $1? [254] Mr Otton’s personal success [269] Representations [269] WBH financial statements [273] Success in the United States [283] Positive cash flow from properties since 2007 [284] Gross capital profit [286] Respondents’ publications [288] Book titled “How to buy a house for $1” [288] “Free Ticket” bookmark accompanying book [291] Content of the book [296] Inside front cover [297] First and last page of book [298] Preface [302] Section entitled “All about buying” [311] Section entitled “All about selling” [317] Section entitled “Five core strategies” [320] Inside back cover [331] Back cover [332] Impact of the book [333] Free seminars [334] Advertising for free seminars [336] 2013 free seminars webpage [337] 2013 free seminars mail-out [339] 2014 free seminars advertisement [341] 2014 free seminars webpage [343] 2014 free seminars email [345] 2014 free seminars mail-out [347] Testimonials on 2013 free seminars webpage [349] Testimonials on 2014 free seminars webpage [350] Emails subsequent to attending a free seminar [354] Free seminar content [356] Power Property Profits Pack [361] Websites [368] [370] [371] [372] Success stories webpage [374] Rickotton homepage [375] [376] [377] Readysetboom webpage (4 March 2014) [378] Readysetboom webpage (12 June 2014) [379] Boot Camps [381] Boot camp manual [386] Boot camp content [389] Go Direct mentoring program [397] Testimonials [399] Issues for determination [403] Were the System and Strategies Representations conveyed? [403] Consumers to whom statements were directed [403] Context of the representations [408] Context of the book [409] Representation (a): “Buy a house for $1” representation [411] Representation (b): “Buy a house without a deposit, bank loan or real estate experience” representation [422] Representation (c): “Buy a house using little or none of the consumer’s own money,” representation [432] Representation (d): Create passive income streams representation [440] Representation (e): Build property portfolios representation [445] Representation (f): Start making profits immediately representation [450] Representation (g): Create or generate wealth representation [453] Conclusions [457] Were the representations with respect to future matters? [460] Were representations (a), (b) and (c) puffery? [465] Representation (a): “Buy a house for $1” representation [466] Representations (b) and (c):”Buy a house without a deposit, bank loan or real estate experience” and “Buy a house using little or none of the consumer’s own money” representations [472] Did the respondents have reasonable grounds for making the representations? [474] Did the representations contain half-truths that were misleading by their insufficiency of information? [484] Were consumers misled? [488] Representations about Mr Otton’s financial success? [498] Boot Camps [498] Websites [500] Falsity of representations [504] Did WBH and Mr Otton make false or misleading representations by publishing testimonials [505] Contraventions [508] Section 18 [508] Sections 29(1)(f) [510] Section 29(1)(g) [511] Section 34 [513] Section 37 [517] Conclusion [521] GLEESON J:
The applicants (“ACCC”) seek relief against the respondents for alleged contraventions of the Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (“Act”), in connection with their promotion of a “wealth creation system” which purported to enable consumers to “buy a house for $1”.
The first respondent (“Mr Otton”) is the sole director and sole shareholder of the second respondent (“WBH”). He is the author of a book entitled “How to Buy a House for $1” (“book”), published and distributed in Australia by WBH from at least sometime in 2012. Mr Otton provided his services, his image and identity, and his knowledge and strategies in relation to property investment, to WBH. Mr Otton was involved in WBH by making or participating in the making of decisions that affected the whole, or a substantial part, of the business of WBH. As WBH’s sole director, Mr Otton had ultimate responsibility for WBH’s activities.
WBH carried on business in Australia conducting seminars, courses, boot camps, mentoring programs and supplying training materials to consumers (including the book). From at least 1 July 2009 to the present, each of WBH and Mr Otton promoted WBH’s business and sold goods and services to consumers and potential consumers, consisting of materials and information, seminars, boot camps and mentoring programs regarding the use of certain techniques regarding property investment.
WBH and Mr Otton established and operated websites with the URLs and (“websites”) from at least 1 January 2011. The activities of WBH were promoted on the websites.
The respondents denied that they promoted a wealth creation system. They said that their activities were to explain ideas whereby persons could invest in real estate. The respondents observed that there was no evidence before the Court of a single consumer complaint about their activities. They said that the statements relied upon by the ACCC invited the consumer to speculate on what might be possible, rather than promising a guaranteed outcome.
The ACCC sought to place a far more sinister complexion upon the respondents’ activities. It said that the respondents made false or misleading representations, particularly in the book, on the websites and at free seminars to promote boot camps from which WBH earned substantial income. Attendance at the boot camps cost approximately $6,000 for two tickets. The boot camps, the ACCC alleges, were used in turn to promote an “advanced training” and “mentoring” program. Varying evidence was given of the price for the program, but it included around $26,000 for one ticket and $30,000 for two tickets. The “mentoring” program was named “Go Direct” and is described below. The ACCC also submitted that, despite promoting WBH’s business by reference to Mr Otton’s own success as a “self made millionaire and property investor”, the respondents themselves did not deal in property; rather they were in the business of selling a business model that promised an easy to use system for property investment that included tips on who to target (both vendors and purchasers that fit a certain demographic), and that would produce immediate results.
The respondents conducted free seminars and boot camps throughout Australia between 1 January 2011 and 13 June 2014. During that period, approximately 3,400 consumers have attended free seminars and approximately 2,000 consumers paid to attend boot camps conducted by the respondents. Approximately 700 consumers participated in the Go Direct mentoring program. WBH generated a substantial income from conducting boot camps and the advanced training and mentoring programs, and from the sale of training materials. It admitted to a turnover of over $20 million during the period from 1 January 2011 to 17 June 2014.
Alleged misrepresentations
System and strategies representations
The ACCC allege that in the course of advertising and conducting the seminars and boot camps, and in the training materials and on various websites, the respondents made representations that, by following or implementing techniques promoted by the respondents (and described in detail below), consumers were able to:
(1)buy a house for $1;
(2)buy a house without needing a deposit, bank loan or real estate experience;
(3)buy a house using little or none of the consumer’s own money, including by buying at a discount;
(4)create passive income streams through property and/or quit their jobs, including by “[turning] negative gearing into positive cash flow”;
(5)build property portfolios without their own money invested and, without new bank loans or without real estate experience;
(6)start making profits immediately; and
(7)create or generate wealth.
In its second further amended statement of claim (“statement of claim”), the ACCC referred to these representations as the “System and Strategies Representations”.
The statement of claim pleads that the respondents did not have reasonable grounds for making the System and Strategies Representations and relies on s 4 of the Australian Consumer Law, by which a representation as to a future matter is taken to be misleading if the maker of the representation does not have reasonable grounds for making the representation. In his oral opening, senior counsel for the ACCC, Mr White SC, submitted that the parties were in agreement that the System and Strategies Representations are representations as to future matters. That submission was not disputed by counsel for the respondents, Mr Bell, in his oral opening. However, in his closing submissions, Mr Bell observed that the ACCC’s case was directed to both the past and the future – in that, as Mr Bell characterised the ACCC’s case, it was contending that the respondents’ strategies have not worked in the past and will not work in the future.
The ACCC also contended that the respondents engaged in misleading or deceptive conduct by failing to disclose to consumers and potential consumers, or warn consumers and potential consumers, that the techniques taught by the respondents were unlikely to achieve the outcomes conveyed in the System and Strategies Representations.
By their defence, the respondents deny making the System and Strategies Representations. That defence was maintained in the face of ample written evidence, set out below, that the respondents repeatedly and emphatically said the very things that the ACCC alleged to comprise the System and Strategies Representations. The respondents put a case that their statements were taken out of context but did not satisfactorily explain how their words bore a different meaning once context was taken into account.
By their defence, the respondents also say that if consumers followed “certain ideas” that include techniques promoted by the respondents, “they may be able to achieve certain goals including creating or generating income and wealth”. The respondents did not put a positive case that, if made, the System and Strategies Representations were true. However, the defence does assert that Mr Otton himself had been successful financially in following the ideas and using the strategies. The defence also contends that, if the System and Strategies Representations were made, then they were puffery “in that they were invitations to attend free seminars and buy the book where the ideas [including techniques promoted by the respondents] would be explained in detail” and that the respondents “did have reasonable grounds in the context”.
Representations about Mr Otton’s success in real estate
The ACCC alleged that, during boot camps, the respondents made claims about Mr Otton’s financial success in implementing the system and using the techniques. The statements upon which the ACCC relied are contained in a transcript of a boot camp held in April 2014 at the Canterbury Hurlstone Park RSL Club (“2014 Hurlstone Park boot camp”), and are set out in appendix 5 to this judgment (items 16, 17 and 18).
By their defence, the respondents “admit” that Mr Otton himself “had been successful financially in following the ideas and using the strategies”. The defence also states that Mr Otton was “successful financially in using the ideas pleaded in paras 8.1 to 8.5 of the Further Amended Statement of Claim” by reason of his being the director of WBH. In support of this statement, the defence provides particulars of gross income allegedly earned from property by WBH over the years ended 30 June 2003 to 30 June 2013.
Those gross income figures were not borne out by the evidence.
