Federal Court

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Fractional property investment company DomaCom has announced the conclusion to the legal proceedings which the company has been supporting in the Federal Court of Australia.
The proceedings centred on superannuation legislation permitting investment in the DomaCom Fund by an SMSF where a related party was the tenant in the underlying property.
The ATO had (unless an extension of time is granted by the High Court) until 7 September 2018 to file with the High Court an application for special leave if it was to appeal the decision of the Federal Court of Appeal. 
DomaCom's lawyers have advised no such appeal or application for an extension of time has been filed.
Orders were issued last week by the Federal Court as follows:
<ul>
<li>There be a declaration that the leasing of the Burwood property by the DomaCom Fund would not cause Aussiegolfa Pty Ltd as trustee of the Benson Fund (Aussiegolfa) to breach the sole purpose test set out in section 62 of the Superannuation Industry (Supervision) Act 1993 (Cth);  </li>
<li>Aussiegolfa pay 40% of the ATO’s costs of the first instance proceeding (as agreed or otherwise assessed); and/</li>
<li>Aussiegolfa pay 40% of the ATO’s costs of the appeal (as agreed or otherwise assessed).</li>
</ul>
In relation to the Administrative Appeals Tribunal Appeal, the Court orders that the ATO pay 100% of Aussiegolfa’s cost of the appeal.
DomaCom CEO Arthur Naoumidis said DomaCom will now focus on addressing the related trust matter and is reviewing its constitution and disclosure documents to address this issue with respect to future sub-funds.
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Investments loom after DomaCom's Federal Court win on SMSF investment 

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The Federal Court has imposed record penalties totalling $18 million against We Buy Houses Pty Ltd (We Buy Houses) and its sole director, Rick Otton, for making false or misleading representations about how people could create wealth through buying and selling real estate, following ACCC action.
The penalties of $12 million imposed against We Buy Houses, and $6 million imposed against Mr Otton personally, are the highest ever imposed for contraventions of the Australian Consumer Law by a corporation and an individual, respectively.  
The Federal Court also banned Mr Otton from managing corporations for 10 years in Australia and permanently restrained Mr Otton and We Buy Houses from further involvement in the supply or promotion of services or advice concerning real property transactions or investment.
“We Buy Houses and Mr Otton peddled false hope to people simply looking to get a foothold in the housing market or invest money in real estate for their future,” said ACCC Chair, Rod Sims.
"The record penalties imposed against both We Buy Houses and Mr Otton reflect their egregious conduct.”
“They have also effectively been permanently banned from any further involvement in real estate in order to protect consumers,” Mr Sims said.
“These record penalties demonstrate the determination of the ACCC to take strong and effective enforcement action against businesses and individuals who prey on consumers using the false hope of creating financial success. The judgement signals the Court’s condemnation of false and misleading property spruiking and get rich quick schemes.”
“This outcome also reflects a recent trend of higher penalties for Australian Consumer Law breaches. We can expect this to continue following recent law changes to increase maximum financial penalties under consumer law,” Mr Sims said.
We Buy Houses and Mr Otton taught real estate investment strategies via free seminars, and paid ‘boot camps’ and mentoring programs that claimed people could:
<ul>
<li>buy a house for $1, without needing a deposit, bank loan or real estate experience, or using little or none of their own money</li>
<li>create passive income streams through property and quit their jobs</li>
<li>build a property portfolio without their own money invested, new bank loans or any real estate experience, and</li>
<li>start making profits immediately and create or generate wealth.</li>
</ul>
In August 2017 the <a href="https://www.urban.com.au/news/74441-court-rules-property-spruiker-rick-otton-has-broken-consumer-law">Federal Court found these claims were false or misleading</a>, in contravention of the Australian Consumer Law.
“In her judgement on liability, Justice Gleeson said the free seminars were a waste of time, and that the boot camps and the mentoring programs were an expensive waste of time," Mr Sims said.
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.
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.
Otton is also renowned in the UK as the creator of ‘How to Buy a House for a Pound’.
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<div class="field field-name-field-accc-mr-release-number field-type-text field-label-above">
The ACCC instituted proceedings against We Buy Houses and Mr Otton in March 2015 following a coordinated investigation with New South Wales Fair Trading. On 11 August 2017, the Federal Court delivered judgment on liability, finding that Mr Otton and/or We Buy Houses had engaged in multiple contraventions of sections 18, 29(1)(f), 29(1)(g), 34 and 37 of the Australian Consumer Law.
 
