ACCC v We Buy Houses Pty Ltd [2017] FCA 915: Company Director Found Guilty of making False or Misleading Representations

Friday 18 August 2017 @ 10.37 a.m. | Legal Research | Trade & Commerce

In the recent case of ACCC v We Buy Houses Pty Ltd [2017] FCA 915 (11 August 2017), the Federal Court has found that We Buy Houses Pty Ltd (We Buy Houses) and its sole director, Mr Otton, made false or misleading representations in promoting a number of wealth creation strategies involving real estate.

Background to the Case

The Australian Competition and Consumer Commission (the ACCC) instituted proceedings against We Buy Houses in March 2015 following a coordinated investigation with NSW Fair Trading. The ACCC alleged breaches of the Australian Consumer Law (the ACL – which is contained in Sch 2 to the Competition and Consumer Commission Act 2010 (Cth)) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The Federal Court concluded that the conduct was within the ambit of the ACL, not the ASIC Act.

We Buy Houses had been conducting training programs including free seminars, boot camps and mentoring programs throughout Australia since around 2000. Between 2011 and 2014, We Buy Houses generated the majority of its $20 million revenue from conducting these training programs.

We Buy Houses promoted these strategies throughout Australia via published material, seminars, boot camps and mentoring programs. Consumers were enticed by these false or misleading representations to attend training programs, including paid boot camps and mentoring.

Findings of the Court

Gleeson J found that We Buy Houses did not have a reasonable basis for representing that, by following its strategies, consumers could:

  • buy a house for $1, without needing a deposit, bank loan or real estate experience, or using little or none of their own money;
  • create passive income streams through property and quit their jobs;
  • build a property portfolio without their own money invested, new bank loans or any real estate experience; and
  • start making profits immediately and create or generate wealth.

Her Honour found that We Buy Houses failed to sufficiently inform consumers that the strategies could only realistically be successfully implemented by a consumer who already owned real estate, or who was able to finance a bank loan.

The Court also found that Mr Otton had made false or misleading representations that he had successfully implemented the wealth creation strategies he taught. In addition, a book authored by Mr Otton, and websites operated by We Buy Houses and Mr Otton, included testimonials from “students” claiming they were able to buy a house for $1 which the court found were false or misleading.

Comment and Reaction from the ACCC

ACCC Deputy Chair Delia Rickard said:

“We Buy Houses sold a lie to vulnerable consumers that home ownership could be achieved easily through strategies taught by Mr Otton. Around 2,000 consumers spent around $3,000 per ticket to attend Mr Otton’s boot camps, and approximately 700 consumers participated in the mentoring program at a cost of up to $26,000. Today’s judgment sends a strong message to ‘property spruikers’ that they must not make false or misleading representations about the success and profitability of their ‘wealth creation strategies’ to induce consumers to pay significant sums to learn about them. Consumers who attended We Buy Houses seminars, boot camps and mentoring should be aware that, in her judgment, Justice Gleeson stated that for ordinary consumers seeking to achieve the outcomes represented by We Buy Houses and Mr Otton, the free seminars were a waste of time, and that the boot camps and the mentoring programs were an expensive waste of time.”

Her Honour also said at [para 109]:

“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 [his and We Buy Houses’] business interests.”

The Court held that Mr Otton knew and approved of all the materials published by We Buy Houses, and was both knowingly concerned in and a party to the conduct of We Buy Houses.

Statement from the Respondent

In a statement, Mr Otton said he was pleased that the court accepted it was inconceivable that an ordinary or reasonable person would take the phrase "How to Buy a House for a $1" at face value. He also pointed to the fact that the ACCC did not dispute that it may be possible to buy and sell property using one of the techniques he promoted, vendor finance and stated:

"As I so often explained, the technique was designed to help homeowners who can no longer pay home loan repayments and with the help of a turnaround specialist, ensures that they do not become mortgagee sale roadkill. We accept Her Honour's findings that insufficient proof was presented to prove how this vendor finance technique can work in practice."

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Sources:

Property spruiker made false or misleading representations – ACCC MR 135/17

We Buy Houses breached Australian Consumer Law with 'buy a house for $1' claim, judge says – abc.net.au

ACCC v We Buy Houses Pty Ltd [2017] FCA 915 (11 August 2017)

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