The evidence included:
(1)the following statements on the webpage used by the respondents to promote free seminars in 2013 (“2013 free seminars webpage”):
(a)next to a picture of Mr Otton: “Rick Otton Director of We Buy Houses Pty Ltd Self-Made Millionaire & Property Investor”;
(b)“In the last 22 years I’ve purchased over 300 properties in Australia and the USA – using little or none of my own money”;
(c)“… I’ll share with you the same strategies I use to buy properties for $1 and create cash flow income – without ever stepping inside a bank or saving thousands for a deposit”;
(d)“Rick’s Story: How I became a real estate millionaire without money, finance or even a mobile phone to start with!”;
(e)“If you are open minded, then I’d love to show you the no-money-down strategies my students and I regularly use to buy property without a bank, a deposit or even paying stamp duty”;
(2)the following statements on the web page which was used by the respondents to promote free seminars in 2014 (“2014 free seminars webpage”):
(a)“About 20 years ago, I discovered a remarkable property investment system that allowed me to purchase 76 properties in 12 months without bank finance and in a FALLING MARKET... Since then my students and I have used this system to PROFIT throughout rising, falling and even BOOMING markets”; and
(3)the following statement on the webpage I’m Rick Otton and I’ve bought a bunch of properties for $1 and I’d like to share with you why…”.
Testimonials supporting use of techniques
Testimonials are a significant feature of WBH’s various publications. The respondents sought to rely on the testimonials in their defence, noting that in the book there are six testimonials between pp 194-197 and 28 testimonials between pp 200-205. The respondents also noted that there are at least 22 testimonials on the website.
The ACCC alleged that the following publications contained representations purporting to be testimonials from consumers who had followed or implemented the techniques to achieve the outcome described by the System and Strategies Representations:
(1)advertisements about the free seminar, as set out in [336] below;
(2)the website; and
(3)the website.
The testimonials relied upon by the ACCC and referred to above are identified at [330], [349], [350], [374] and [380] below. Each one contains a claim that the author bought a property for $1. There was no evidence from the persons who had purportedly given the testimonials to verify their claims.
The ACCC argued that a significant feature of the experiences of Mr Otton and the persons who purportedly gave the testimonials (as set out in the book, the various web pages set out above and the testimonials) was the ease with which the techniques could be used “(i) on any property, (ii) in any market and (iii) without the consumer having any real estate experience”.
The ACCC did not contend that the testimonials were fictitious. Its case was that the testimonials were false because it is not possible to buy a house for $1, and that the testimonials are deemed to be misleading under s 29(2) of the Australian Consumer Law (set out below) in the absence of evidence to the contrary.
ACCC’s case
The trial dealt with the ACCC’s case that the respondents had contravened the Australian Consumer Law, with questions of relief to be dealt with separately in the event that the Court found the alleged contraventions.
The principal findings for which ACCC contended are:
(1)WBH and Mr Otton made the System and Strategies Representations:
(a)in the book;
(b)at the free seminars (and in material promoting those events);
(c)at the boot camps (and in material promoting those events);
(d)in its training materials; and
(e)on the websites.
(2)Consumers using the system and strategies promoted and taught by WBH and Mr Otton could not achieve the outcomes represented, because the strategies require either:
(a)the purchase of a property using a consumer’s own money; a deposit and/or traditional bank finance; or
(b)the consumer to act as a “middleman” to facilitate property transactions between third party sellers and third party buyers.
(3)WBH and Mr Otton did not have reasonable grounds for making the System and Strategies Representations because:
(a)Mr Otton himself had not implemented the strategies in the manner that WBH and Mr Otton taught them; and
(b)WBH and Mr Otton called no evidence from anyone who had successfully implemented the strategies to achieve the outcomes represented.
(4)The System and Strategies Representations were false, misleading or deceptive or likely to mislead or deceive in that the strategies could not achieve the outcomes represented.
(5)WBH and Mr Otton failed to disclose to or warn consumers and potential consumers that the strategies were not easy to implement and work in limited circumstances only.
(6)The System and Strategies Representations were not puffery, having regard to the context which saw them repeated throughout the various forums and media in which they appeared.
(7)WBH and Mr Otton adduced no evidence that the testimonials were not false or misleading.
(8)Mr Otton had not been financially successful in implementing the strategies, and the representations to the effect that he was successful were false, misleading or deceptive or likely to mislead or deceive, because the vast majority of the properties he acquired were acquired using a deposit and mainstream bank finance.
The ACCC contended that, accordingly, the Court should conclude that the respondents contravened the Australian Consumer Law.
For the reasons that follow, I make, in substance, all of the principal findings for which the ACCC contended.
Leave sought to file third further amended statement of claim
The proceeding was commenced by an originating application dated 2 March 2015. On 8 August 2016, the ACCC filed a second further amended statement of claim. On the sixth day of the trial, Mr White SC handed up a third further amended statement of claim. The third further amended statement of claim seeks to include an allegation that the respondents made false representations about Mr Otton’s financial success in implementing the system and strategies promoted by the respondents on three webpages, set out at [17] above. Mr White SC noted that the second further amended statement of claim alleged that false representations were made about Mr Otton’s financial success at boot camps. Mr White SC submitted that there could not be any prejudice to the respondents arising from the proposed amendment.
The respondents opposed the filing of the amendment and noted that the representations relied upon extend beyond the representations pleaded in relation to boot camps and include representations concerning Mr Otton’s financial success in the Unites States of America.
There was no explanation given for why the ACCC had not pleaded the new allegations earlier. I am not satisfied that the respondents would not be prejudiced by the late introduction of the new allegations. Accordingly, I will not grant leave to file the third further amended statement of claim.
Legal principles
There was no dispute as to the applicable legal principles.
Applicable statutory regime
The originating application claims relief under the Australian Consumer Law or, in the alternative, the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”).
The Australian Consumer Law regime applies to a supply, or possible supply, of “goods and services” and does not apply to “the supply, or possible supply, of services that are financial services, or of financial products”: s 131A(1) of the Act. The ASIC Act regime applies, relevantly, to “financial services”. The term “financial services” is defined in s 12BAB(1)(a) of the ASIC Act to mean, relevantly, “provide financial product advice”. A “credit facility” is a financial product for the purposes of the ASIC Act: s 12BAA(7)(k).
The ACCC submitted that the business of WBH, and Mr Otton’s involvement in it, related to the supply of services by the respondents, being the supply of “materials and information, seminars, boot camps and mentoring programs”. The ACCC submitted that the techniques, if implemented, might involve or contemplate the use of a credit facility and therefore a financial product within the meaning of the ASIC Act. However, the ACCC argued, the alleged representations do not relate to a credit facility, or any other financial product but, rather, to the outcomes the respondents said could be achieved by implementing the techniques.
Accordingly, the applicants submitted, the correct statutory regime against which to assess its case is the Australian Consumer Law.
The respondents did not argue against this analysis.
I accept the ACCC’s submission and have proceeded upon the basis that the relevant statutory regime is the Australian Consumer Law.
Relevant provisions of the Australian Consumer Law
The ACCC alleges that the pleaded representations variously contravened the following provisions of the Australian Consumer Law:
(1)section 18;
(2)sub-sections 29(1)(e), (f) and (g);
(3)section 34; and
(4)section 37.
Section 18(1) provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Section 29(1) provides, relevantly, that a person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:
(e)make a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or
(f) make a false or misleading representation concerning:
(i)a testimonial by any person; or
(ii)a representation that purports to be such a testimonial;
relating to goods or services; or
(g)make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; …
For s 29(1)(g), a performance characteristic, use or benefit in relation to services signifies something that the services can do or something that can be done with the services, or perhaps some consequence of having received the services: cf Australian Competition and Consumer Commission v Pest Free Australia [2004] FCA 527 at [15].
Section 29(2) provides:
For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in subsection (1)(e) or (f), the representation is taken to be misleading unless evidence is adduced to the contrary.
Section 34 provides that a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services.
Section 37(1) provides that a person must not, in trade or commerce, make a representation that:
(a)is false or misleading in a material particular; and
(b)concerns the profitability, risk or any other material aspect of any business activity that the person has represented as one that can be, or can be to a considerable extent, carried on at or from a person's place of residence.
Proof
The allegations made against the respondents are serious and must be proved on the balance of probabilities, taking into account the nature of the cause of action, the nature of the subject matter of the proceeding and the gravity of the matters alleged: s 140 Evidence Act 1995 (Cth): cf. Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791; (2014) 143 ALD 136 at [14]-[15] (“ACCC v Dateline Imports”); Australian Competition and Consumer Commission v Flight Centre Ltd (No 2) [2013] FCA 1313; (2013) 307 ALR 209 at [8] per Logan J; Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Recs and Mgrs apptd) (in liq) (Controllers apptd) (No 3) [2013] FCA 1342 at [33]- [36] per Murphy J.
Representations as to future matters
Section 4 of the Australian Consumer Law facilitates proof in false, misleading or deceptive representation cases involving representations as to future matters. It has its origins in the former Trade Practices Act 1974 (Cth), s 51A.
Section 4 provides that in the case of a representation with respect to a future matter, unless evidence is adduced to the contrary, the person making the representation is taken not to have had reasonable grounds for making it, with the result that the representation will be taken to be misleading. Additionally, the person will not be taken to have reasonable grounds merely because such evidence is adduced. The fact that a person may believe in a particular state of affairs does not necessarily mean that there are reasonable grounds for that belief: Cummings v Lewis (1993) 41 FCR 559 at 565 per Sheppard and Neaves JJ.
Testimonials
Section 29(2) provides, for the purposes of applying s 29(1), in relation to a proceeding concerning a representation of a kind referred to in s 29(1)(e) or (f), the representation is taken to be misleading unless evidence is adduced to the contrary.
Section 29(3) provides:
(3) To avoid doubt, subsection (2) does not:
(a)have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or
(b)have the effect of placing on any person an onus of proving that the representation is not misleading.