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$18 million fine after Rick Otton's property mentoring bootcamps ruled an expensive waste of money: Federal Court

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ASIC has commenced proceedings in the Federal Court of Australia against Linchpin Capital Group Ltd (Linchpin) and Endeavour Securities (Australia) Ltd (Endeavour).
Linchpin and Endeavour operate two managed investment schemes. Both schemes are called “Investport Income Opportunity Fund”.
Following an investigation, ASIC alleges that:
<ul>
<li>Linchpin is operating the scheme without holding an Australian Financial Services Licence as required by the Corporations Act;</li>
<li>Linchpin has used investor funds for its own purposes without disclosing this use to investors;</li>
<li>Endeavour has entered into related party transactions in contravention of the Corporations Act;</li>
<li>Endeavour has failed to properly disclose those related party transactions to investors; and</li>
<li>monies invested in the schemes managed by Linchpin and Endeavour have been misapplied or misappropriated by Linchpin and Endeavour.</li>
</ul>
ASIC is seeking orders to:
<ul>
<li>restrain Linchpin and Endeavour from operating the schemes and providing financial services;</li>
<li>prevent Linchpin and Endeavour from dealing with assets or investor funds;</li>
<li>appoint receivers over the assets of Linchpin and Endeavour to identify and secure scheme assets;</li>
<li>wind-up Linchpin and Endeavour and the schemes; and</li>
<li>obtain declarations that Linchpin and Endeavour have acted in contravention of the Corporations Act.</li>
</ul>
The matter will be heard in the Federal Court in Brisbane on 24 July 2018.
ASIC's investigation is continuing.
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ASIC takes action against Linchpin Capital Group and Endeavour Securities

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The Director of Consumer Affairs Victoria has begun civil proceedings against estate agency Hoskins (Maroondah) Pty Ltd (ACN: 095 367 712), in the Federal Court of Australia, for alleged contraventions of the Australian Consumer Law (ACL) in relation to property sales on Melbourne's north east outskirts.
Consumer Affairs Victoria will allege that during 2015 and 2016, Hoskins advertised properties for sale at prices much lower than it believed they would actually sell for.
The alleged conduct relates to 26 residential properties located in Croydon, Croydon Hills, Croydon North, Mooroolbark, Park Orchards, Ringwood, Ringwood North, Warranwood and Wonga Park.
Consumer Affairs Victoria will also allege Hoskins misled two vendors it was acting for, by telling them their properties would sell for much less than it believed they would sell for, in order to claim ‘incentive commissions’ from the vendors when the properties sold at a much higher price. Such conduct, it is alleged, was also unconscionable.
The department will allege that, at various times throughout 2015-16, the company:
<ul>
<li>engaged in misleading or deceptive conduct towards potential property purchasers and two vendors who were clients of Hoskins</li>
<li>made false or misleading representations to potential property purchasers and two vendors who were clients of Hoskins</li>
<li>engaged in unconscionable conduct towards two vendors who were clients of Hoskins.</li>
</ul>
CAV will allege that Hoskins (Maroondah):
<ul>
<li>advertised 26 properties for sale at prices lower than the company believed they would actually sell for</li>
<li>misled two vendors it was acting for, by telling them their properties would sell for much less than the company believed they would - in order to claim ‘incentive commissions’ when the properties sold at a much higher price.</li>
</ul>
CAV will also allege that the company’s director, Brent Robert Peters, 43, of Croydon Hills, aided and abetted the company’s conduct. With over a decade in real estate, Brent Peters achieved Top 10 salesperson in his first year in real estate in 2001 and was recently named No. 1 salesperson out of the Hoskins network of 55 offices.
With 12 sales, Brent Peters won Croydon Hills Agent of the Year, in the RateMyAgent Agent of the Year Awards 2017. RateMyAgent is the largest independent review site in Australia and claims to be "trusted by agents and customers."
CAV is seeking orders that the company:
<ul>
<li>pays a financial penalty, plus legal costs</li>
<li>be restrained from repeating this conduct in the future</li>
<li>implements a compliance program to educate its staff about their ACL obligations to ensure no further contraventions of the relevant provisions occur</li>
<li>refund two vendors a total of around $25,000</li>
<li>publish details of any court orders on its website and display it in its office.</li>
</ul>
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Victorian Consumer Affairs accusing Hoskins agency of unconscionable incentive commission scheme

