On 11 August 2017, the Federal Court found that Rick Otton, and We Buy Houses (WBH) (referred to as “the respondents” below) engaged in conduct which was misleading or deceptive or was likely to mislead or deceive in contravention of the Australian Consumer Law.  

Update: In November 2018 the Court imposed record penalties on Otton and We Buy Houses totalling $18 million.

In March 2015, after a co-ordinated investigation with NSW Fair Trading, the Australian Competition and Consumer Commission (ACCC) issued proceedings against Rick Otton alledging misleading and deceptive conduct.  At the time, the Chairman of the ACCC said the ACCC was concerned about strategies promoted by We Buy Houses and Otton which “target vulnerable consumers who don’t qualify for bank loans or who are having difficulties meeting their mortgage repayments”.  Rick Otton is the sole director and sole shareholder of WBH.  Since that date, Otton appears to have ceased doing business in Australia, but has been promoting, and running seminars, in the UK.

An 8 day court hearing was held in 2016, and on the 11^th August 2017, Justice Gleeson handed down the court’s decision.  (I understand that further decisions are yet to be made in relation to penalties, injunctions and costs).

Read the full decision 126 page decision here, or read on for a selection of excerpts:

92  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 activity without any substantial basis.

96 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 one dollar in 3.5 minutes turning it into $801 monthly positive cash flow.

 97 Mr Otton said that he did not buy 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 the people signed is a Power of Attorney or a transfer deed. Once the person has signed the transfer deed, although that transfer deed is not registered, the fact that they sign and I sign means I have actually bought the property, Sir.

98 Thus, Mr Otton was not prepared to acknowledge the falsity at 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 do 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 might be 345 dot minutes.   And we will go to the forms on that.  Which property it is in that…I cannot give you any reference.

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 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.

164 The respondents provided no evidence to support the truthfulness of the second example, although Mr Otton asserted repeatedly that he remembered the doctors. If the example were true, the Mr Otton would have received taxable income(the “cash flow”) for which you should have records.  In the absence of such evidence, I find that this example is fictitious and that Mr Otton was lying when he claimed to remember the doctors.

Mr Otton’s implementation of the techniques.

181 Despite claiming their defence that Mr Otton had been successful financially “ in following the ideas and using the strategies”, there was almost no evidence that the respondents had used the strategies, let alone used them to make money.

182 There was no evidence that either of the respondents had bought the property since October 2006.

183 In their written closing submissions, the respondents did not identify any property purchased by Mr Otton or WBH at any time using any of the techniques. Orally, Mr Bell argued that Mr Otton implemented the techniques in relation to a property at Deception Bay.  As explained below, I do not accept that argument.

216  It follows that, by the time that the book was first printed in 2011, Mr Otton and WBH had not been in the business of buying residential properties for investment purposes for at least four years.

217 Mr Donkin [Otton’s accountant] accepted that financial performance was one of the reasons Mr Otton wound down WBH’s real estate operations.

221 Contrary to the respondents’ submissions, the evidence plainly demonstrated the falsity of the statement, on the inside back cover of the book that “Rick buys, sells and traders property, using little or none of his own money, and strucures transactions to create positive cash flow”.

479 based on the finding set out earlier in the judgement, Mr. Otton’s personal success in implementing the strategies was minimal and did not include the successful implementation of the “sandwich lease option”  technique on a single occasion.

Falsity of representations

504 Based on the evidence set out above, representations about Mr Otton’s financial success was false and misleading.

CONTRAVENTIONS

Section 18

508 For the reasons set out above, I conclude that, in making the System and Strategies Representations, 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 ss 18 of the Australian Consumer Law. 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.

509 Further, in making the representations that Mr Otton himself had been successful financially in using strategies, the respondents engage 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)

510  in publishing the testimonials referred to at [399] above , WBH and Mr Otton contravened s 29(1) (f) of the Australian Consumer Law.