The ACCC submitted that I should be guided in my review of the evidence by the comments of Lindgren J in Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223; (2002) 193 ALR 629 at [47]:
I have carefully viewed the Modified Advertisement several times and tried to assess its likely effect on viewers. But, as I observed in the earlier Eveready case (at [38]), apart from the difference between a one-off viewing and repeated viewings, the circumstances in which a judge attends to a television commercial for the purposes of a case are not those in which members of the public do so. First, members of the public watch a commercial after and before viewing other things, rather than in isolation. Secondly, unlike the judge, they do not carefully view the commercial with a special interest in noting and memorising its features. Thirdly, they view the commercial, not in the calm of chambers, but against a background of distractions, such as domestic activity, or simply a preoccupation with other more interesting or pressing concerns. Fourthly, usually they do not know in advance that the commercial is about to commence.
Representations
A representation is a statement, made orally or in writing or by implication from words or conduct, relating to a matter of fact: Given v Pryor (1979) 24 ALR 442 at 446.
Whether representations are false, misleading or deceptive or likely to mislead or deceive requires the application of well-settled principles to the circumstances of the case: Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648 at [49] (“Specsavers”).
The principles relevant, in the circumstances of these proceedings, can be summarised as follows.
There are two matters to be decided: firstly, whether the pleaded representation is conveyed by the particular events complained of, and if so, whether the representation conveyed is false, misleading or deceptive or likely to mislead or deceive: Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470 (“ACCC v Telstra”) at [14]-[15]. In that case, Gordon J said at [14]-19]:
[14]The relevant legal principles have been well traversed by Australian courts. A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [105]; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] ATPR 42-000 at [18] per Dowsett J (with whom Jacobson and Bennett JJ agreed) and Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] ATPR 42-106 at [37]. That is, do the 12 Events singularly or collectively convey either of the Coverage Representations and do the 3 Events singularly or collectively convey the CDMA Comparison Representation.
[15]Second, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a “quintessential question of fact”: Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459; [2004] FCA 987 at [49].
[16]Because the conduct complained of in the present matter was not directed at a specific individual both questions that have been identified must be considered by reference to the class or classes of consumers likely to be affected by the conduct: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 per Gibbs CJ; Nike at [102], [103], [105] and [106]; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [36] per Gleeson CJ, Hayne and Heydon JJ.
[17]In .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521; 61 IPR 81; [2004] FCA 424 at [12]–[26] Finkelstein J provided a useful summary of the approach that might be taken where a court is required to assess conduct by reference to a specific class or classes of consumers, and did that by particular reference to Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202–3 per Deane and Fitzgerald JJ and Nike at [100]–[103]. The approach may be summarised in six points, as follows:
(1)first, identify the relevant section or sections of the public by reference to which the issue is to be tested. The target section or sections of the public would, of course, vary according to the facts of each case: Parkdale at CLR 209; ALR 14–15; IPR 695–6 per Mason J; Finucane v New South Wales Egg Corp (1988) 80 ALR 486 at 516. The relevant section or sections of the public may be confined by factors such as the time period over which the alleged representations were made and the geographical circulation of the advertisements containing the alleged representations (for an example of geographical circulation defining the relevant test section, see Talmax Pty Ltd v Telstra Corp Ltd [1997] 2 Qd R 444 at 446; (1996) 36 IPR 46 at 47);
(2) second, having identified the relevant section or sections of the public, consider who comes within that section or those sections. This may include the astute and the gullible, the intelligent and the not so intelligent, the well educated and the poorly educated: see also Parkdale at CLR 199; ALR 6; IPR 688–9 per Gibbs CJ;
(3)third, it is permissible, but not essential, to have regard to evidence that some person has in fact been misled, though this evidence will not be conclusive;
(4)fourth, it is necessary to enquire whether any proven misconception has arisen because of the misleading or deceptive conduct;
(5)fifth, where the persons alleged to have been misled are members of a class, it is necessary to isolate a representative member of the class and enquire whether that hypothetical person is likely to be deceived; and
(6)sixth, when considering the likely effect of the misrepresentation on this hypothetical person, he or she should be judged as an “ordinary” or “reasonable” member of the class, excluding reactions to the representation that are “extreme” or “fanciful”.
….
[19]As noted, under the two-step analysis that has been described, the court cannot consider each event in isolation. Each event must be considered within the context of the advertising campaign of which it formed part: see Telstra Corporation Ltd v Optus Communications Pty Ltd (1996) 36 IPR 515 at 523–524; Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 at 338; Astrazeneca at [24]; Johnson & Johnson Pacific Pty Ltd v Unilever Australia Ltd (No 2) [2007] ATPR 42-136 at [16]. In a national advertising campaign it would ordinarily be expected that there would be a dominant message and, in such a case, particular attention should be paid to that dominant message. In Telstra Corporation at 524, that principle was stated as follows:
In television and print advertising where a false dominant impression is conveyed, its message will not be ameliorated by the accuracy of the detailed message which is derived from a careful analysis of all the constituent parts of the advertisement.
Whether a representation is made must be considered in context: Hadgkiss v CFMEU [2008] FCAFC 22; (2008) 166 FCR 374 at [27]:
In determining whether a statement is false or misleading, it is necessary to consider the context within which the statement was made: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 199; Given v Pryor (1979) 24 ALR 442 at 446-447. In this case, as the appellant correctly recognised, the task of the primary judge was to make findings not only as to the particular words used by Mr Lane but also as to the implications to be drawn from those words.
In Specsavers, at [49], Griffith J said:
[W]hether or not conduct is misleading or deceptive is a question of fact to be determined objectively and upon the basis of the impugned conduct being viewed as a whole and in its full context (see Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [25] and [102] and Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 199 per Gibbs CJ); …
A representation will be false, misleading or deceptive or likely to mislead or deceive if it if it has a tendency to lead into error, or if it induces or is capable of inducing error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 (“TPG”) at 651, [39]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 198; Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1582; (2000) 104 FCR 564 at 589-590, [63].
Whether a representation is false, misleading or deceptive or likely to mislead or deceive is ‘quintessentially’ a question of fact, which should not be complicated or over-intellectualised: Australian Competition and Consumer Commission v Telstra Corporation Ltd [2004] FCA 987; (2004) 208 ALR 459 at [49] (Gyles J).
In ACCC v Dateline Imports at [30]-[32], Rangiah J said, concerning a proceeding for breach of s 52 of the Trade Practices Act:
[30]… The question is whether a not insignificant number of reasonable persons within the class have been misled or deceived or are likely to be misled or deceived by the conduct, whether in fact or by inference: Hansen Beverage Co v Bickfords (Aust) Pty Ltd [2008] FCAFC 181; (2008) 171 FCR 579 at [46] per Tamberlin J, at [66] per Siopis J; ConAgra Inc v McCain Foods (Aust) Pty Ltd [1992] FCA 159; (1992) 33 FCR 302 at 380-381; Bodum v DKSH Australia Pty Ltd [2011] FCAFC 98; (2011) 280 ALR 639 at [205].
[31]The question of what is the natural and ordinary meaning conveyed by a publication or conduct is to be ascertained by the Court applying an objective test of what ordinary or reasonable readers or consumers in the class would have understood as the meaning: Bodum v DKSH Australia Pty Ltd [2011] FCAFC 98; (2011) 280 ALR 639 at [203].
[32]It follows that where the alleged contravention of s 52 of the TPA involves the making of a representation to the public or a class of the public, it is necessary for the Court to consider what ordinary persons in the class to which the representation is made would understand by the representation, and whether a not insignificant number of such persons would have that understanding.
The ACCC submitted that the contextual approach requires consideration of any “hangover effect” caused by earlier representations: ACCC v Telstra (2007) 244 ALR 470 at [20].
Representations in advertising
Where representations are directed to members of the public at large, the representations must be judged by their effect on “ordinary” or “reasonable” members of the class: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; (2014) 317 ALR 73 (“Coles”) at [43], citing Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45 at 86-87, [105]. The ordinary or reasonable person likely to be affected by advertising directed to the public at large or sections of the public may be intelligent or not, may be well educated or not, will not likely undertake “an intellectualised process of analysis … and will be likely affected by an intuitive sense of attraction rather than by any process of analytical or logical choice”: Coles at [43].
In assessing advertising material, the ‘dominant message’ of the material will be of crucial importance: Coles at [42], citing TPG at [45]. Where advertising material uses simple phrases and words evoking attractive notions, but without necessarily precise meaning, ambiguity or reasonably available different meanings may well arise. If one or more of the reasonably available different meanings is misleading, the conduct may well be misleading or deceptive, or false and misleading: Coles at [47].
As stated by Lee J in Australian Competition and Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326; [2001] ATPR 41-840 at [15], “ ... it is often the case that the first impression will be the lasting impression”.
It is not necessary to prove the conduct in question has misled anyone. The question whether conduct is misleading or deceptive is to be assessed by reference to the reaction of the hypothetical representative member of the class to whom the representation is directed: .au Domain Administration Ltd v Domain Name Australia Pty Ltd (2004) 207 ALR 521 at [25] and [26].
Puffery
Whether a representation constitutes puffery or marketing exaggeration and, consequently, is not actionable turns on the particular facts considered in light of the ordinary incidents and character of commercial behaviour: Specsavers at [49], citing General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; (1993) 45 FCR 164 at 178 and Australian Competition and Consumer Commission v Henry Kaye and National Investment Institute Pty Ltd [2004] FCA 1363 (“Kaye”) at [122]. A claim will not be regarded as puffery if there is a definitive statement as to a characteristic or consequence of the claim: Specsavers at [49], citing Jainran Pty Ltd v Boyana [2008] NSWSC 468 (“Jainran”) at [117], Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2005] FCA 1647 at [25] and Procter & Gamble Australia Pty Ltd v Energizer Australia Pty Ltd [2011] FCA 1347 at [168]-[172].
By corollary, a characteristic often attributed to puffery is that it is “incapable of being proved to be correct or incorrect”: Pappas v Soulac Pty Ltd [1983] FCA 3; (1983) 50 ALR 231 at 238. In that case, a representation that a shopping centre was a good investment was found to be in the nature of puffery.
In Jainran at [117], Bryson AJ gave as examples of puffery statements such as “The greatest show on earth”, “the best car in its class on the market today”, “leading a new wave of talent” and “we’ve already been getting interest in this property”.
In Kaye, at [123], Kenny J held that representations to the effect that Mr Kaye could turn or make ordinary Australians into property millionaires by following his strategies; and that he would demonstrate this claim, were not puffery in the context in which they were made.
In Stuart Alexander and Co (Interstate) Pty Ltd v Blenders Pty Ltd (unreported, Lockhart J, 25 September 1981), Lockhart J said, in considering comparative television advertising for coffee:
I think a robust approach is called for when determining whether television commercials of this kind are false, misleading or deceptive. The public is accustomed to the puffing of products in advertising. Although the class of persons likely to see this commercial is wide, it is inappropriate to make distinctions that are too fine and precise.
Half-truths
Half-truths may be misleading by the insufficiency of information that permits a reasonably open but erroneous conclusion to be drawn: Coles at [46], citing Fraser v NRMA Holdings Ltd [1994] FCA 1397; (1994) 124 ALR 548 at 563 and Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc [1992] FCA 630; (1992) 38 FCR 1 at 50.
Even information that is literally true can be misleading or deceptive: National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 at [49].
In Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, at 467 the Full Federal Court stated:
Whilst s 52 does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members … where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership.
In Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342 at [388], White J stated:
The principles relevant to this part of ASIC's claim are settled. Many of the principles were discussed in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357, in particular, at [16]-[21] (French CJ and Kiefel J). I take the applicable principles to be as follows:
(1)Conduct involving silence or omission may, in some circumstances, constitute misleading or deceptive conduct;
(2)In considering whether conduct is misleading or deceptive, silence is to be assessed as a circumstance like any other;
(3)Mere silence without more is unlikely to constitute misleading or deceptive conduct. However, remaining silent will be misleading or deceptive if the circumstances are such as to give rise to a reasonable expectation that if some relevant fact does exist, it will be disclosed;
(4)A reasonable expectation that a fact, if it exists, will be disclosed will arise when either the law or equity imposes a duty of disclosure, but is not limited to those circumstances. It is not possible to be definitive of all the circumstances in which a reasonable expectation of disclosure may arise but they may include circumstances in which a statement conveying a halftruth only is made, circumstances in which the representor has undertaken a duty to advise, circumstances in which a representation with continuing effect, although correct at the time it was made, has subsequently become incorrect, and circumstances in which the representor has made an implied representation;
…
Misleading conduct as to the nature of services
In relation to the expression “liable to mislead the public” in s 34, there will be a sufficient approach to the public if first, the approach is general and at random and secondly, the number of people who are approached is sufficiently large: cf Trade Practices Commission v J & R Enterprises Pty Ltd (1991) 99 ALR 325 at 347-348, cited in Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2007) 168 FCR 46 at [207].
Accessorial liability
By s 224(1)(e) of the Australian Consumer Law, the Court may order the payment of a pecuniary penalty, if the Court is satisfied that a person “has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of”, relevantly, a provision of Part 3-1 of the Australian Consumer Law. Sections 29(1)(f), 29(1)(g), 34 and s 37 are provisions of Part 3-1.
A person will be regarded as sufficiently involved in a contravention to invoke this provision if the person intentionally participated in the contravention. Intentional participation requires actual, rather than constructive, knowledge of the essential matters that make up the contravention, and a level of involvement: cf Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 670 (Mason ACJ, Wilson, Deane and Dawson JJ), 676 (Brennan J); Giorgianniv The Queen [1985] HCA 29; (1985) 156 CLR 473 (“Giorgianni”) at 481-482 (Gibbs CJ), 494 (Mason J), 500 (Wilson, Deane and Dawson JJ); Gore v Australian Securities and Investments Commission [2017] FCAFC 13; (2017) 341 ALR 189 (“Gore”) at [6]-[16]. However, where there is a combination of suspicious circumstances and a failure to inquire, that may lead to an inference that the relevant person had actual knowledge of the essential matters that make up the contravention, which would be sufficient to attract s 224: cf. Giorgianni at 504-505 (Wilson, Deane and Dawson JJ), cited in Gore at [169].
In this case, Mr Otton was integrally involved in the activities of WBH, particularly as its main presenter at both free seminars and boot camps. Although at times Mr Otton sought to distance himself from some of the material published by WBH (and even some of the material in the book which he authored), there was no serious contest that he was responsible for all of the marketing material that was sent out by WBH. Mr Otton did not suggest that any particular person or persons employed or engaged by WBH acted outside the scope of his or her authority in publishing marketing material. Mr Otton suggested that he was not “in the boiler room”, but was “steering a ship”.
WBH’s marketing material included communications that purported to be from Mr Otton, such as a letter titled “Dear Friend” on the 2013 free seminars webpage, referred to below. In cross-examination, Mr Otton showed familiarity with WBH’s materials. For example, when questioned about a photograph of a home on the same webpage, under the words “Watch a Real Property Bought for $1 – Right Before Your Eyes”, Mr Otton did not hesitate to say that this was not a photograph of a property which had been bought for $1.
Mr Otton probably knew and approved the precise content of all of the materials published by WBH that are relied upon by the ACCC, and knew of and approved their publication. To the extent that he did not, Mr Otton knew and approved the substance of all of those materials. Mr Otton said that the proceeding had forced him to look more closely at the marketing material and, had he done so earlier, he would have said “Well, hang on. Let’s readdress that”. However, Mr Otton did not identify particular statements that he considered ought not to have been made and, in cross-examination, he defended the marketing materials about which he was questioned. In those circumstances, I am satisfied that he was both knowingly concerned in, and party to WBH’s publications relied upon by the ACCC.
Evidence
The parties tendered a brief statement of agreed facts.
The ACCC relied on evidence of nine consumers who had attended the respondents’ free seminars and boot camps, and who gave evidence of their attempts to utilise the strategies taught by the respondents, as the witnesses understood them.
The consumer witnesses were:
(1)Igor Jovanovic, a business executive and former real estate agent, who visited the website webpage purchased and read the book, attended a free seminar in October 2012, attended a boot camp held in Sydney in December 2012, and attempted to implement the techniques in Bass Hill, Quakers Hill, Homebush West, North Bondi, Eastlakes, Lake Haven, without success;
(2)Anh-Lan Nguyen, a tertiary-educated business consultant, who received a bundle of materials created by the respondents called the “Massive Passive Property Pack”, attended a free seminar, attended a boot camp held in Sydney in December 2012, and attempted to implement the techniques in various Sydney suburbs without success;
(3)Bevan Nel, a chartered accountant and businessman, who purchased and read the book, visited the website attended a free seminar in March-June 2013, attended a boot camp held in Sydney in August 2013, and attempted to implement the techniques in Quakers Hill and Cessnock without success;
(4)Emmanuel Elturk, a personal trainer, who visited the website and attended a free seminar in August 2013;
(5)Nadia Panizzutti, a change management specialist, who visited the website purchased and read the book, attended a free seminar in Sydney on 27 October 2013, and attended a boot camp held in Sydney in December 2013;
(6)Linda Sereni, an executive assistant, who attended a free seminar in Sydney on 27 October 2013, and attended a boot camp held in Sydney in December 2013;
(7)Geoffrey Mackenzie, a Senior Constable in the NSW Police Force, who attended a free seminar in Sydney on 27 October 2013 where he received a copy of the book, which he read sometime in 2014;
(8)Adele Austin, an Australian Federal Police officer, attended a free seminar in Sydney on 27 October 2013; and
(9)Peter Ronhave, a tertiary-educated business consultant, who purchased and read the Book, visited the website attended a free seminar in February 2014, attended a boot camp held in Sydney in April 2014.
In addition, the ACCC relied on evidence of two ACCC officers who investigated the respondents’ activities and officers of other regulators including three New South Wales Fair Trading officers and one Western Australian Department of Commerce officer.
In addition to evidence given by Mr Otton, the respondents adduced evidence from Peter Donkin, a chartered accountant who had been providing accountancy services to Mr Otton and WBH since March 2007, and a former student of the respondents, Karin Siekaup.
The respondents also tendered a bundle of documents, largely transcripts, recording claims made by former students at presentations made by the respondents. They were tendered as evidence that the respondents had received those “testimonials” from persons identified as James, Sheree, Mark, an unidentified person, Sirah, Simone Toohey, TC, Mark, Brett Mudie and Graham Wilson.
Mr Otton’s evidence
Mr Otton swore affidavits on 14 December 2015, 16 February 2016, 24 August 2016 and 25 August 2016.
The December 2015 affidavit contained a lengthy description of Mr Otton’s background and experience in the United States, engaging in property deals, including deals involving vendor finance. Mr Otton’s evidence was that he started buying properties in the western suburbs of Sydney in 2000. In August 2002, Mr Otton conducted his first “training boot camp” at the Hydro Majestic Hotel in the Blue Mountains outside Sydney.
In 2003, Mr Otton started the Vendor Finance Association in Australia. He was the founding president and remained president until 2009.
In the December 2015 affidavit Mr Otton gave the following sworn evidence:
[61]Through the years, I have poured most of my time and energy into going the extra mile for our sellers, buyers and our students because I care what happens to them. I think it is important to educate and empower them to know there are many ways to invest in property.
[62]It has always been important to me that I make a difference in people’s lives and that I conduct myself personally and professionally in a law abiding and ethical manner. It has never been my intent to mislead or deceive and do not believe I ever have.
The December 2015 affidavit also contains an explanation of the circumstances in which Mr Otton “decided to move on from the business and management of small property transactions and use that time to invest in the educational side of the business”.
The February 2016 affidavit contains evidence about two property transactions (“48 Ceres” and “9 Chardonnay”). In relation to the first, Mr Otton gives an explanation for why he incurred a capital loss. In relation to the second, Mr Otton describes some elements of an apparently loss making transaction and annexes a letter from Mr Donkin dated 16 October 2014 which lists the loss on that transaction as $62,421. Mr Otton asserts that the price for which the relevant property was sold “allowed the mortgage loan WBH had with National Australia Bank to be paid off.” The settlement adjustment sheet for the sale of the property shows that the whole of the amount due on settlement ($248,953.12) was paid to the bank, and an amount of $99.50 for a discharge of mortgage. The respondents did not suggest that either of these transactions provided a basis for any of the System and Strategies Representations.
The 24 August 2016 affidavit purports to give examples of the application by Mr Otton of various of the strategies. The limits of that evidence are explained later in these reasons. The 25 August 2016 affidavit corrects the evidence in the 24 August 2016 affidavit concerning a property at Railway Road, Quakers Hill.
The cross-examination of Mr Otton quickly demonstrated the paucity of the bases upon which Mr Otton was prepared to make extravagant claims to promote his business activities without any substantial basis. For example, Mr Otton was taken to the following claim on a webpage of NEW EVENT: If you’ve ever wanted to know how to build a passive income stream so you can retire early or quit work forever, this is the most important message you will ever read…
When asked how many people he knew had retired early or quit work forever, using Mr Otton’s strategies, Mr Otton said “Only the people who have informed me that they had done that.” It was a theme of Mr Otton’s evidence that he relied upon other people informing him of their claimed successes. That answer strongly suggested that Mr Otton did not verify the claims made by others before relying upon them to promote his own interest. There was no evidence that Mr Otton attempted to verify any claims upon which he relied.
Mr Otton was also taken to the following statement, on the same webpage:
All I ask is that you’re willing to “think outside the box” while I’ll share with you the same strategies I use to buy properties for $1 and create cash flow income – without ever stepping inside a bank or saving thousands for a deposit.
As appears below, there was no evidence that either of the respondents had bought a property since October 2006. Mr Otton disagreed with the proposition that people coming to his seminars would gain great comfort in knowing that the person who was tutoring them was himself presently engaged in the implementation of the strategies. In my view, that answer was discreditable. The obvious purpose of the statement was to give that comfort.
Mr Otton was shown the following statement in large font on the inside front cover of the book:
Discover how Rick bought a property for $1 in 3.5 minutes, turning it into $801 monthly positive cashflow.
Mr Otton said that he did not buy a property in 3.5 minutes and he did not know what the statement referred to. When asked to acknowledge that the statement was false, Mr Otton answered:
Sir, one of the forms that people sign is a Power of Attorney or a transfer deed. Once the person signs the transfer deed, although that transfer deed is not registered, the fact that they sign it and I sign means I have actually bought the property, sir.
Thus, Mr Otton was not prepared to acknowledge the falsity of the statement in his own book, preferring to give an answer that was frankly nonsense in the context of the question. When further questioned about the statement and asked whether it might just have been made up, Mr Otton answered:
My staff have written this and it would have been, I’m guessing, to something they saw me do. I can’t be – I can’t be specific. I can understand how it could be 345 dot minutes. And we will go through the forms on that; how it could be 3.5 minutes. Which property it is in that … I cannot give you any reference.
The respondents did not produce any evidence to support the statement. In the absence of such evidence, I conclude that the statement was false. It was to Mr Otton’s discredit that he sought to distance himself from the statement by saying that it was written by his staff, when he is the author of the book. It is also to his discredit that he suggested that the statement might have a factual basis when he had no reason to believe that.
When asked to identify a single property that he had purchased in Australia without a deposit or a bank loan, Mr Otton responded confidently by naming a property at Quaker’s Rd, Marayong and added: “That was where I didn’t put any money into that property whatsoever.”
He also referred to a property at Aloe Street, Quaker’s Hill, adding: “I put no money into that property whatsoever.”
When Mr White SC pointed out that the Marayong property was purchased using a loan facility from the National Australia Bank, Mr Otton feigned surprise that he had been asked to identify a purchase without a bank loan, and identified a property at Deception Bay. The Deception Bay transaction is discussed below.
A little later, when asked to identify a property that Mr Otton bought using little or none of his own money, Mr Otton again referred to the property at Quaker’s Rd, Marayong. Mr Otton accepted that the property was purchased with vendor finance of $50,000 at 6.5 per cent interest and volunteered that “it was $200,000 that the NAB put for that house.” Mr Otton maintained that this was an example of buying a house without using his own money, saying “if it’s bank money it’s not our money”. Mr Otton said that the point that he was making was that “you don’t need a lot of cash to get into property”.
When asked to agreed that he needed cash to service the loans, Mr Otton said:
No, because depending on what your exit strategy is for the property. If you’re going to buy this house for yourself you would probably need ongoing cash each month. But if you’re doing what I was doing with the properties then I didn’t.
However, as appears below, even on Mr Otton’s evidence, he was required to make monthly loan repayments in connection with the Quaker’s Rd, Marayong property for 59 months.
This evidence demonstrated that Mr Otton was either deliberately dissembling in his evidence to the court, or he was impervious to the fact that his claim that the Quaker’s Rd, Marayong property was purchased with little or none of his own money was not true.
Ultimately, Mr Otton accepted that, when he said that he purchased over 300 properties using little or none of his own money, he did not mean to suggest that he didn’t borrow money from a bank. He accepted that, in every case, he either borrowed money from a bank or from someone else.
Somewhat to his credit, Mr Otton conceded that there was a conflict between the book’s explanation of the meaning of the word “buy” as “own” (discussed below), and the marketing. However, he then maintained that he “used strategies to own houses where I’ve put no money in it”. Based on his concession that he borrowed money on every occasion, I understood Mr Otton to intend to say no more than that he paid no money towards the purchase of the properties up until the date of settlement of the purchase, and that the money he paid at settlement was all borrowed from a bank or someone else. Based on this understanding, the claim that Mr Otton used strategies to own houses where he put no money in it was not true.
I formed the view that Mr Otton was a very unreliable witness who was prepared to maintain or defend statements that were obviously untrue or misleading and who is habitually careless with the truth in making statements and claims designed to promote the respondents’ business interests. I do not accept his evidence except to the extent that it was against the respondents’ interest, or is corroborated by contemporaneous records.
Assessment of evidence of Mr Donkin and Ms Siekaup
As explained below, I formed a negative view of Ms Siekaup’s evidence.
Mr Donkin was a generally straightforward witness. I did not understand the ACCC to make any significant criticism of Mr Donkin’s credit. Equally, I did not understand the respondents to place significant reliance on this evidence in their defence.
Respondents’ submissions about boot camp evidence
In a written submission dated 5 September 2016, the respondents argued that it should be able to rely on evidence tendered by the ACCC about what was said at boot camps by the respondents’ former students as evidence of the use of the strategies taught by Mr Otton.
In support of this argument, the respondents noted that the relevant evidence was not admitted for a limited purpose. However, in Heydon JD, Cross on Evidence (10th ed, LexisNexis Butterworths, 2015) at [1655], Mr Heydon QC states that if evidence, admitted without objection, is legally admissible in proof of some issue in the case, its evidentiary use should be confined to that purpose. In this case, the relevant issue is what was said at boot camps and not the truthfulness or accuracy of what was said.
The decision of Walker v Walker (1937) 57 CLR 630, cited by the respondents and described by Mr Heydon QC as “enigmatic” at [1665], has no relevant application. As the respondents’ submissions recognise, Walker concerns the consequences of a party calling for a document and inspecting it. Similarly, Robert Bax & Associates v Cavenham Pty Ltd [2012] QCA 177; [2013] 1 Qd R 476 concerned a case where the relevant evidence was inadmissible but admitted without objection. That is not this case: the evidence was admissible as proof of what was said at boot camps.
The respondents referred to the principle that the tender of a statement may amount to a waiver by the tendering party of the application of the hearsay rule to that statement but noted the following qualification, stated by McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 at 170:
The tender of a statement may amount to a waiver by the tendering party of the application of the hearsay rule to that statement, and the absence of objection to the tender may amount to such a waiver by the party against whom the tender is made, but only in my view where such a waiver on each side can reasonably be inferred from the circumstances, and this will occur only where there is no other apparent explanation of the tender and the absence of objection.
Here, the explanation of the tender is the need to prove what was said at the boot camps.
Accordingly, in my view, the evidence of the boot camps may only be used to prove what was said at the boot camps, and may not be used as evidence of the truthfulness of what was said by Mr Otton’s former students.
The respondents also sought to tender a second bundle of emails purporting to be testimonials. That material is inadmissible hearsay to the extent that it is tendered as proof of the facts asserted. I will admit the bundle as evidence of communications received by the respondents from individuals claiming to have engaged in property transactions using various of the techniques.
Findings
The respondents’ techniques (or strategies)
The respondents taught techniques for dealing in real property to which they gave the names “rent to buy”, “sandwich lease option”, “deposit builder”, “handyman special” or “sweat equity”, “vendor finance” or “purchase by instalments”, and “some now, some later”. The following descriptions of the techniques were not in dispute:
(1)“rent to buy”:
(a)the seller enters into an option agreement with the buyer, granting the buyer the right to buy the house at a future date for an agreed price; and
(b)until completion, the buyer occupies the house pursuant to a residential tenancy agreement and pays rent and non-refundable ongoing option fees;
(2)“sandwich lease option”:
(a)a “middleman” enters into an assumptive (purchase) option and residential tenancy agreement with the owner;
(b)the middleman then enters into a sale option and sub-lease of the residential tenancy agreement with the buyer; and
(c)the middleman keeps the difference between (i) what is received from the buyer in upfront and ongoing option fees and rent and (ii) the fees and rent payable to the owner under the option and residential tenancy agreement;
(3)“deposit builder”: the buyer pays the deposit on a contract for sale by instalments and is permitted to occupy the property subject to payment of a licence fee;
(4)“handyman special” or “sweat equity”: the buyer is permitted to carry out non-structural renovations within a specified period in lieu of paying a deposit to purchase the property such that the buyer is credited with the agreed value of the renovations against the deposit;
(5)“vendor finance” or “purchase by instalments”: the buyer pays the purchase price of the property in instalments and the seller charges interest on those instalments; and
(6)“some now, some later”: the buyer funds part of the purchase price with a bank loan and the remainder of the purchase price is delayed and paid by the buyer in instalments.
Mr Otton’s evidence was that the “rent to buy” and “sandwich lease option” are effectively the same strategies, although there is a difference “in implementation”. The strategies are similar in that they require the seller to accept an option to purchase the property and to grant a lease over the property. In the case of “rent to buy”, the optionee is the tenant; in the case of the “sandwich lease option”, the optionee of the second option is the tenant.
As explained below, the evidence of the successful application of these techniques in relation particular properties was minimal.
For each technique, the ACCC referred to a model of the technique provided to one or more of the consumer witnesses, at a boot camp. The ACCC relied upon the models, described as “answer sheets”, to illustrate how consumers were misled about the viability of the techniques.
“Rent-to-buy”
Technique
Chapter 18 of the book refers to this technique as “rent-to-own”. Page 172 describes the strategy as follows:
[W]hen a buyer purchases a property on a lease option, it’s for an agreed-upon price up-front. The buyer makes a monthly payment for a specified period of time and has the option, but not the obligation, to purchase the property – either during or at the end of the lease option period.
As described in this passage, if implemented to the point of exercise of the option, this technique enables a consumer to buy a house.
Model of technique
A sheet headed “Lease Option Answer Sheet”, which appears to have been provided to Ms Panizzutti at the boot camp she attended, models a transaction of which the “rent-to-buy” technique is a component, the other component being a property acquisition using a cash deposit and a bank finance loan. It explains how a boot camper who has purchased a property might sell it using the “rent-to-buy” technique.
The answer sheet commences with purchasing details for a hypothetical property at a “discounted purchase price” of $360,000 which include payment of a deposit of 20% of the discounted purchase price ($72,000) and a bank loan for 80% of the discounted purchase price ($288,000), with an interest rate of 6% and a term of 30 years. The monthly repayment for the mortgage is said to be $1,726.71. Thus, the total required to service the loan over the assumed option period of 24 months is $41,441.04.
The answer sheet then explains a transaction in which the boot camper might sell the property on a 24 month lease option, that is, to a third party buyer who would acquire the property using the “rent-to-buy” technique. The model assumes that the boot camper will be able to negotiate an option with a prospective purchaser who will agree on an option fee of $15,000, a price in the option of $440,000, and to lease the property for of $2,166.67 per month for the duration of the option. If the option is exercised, the prospective purchaser would pay a sum of $417,999.92, being the option price less the option fee and a “price credit” of $7,000.08. The price credit is an amount calculated by reference to a hypothetical deposit on the option price of $440,000.
Under the heading “We get paid three ways”, the answer sheet identifies payments that would be received by the boot camper from the buyer comprising “Upfront money” (the upfront option fee of $15,000), “Monthly Cash Flow” (the difference between the rent paid by the buyer and the mortgage payments made by the boot camper) and “Back End” (the amount owed by the buyer after 24 months less the amount borrowed by the boot camper from the bank).
The model assumes that the boot camper can obtain a “discounted purchase price”, can pay the $72,000 deposit for the property, and can obtain a bank loan of $288,000 to complete the purchase. It assumes that the boot camper has other accommodation, because the relevant property will be occupied by the buyer. It also assumes that there will be no delay between the boot camper’s purchase of the property for $360,000 and the entry into the option with the prospective buyer for the eventual sale of the property for $440,000 (that is, it assumes that there will be a simultaneous purchase and an entry into an option for sale for a substantially different price). It also assumes that the boot camper will invest $72,000 (the 20% deposit) and borrow $288,000 in order to achieve these benefits. In cross-examination, Mr Otton accepted that the model did not work. He appeared to say that the figures were chosen because they were simple to digest.
“Sandwich lease option”
This is the technique that, according to the book, enables a consumer to “buy a house for a dollar”.
The technique is described on pages 183-184 of the book as follows:
[Y]ou become the ‘Transaction Engineer’ and buy a property as an investor on a lease option, then you onsell the property to an end buyer on another lease option at a slightly higher price. And you make sure that you’re receiving more money than you’re paying so the transaction generates cash flow each month.
The sale price is agreed at the start of the transaction, and you effectively sublet the property to the buyer at a higher price than you’re paying the seller. This way you get to profit from the sale of the property without ever officially owning it.
…
Many times when we babysit sellers’ loans we do it by using a rent-to-own paperwork system where the option to buy is simply the outstanding balance of the seller’s loan at the time we wish to exercise the option to buy.
For example, if I babysit a seller’s loan of $500,000 payable at a rate of 7% interest over 30 years, whatever the balance of the loan is when I decide to buy is the option price I pay.
Using this technique, Mr Otton claims that he could consider himself the “temporary owner” of the property:
[I]f I get the house on a lease option and I get my powers of attorney and I get my transfer signed, I believe – and I’m happy if [I’ve] totally read the Act wrong – that I’m now the owner of that property.
In cross-examination, it emerged that Mr Otton was relying on s 43A of the Real Property Act 1900 (NSW) to support his notion of “temporary ownership”. Section 43A provides:
43AProtection as to notice of person contracting or dealing in respect of land under this Act before registration
(1)For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate.
(2)No person contracting or dealing in respect of an estate or interest in land under the provisions of this Act shall be affected by notice of any instrument, fact, or thing merely by omission to search in a register not kept under this Act.
(3)Registration under Division 1 of Part 23 of the Conveyancing Act 1919 shall not of itself affect the rights of any person contracting or dealing in respect of estates or interests in land under the provisions of this Act.
(4)Nothing in subsection (2) or (3) operates to defeat any claim based on a subsisting interest, within the meaning of Part 4A, affecting land comprised in a qualified folio of the Register.
In cross-examination, Mr Otton accepted that there is a clear distinction between the buyer and the “transaction engineer” in the book’s description of this technique. Mr Otton said: “As a transaction engineer you don’t become the owner”.
Model of technique
Further, in making the representations that Mr Otton himself had been successful financially in using the strategies, the respondents engaged in conduct, in trade or commerce in connection with the supply or possible supply of services, or in connection with the promotion of the supply or use of services, that was misleading or deceptive or was likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law.
Sections 29(1)(f)
In publishing the testimonials referred to at [399] above, WBH and Mr Otton contravened s 29(1)(f) of the Australian Consumer Law.
Section 29(1)(g)
The System and Strategies Representations were false or misleading for the reasons set out above. As representations about what could be achieved by following or implementing the techniques promoted by the respondents, the System and Strategies Representations were directed to the techniques promoted at the boot camps and the Go Direct programs. In the various contexts in which they were made, the System and Strategies Representations entailed the further representation that WBH and Mr Otton services were useful and beneficial because they taught consumers the techniques. The uses or benefits of the services were that they equipped consumers with skills and information to apply the techniques to achieve the outcomes identified in the representations.
Accordingly, by making the System and Strategies Representations, the respondents also contravened s 29(1)(g). To the extent that the representations were made by WBH and not Mr Otton, Mr Otton was knowingly concerned in and party to the making of the representations.
Section 34
Similarly, the System and Strategies Representations, to the extent that they were made in the book and on the webpages, were liable to mislead the public. I am not satisfied that the representations made in other contexts were addressed to the public in the relevant sense.
The System and Strategies Representations entailed representations as to the characteristics or suitability for purpose of the services provided by WBH, in that they entailed the further representation that WBH and Mr Otton services taught consumers the techniques, which could be used to achieve the outcomes identified in the representations.
However, on the evidence set out above, for ordinary consumers seeking how to achieve the outcomes stated in the System and Strategies Representations, the free seminars were a waste of time. For those ordinary consumers, the boot camps and the Go Direct programs were an expensive waste of time. There is no reasonable basis for thinking that the techniques taught by WBH and Mr Otton can be used to achieve any of the outcomes identified in the System and Strategies Representations.
Accordingly, by making the System and Strategies Representations in the book and on the webpages, WBH and Mr Otton also contravened s 34.
Section 37
The System and Strategies Representations were each false or misleading in a material particular, being, in each case, the outcome that could be achieved by following or implementing the techniques promoted by Mr Otton.
The business activity to which the System and Strategies Representations were directed was buying and selling houses. The System and Strategies Representations each concerned the financial viability of that business activity which is a material aspect of the business activity.
The passage set out at 321 above includes a representation that the business activity to which the System and Strategies Representations were directed is one that can be, or can be to a considerable extent, carried on at or from a person's place of residence.
Accordingly, I am satisfied that the respondents contravened s 37 by making the System and Strategies Representations in the book.
Conclusion
I will direct the applicants to file and serve draft orders contended for to give effect to these reasons, and the proceeding will be listed for the making of orders to give effect to these reasons.
I certify that the preceding five hundred and twenty-one (521) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate:
Dated: 11 August 2017
APPENDIX 1
Statements made on 2013 free seminars webpage, (annexure 1 to statement of claim)
1
I’ll Show You How To Buy A House for $1 And Generate Positive Cash Flow From Day One … Event [sic] If You have No Deposit, No Bank Loan And No Real Estate Experience
2
You can live the lifestyle you want ... retire early or quit your job and make tens of thousands of passive dollars a month (no matter what financial situation you are currently in) ...
3
What if you could buy a house for $1 – without a bank loan, a deposit, a mortgage, and without any previous real estate investing experience?
4
What if you could turn your $1 investment into a monthly cash flow income to supplement or even replace your current income? What if you could do this as many times as you like?
5
Imagine... owning 5 properties, with each one returning you $350 a month positive cash flow. Or 15 properties returning you $5,250 a month POSITIVE cash flow. Or 20 properties giving you $10,500 a month in POSITIVE income ...
6
In the last 22 years I’ve purchased over 300 properties in Australia and the USA- using little or none of my own money ...
7
All I ask is that you’re willing to “think outside the box” while I’ll share with you the same strategies I use to buy properties for $1 and create cash flow income – without ever stepping inside a bank or saving thousands of dollars for a deposit ...
8
And now I’m on a mission to help 10,000 Australian’s [sic] buy a property for $1 – WITHOUT a bank, a huge deposit, or going into debt ...
9
Here’s A Sneak-Peek Of What You’ll Discover At The “How To Buy A House For $1” Event:
10
How to buy almost any property for $1 – no deposit needed, no bank needed
11
The simple, 100 year old plus secret ... which allows you to buy as many houses as you want using little of your own money and make positive cash flow from the beginning.
12
5 Strategies to create Positive Cash Flow Properties – including the ‘Try Before You Buy System’, the 10/10 Buy Down and Rick’s famous ‘Handy Man’ special.
13
It doesn’t matter if you have a little or a lot of property experience, just bring an open mind and I promise to show you proof how you can make positive cash flow in today’s market.”
14
We Made $80,000 Without A Bank Loan!
We bought a property without a bank loan, we made $10,000 up-front deposit, $800 per month positive cash flow and our backend profit is $70,000.
S & M Donaldson,
Small Business Owners Queensland
15
Watch A Real Property Bought For $1 – Right Before Your Eyes!
[Picture of a house and a $1 coin]
This will be one of the most exciting parts of the event. You’ll see a video of me on the phone purchasing a property for $1 in a real-life transaction.
Once you see this transaction done, right before your eyes, you’ll realize just how easy buying houses for $1 really is – and you’ll believe YOU can do this too!
16
What’s stopping you from creating wealth right now? Can’t get bank financing? No deposit? Bad credit rating? Negative gearing gobbling up your cash flow? Your mortgage is worth more than the house? Or are you are [sic] complete beginner to investing?
17
Whatever your challenge is, bring it along to How To Buy A House For $1 event.
18
Through trial-and-error I developed my no-money-down strategy for buying houses – without a bank.
19
In the next 12 months, I used this innovative strategy to purchase 76 properties without a bank or a deposit. Since then, I’ve literally bought hundreds of properties in Australia, New Zealand, United Kingdom and USA.
20
Since 2001, I have taught nationally and internationally over 35,000 students how to buy and sell property without a bank and using little or none of your own money.
21
$740,000 In Less Than A Year!
We bought our first house for $50 and we’ve got $30,000 in the deal. We’re getting $70 a week cash flow out of it and it will settle in 18 months.
22
While some people shake them off as “impossible” my students are out there using these strategies to generate thousands of dollars a month in passive income deals!
23
Inside this ground-breaking book you’ll discover ...
How you can buy property for just $1, with NO deposit and NO bank loan
How to turn a negatively geared property into positive cash flow
24
In this video you’ll get to hear my students walk you through real no-money down property deals they have put together. You’ll hear some students explain how they purchased houses for $1. Others will share the exact steps they took to create passive income streams.
25
Who Should Attend This Free Event?
If you own a negatively geared property that’s eating up your income and restricting your lifestyle ... you’ll learn how to turn your negative property into positive cash!
26
If you can’t get bank financing due to self-employment, bad credit rating, or the banks overly strict lending criteria ... you ‘ll discover how to buy property without a bank!
27
If you don’t have any money for a deposit ... you’ll learn strategies for buying quality houses using little or none of your own money.
28
If you’re sick of renting and want to own your own home ... then you’ll learn how to buy your first property without a bank, finance or stamp duty
29
If you desireto [sic] create passive income streams through property, and want to quit your job so you can enjoy more time with your loved ones, then you’ll definitely want to learn the income generating strategies shared at this event!
30
Learn the same no-money-down strategies my students and I use to buy property and create positive cash flow.
31
During the event you discover 5 proven methods for buying property WITHOUT a bank, a loan or a deposit. You’ll learnhow [sic] to structure property transactions to generate positive cash flow from day one.
32
You may even use my proven strategies and buy one ... two ... three properties for $1 and create several cash flow incomes for yourself. You could even replace your income, quit your job and start enjoying more holidays with your family.
33
In this 60 minutes video present I explain my “no money down cash flow system” in full and even walk you through several property transactions where I created profit upfront, cash flow from day one, and back end profit too.
34
If you are open minded, then I’d love to show you the no-money-down strategies my students and I regularly use to buy property without a bank, a deposit or even paying stamp duty.
APPENDIX 2
Seven statements made on the 2014 free seminars webpage
1
About 20 years ago, I discovered a remarkable property investment system that allowed me to purchase 76 properties in 12 months without bank finance and in a FALLING MARKET… Since then my students and I have used this technique to PROFIT throughout rising, falling and BOOMING markets.
2
With This System My Students Are Able To:
Ÿ Make positive cashflow from day 1 with any house
Ÿ Build property portfolios without their own money invested and without new bank loans
3
Turn Your Negatively Geared Property into a Positively-Geared One (or at least cash flow neutral – in fact, I’ll show you actual figures and examples)
4
The A to Z of Basic No Money Down … Which Will Have You Owning 1-5 Homes … Then My Supercharged Advanced Secrets Which Will Take You From 5 Homes to 50
5
Brand New-How To Create Cashflow With No Loan Liability! (That’s right-you don’t need to qualify for a bank loan or have much money to put down towards purchase)
6
My Students and I are out there, in the market, Generating Thousands of Dollars a Month in Passive Income Right Now!
7
I will be sharing many of my deals and case studies and working through some of your property problems at the event. You’ll see a video of me on the phone purchasing a property for $1 in a real-life transaction. I’ll be there to explain the whole process step-by-step on how you too can buy houses WITHOUT new bank loans or needing large deposits.
APPENDIX 3
Mr Otton’s claims on compact disc entitled “How to Turn Negative Gearing to Positive Cash Flow! (Part of Power Property Profits Pack)
1
How are you its Rick Otton speaking and tonight’s going to be an absolutely fantastic – how to buy a house for a dollar. We are going to have some exciting examples tonight, I’ve got one of my students Greg that’s come on with me, we’re actually going to talk to you about how we bought some houses without getting a bank loan, how we were able to profit from those houses and I think you’ll find it very, very exciting as I think it represents the future of the way people are buying and selling houses now right across the world.
2
My goal is to have 10,000 students who have actually transacted their first house transaction without using a whole lot of their hard earned cash and without having to go and get a bank loan.
3
I would like to show you a few ways to lock in those profits so you aren’t going to be affected by a falling market and also for investors who want to buy more properties but the banking system has been saying “no” and they’re not lending you any more money. I would like to introduce you to a couple of systems that will move you around that, so you can continue to buy properties, especially for developers who might want to sell properties quickly being stuck with them on the plan, can’t get rid of them and buyers, buyers if you’re short a deposit, you want to get your first property well you can’t get a bank loan, maybe you have an issue with your credit. I would like to show you some systems that will have you moving forward – so basically anybody who wants to get in the property market and cannot get a bank loan today and does not have a large deposit this will be great as I will show you some systems that will move you into your first property today .
4
I think that’s a shame so I say this to you because if financial freedom is what property is all about I would like to show you some other systems and processes to get the financial freedom out of real estate...
5
I had to create systems and processes to buy and sell house no money ...
6
I am always trying to find new ways and systems on how to buy houses with no money recognising that it is the benefit that I want not necessarily the house but the benefit that comes from the house.
7
I started teaching this some years ago and I like the sellers to look after my stamp duty for me, my legal expenses, all my expenses of getting into the property I just write that into the paperwork, it means there is less cash has to come out of my pocket to get a piece of property.
8
Again, I am just not big on using cash, I like to hold that off and it lets me get in the houses very, very cheaply.
9
I am just going to apply a system to something we already know that just massively increases the cash flow yield from something we are already familiar with today.
10
Luna Park will reap millions for a classic example when they sold Luna Park the same way for a dollar – State Government. ABC Learning Centres if you remember there were 29 learning centres – as long as you are prepared to pick up the loans that were attached to the learning centres just continue the loans on each one was there for a token of $1 each you could just pick up an ABC Learning Centre for $1 – no point having to go and get any more new financing, just continue on the loan that’s already there.
Here we go Darlinghurst Dunny sold for $1 the same thing just recently happened in Sydney. The Council sold this laneway to the resident for $1.
11
Here’s my point – just suppose I picked up the next house for $1 – I’m making the payments on someone else’s loan. If I made it easy enough to buy that house from me and I let someone else come in and buy the house from me and I could move in on Saturday with no bank loan, with no stamp duty, three pieces of paper, see the solicitor, move in Saturday would they see a value statement that therefore they’ve paid for the convenience and this is where we’re taking you today.
12
I simply have to say to the seller – sir how fast would you like that house to disappear and they will say straight away and I will say “Mr Buyer let me ask you something – if you could buy this house with no bank loan, no deposit, just start making the payments give me some up front money to get started how fast would you like to become a home owner with three pieces of paper?” they would say “straight away”.
13
...why because they simply make it easier for people to take ownership of the property, now solving real life problems buying a house without a bank loan, creating stepping stones to help everyday people realise their dreams of home ownership, this is, people love the fact that you can come in now and use these tool sets to buy a house without a bank loan and you get in and start making payments you can always transfer out to a bank later on if you want to – for those who have properties they can get their negative gear into positive cash flow – wow just have the next tenant – a buying tenant or a future home owner and that goes from negative to positive overnight, creates a positive passive income that’s just electronically comes in their account, makes real estate just an exciting business because it starts making money every day.
14
Greg: Whereas before it was finite I could only get so many loans and then I couldn’t do any more and it was burning a hole in my pocket where with this I can just keep adding, adding, adding properties and they’re positive cash flow and I can keep doing it infinitely.
15
Mr Otton: David has asked the question you know you have no holding costs but what about servicing the loan that you have taken over?
Greg: That’s a great question. What happens as a rent to own I make sure that the person coming in the rent to own amount covers or more than covers the outgoings that I have. So I know what the outgoings are, I get the authority from those pieces of paper to know what those outgoings are from his bank and council, water and everything else. So I know before I do anything else what it needs to be. Always make sure there is more coming in than what is going out.
16
Greg: Actually I very, very rarely get even asked what the price is I’ve found, some do but mostly the opportunity that they see they just jump at it and it’s often when you’re doing the paperwork that they go oh look at that price, so I get the price I want because it is the opportunity that they see coming in that they grab hold of.
Mr Otton: Right and generate a passive monthly income, I always think that is great, let’s everybody sleep better at night when money is coming into your bank account, not going out.
APPENDIX 4
Mr Otton’s claims on DVD, titled “The Proven Way to Build a Property Portfolio”
Let me tell you a story about what happened to me recently. An agent called and said:
Audience: Rick, would you be interested in this?
Mr Otton: What have you got?
Audience: I’ve got a house where the guy owes more money on it than what the house is worth and as a result we can’t sell it.
Mr Otton: Do you get many houses like that?
Audience: We get quite a few, where people have too much debt. We call it negative equity and they simply can’t sell the houses.
Mr Otton: What have you got?
Audience: I’ve got a man with a house that’s worth $460K. The problem is his debt bit is about $465K.
Mr Otton: How long have you had it in the market for?
Audience: About 8 months.
Mr Otton: Is it any possibility that you and the seller get together with me and we’ll see what we can work out?
So we all got to the seller’s office and I said to the seller, how much debt is on your house right now? He told me this much [points to a figure of $465,000 on the screen]. And I said okay, what’s the payment on that every single month? He told me that much [points to a figure of $2,787 on the screen]. And I said in a perfect world would you rather the next cheque come out of your cheque book or my cheque book and he said “well your cheque book of course!” And I said, how many more of the future payment would you like to see come out of my cheque book? And he said “all of them!” I said how many left? He said 22 years. I said consider it done. He was excited.
So right now I’ve picked up that house, no bank loan, simply baby-sitting the seller’s loan that’s there right now. I put a little ad in the paper and I said “who would like to own a three bedroom brick house no bank qualifier no bank loan required?” A whole bunch of people called me up. A man came in and said to me “how much is the house?” I said “$465,000”. He said “how much is it a month?” I told him it was this much [points to a figure of $3,588 on the screen].
Now he said to me “Wow! I’ve done my calculations [“$3,588 calculated at 8% over 25 years” appears on the screen] and if I only have to pay that much a month, it’s pretty close to what I’d have to pay to a bank if I can get a bank loan and I can’t get a bank loan because I’m self-employed . And I said, why don’t you do this! Why don’t you simply pay me for a period of time and down the road you can sell a house for a profit or maybe you can refinance and re mortgage as your situation changes. He said “fantastic!”
So he came in paying me this much every month [points to a figure of $3,588 on the screen]. But bearing in mind that out of my account I only had that much [points to figure of $2, 787 which appears on the screen] going out because I was baby-sitting the seller’s loan.
Here’s the thing, positive cash flow I was making every single month [points to figure that appears in large font on the screen $801] this much!
Now here’s the thing how many bank loans did I have to get? And how much of my cash did I put in it?
APPENDIX 5
Extracts from transcript of 2014 Hurlstone Park Boot Camp
Page ref
1
9/28
You’re spending three days with me to learn how to buy [a] house for $1
2
13/2
If someone says to me, “You can’t buy a house for $1.” “Yes you can.”
3
16/16
Came back to Australia in 2000. People said, “What did you do today?” “Bought a house for $1.”
4
60/22
“Sir, if I did it today, would you sell me a house for what you owe on it?” A lot of people say yes, and that’s a house for a dollar. We’ll talk about that bit later.
5
129/21
When we get into tomorrow’s strategies, they’re phenomenally profitable, but there’s two things you must understand you get from sellers: a massive discount in price, in which case they’ll want the cheque; or they’re going to give you incredible terms and 30 years to pay off their house, but they’re going to want closer to retail. Does that make sense? They’re not going to give you incredible terms plus the incredible price.
6
299/5
AUDIENCE MEMBER: You can turn a negatively-geared property into positively geared quickly.
MR RICK OTTON: Correct. You can go from money coming out of your pocket to money coming in, and you can always tell someone who’s turned it around using this strategy, because when you go down George Street in the city they walk towards you smiling . Okay.
7
305/18
These days, these strategies are becoming so popular that it should be a $10,000 minimum. You’re going to find so many people want these now, that–if you’d asked me a few years ago when they weren’t that well known, you might take you know, $8,000 grand or $7,000 grand, but really, if you said, “Look , it’s first $10,000 grand gets it...”
8
337/22
I’m about to show you a transaction later on today that will make me over a million dollars on Coogee. Never seen it, never met anybody, right? It’s just automate the process. Just understand that when you get the network or people that know what you do, they–you just give the instructions for people to do it, they do, they do it. Does that make sense?
9
375/28
And, “I’ll show you how to make money.” So what happens is–so you can either go and talk to people and you get $3.50 for a free cup of coffee. Does that make sense? Or you show people. People who say, “Do you want me to tell you or show you?” People say, “Show you.” If you tell them, there’s $3.50 for a cup of coffee. Show them, you just made $20,000 grand. Because the average transaction is $40,000 grand, give them $20,000, you make $20,000. So what happens is, when you do a joint venture, or an AJV or you come together, right, sometimes the other person has already got the house. You’ve got the specialised knowledge. They don’t have it. Or other people have the money, you’ve got the skill set.
10
381/4
So what happens is you’ll do one or two or three, and eventually you’re going to go, “Well hang on. Every time doing $40,000 grand, I’m calling in Barry the mortgage broker and Sally the seller,” you’re just going to go–listen, I tell you what, you just don’t do it that way anymore. You just step in and just, “Oh, I’ll take the $40,000 grand myself.”
So it’s just a way that you guys started spending absolutely no money to get into the game, sharing in the profits. It’s the–I love it when people will start on my joint ventures like this.
11
381/30
By the way, ladies and gentlemen, the advantage of you doing-building your property portfolio with no money, with nothing invested except oxygen, you’re limitless. It’s pretty hard for you to get them wrong. You just keep going and you’ll just change.
12
444/20
So you can develop all these little income streams and again it’s another product that a lot of students just do this product and nothing else, and they develop income streams with nothing in the properties whatsoever.
13
475/7
Now, what they’re going to do is, is that’s–that’s people coming in, plus also the people that are going to come in, not only are they going to get this bank loan to pay you out, not only are they going to pay you 1,581, but I’m also going to want some money up front. So they’re going to give 15 grand on that, you–a minimum, minimum 15,000 up front just to come in and take this opportunity.
14
502/9
So those people who were working with me, by the way, if you worked with me in the Go Direct program, I do not want you doing a transaction unless my team knows about it now, because you’ll go out and put it together, but if we put it together we would have doubled the profit and I don’t want you crying on the end of the phone. Okay, good.
15
511/12
So the amount of money that you’re getting up front from people is growing. So what’s happened is, the people are giving you $25,000.
16
6/2
I’m going to show you a transaction I’ve just finished doing, and I’m going to show you the texts–never seen the house, never seen the seller, done it all by text, and it’s you know, $1.2 at Coogee. Don’t have to see it. Just have to have a different automated system.
But you’ll see how much profit is in it.
17
20/15
I would not be here – I would never have bought (indistinct) my houses here in 2000 if I listened to all the people who told me that what I’m teaching you today, you cannot do in Australia.
18
22/4
I was a tv guy, yet when I bought 20 condominiums, and you buy apartments in the United States, ladies and gentlemen – if you buy 20 apartments, one of them is always left empty.
Now, I’m there and I’m thinking these puppies can rent for $1,000 bucks a week ...
14
52
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