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The Doncaster office of the real estate agency Hocking Stuart has been fined $160,000 by the Federal Court for underquoting on property listings.
Hockingstuart Doncaster was ordered to pay the penalty, following an action brought by the Victorian Director of Consumer Affairs.
<div class="in-content-ad">The misleading prices occurred in advertisements published between June 2014 and December 2015 on nine offerings.</div>
<div class="in-content-ad"> </div>
<div class="in-content-ad">Justice Bernard Murphy it as “serious” and “plainly deliberate."</div>
<div class="in-content-ad">
The judge found their underquoting was widespread and a significant part of its sales strategy at the time.
It was intended to create the illusion of a bargain, Justice Murphy said.
“It involved the deliberate creation of an enticing, but illusory and misleading, marketing web for the sale of nine homes.
“The purpose of doing so was to attempt to generate a higher level of buyer interest in the property, in the expectation it would translate into a higher sales price.”
Hocking Stuart Doncaster’s defence that such practices were widespread in the industry.
Domain reported the franchise agreed it made the false representations and that it breached state and federal consumer laws.
The judge estimated the small business derived over $34,000 from the contravening conduct.
A Doncaster property advertised for more than $790,000 sold at auction for $1.01 million.
A Templestowe property, advertised at above $1.7 million after the owner signalled they wanted $1.8 million to $1.9 million.
<a href="https://www.realestate.com.au/sold/property-house-vic-templestowe-120292541" target="_blank">The home </a>sold for $2.04 million at auction.
The court ordered the agency keep records of price estimates for three years, publish a public notice advising consumers of their misleading and deceptive conduct, and review its compliance program.
It follows a fine of $300,000 imposed on Hocking Stuart Richmond for underquoting last year.
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Underquoting fine on nine Hockingstuart Doncaster listings

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A Federal Court Judge has found the property spruiker Rick Otton has broken Australian consumer laws. 
Justice Jacqueline Gleeson concluded there was no evidence that the strategies spruiked by Otton could actually enable a consumer to buy a house for $1.
The judgement advised that the We Buy Houses seminars that students attended were an "expensive waste of time".
The claim by Otton's that his clients could "buy a house for $1" was misleading and and contravened the Australian Consumer Law.
Rick Otton's company We Buy Houses (WBH) had a turnover of more than $20 million.
Between January 2011 and June 2014, 3,400 people attended free seminars, 2,000 paid to attend a boot camp to learn more information, and 700 did another expensive course with mentors.
Would-be investors were given some information at the initial free session, then more if they paid $3,000 to attend the boot camp and the $26,000 mentoring workshops.
"For ordinary consumers seeking how to achieve the outcomes stated ... the free seminars were a waste of time," Justice Gleeson said.
"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."
"The headline 'how to buy a house for $1' indicates that [WBH and Otton] were directing their efforts principally towards people who were not property rich, but who would be attracted to the idea that they could make money from property without having to pay a significant amount for it," Justice Gleeson said.
"The message is sensational. It is designed to attract the attention of consumers who do not have sufficient financial resources to buy a house using mainstream bank finance."
The Australian Competition and Consumer Commission [ACCC] had alleged that WBH's further claims that a consumer could buy a house without needing a deposit, bank loan or experience, start making profits immediately, and create wealth were also misleading and deceptive.
Justice Gleeson's judgement said consumers enticed by WBH were given a variety of strategies and tips to achieve property ownership — some of which included "rent-to-buy", a "sandwich lease option" involving a middleman, and "sweat equity" option, where the buyer carries out renovations in lieu of paying a deposit.
Justice Gleeson accepted that some of the WBH strategies were theoretically possible, but added there was no evidence they had been used by its students successfully.
None of WBH's most successful students, known as "big kahunas", provided evidence to the court to show what they had claimed to have achieved, and while a number of testimonials were shown to the court, the judge said there was no evidence of the claims in them.
The ACCC called nine consumers as witnesses to describe how they had never achieved success by implementing what they learned.
One consumer and his partner attempted to buy properties in Bass Hill, Quakers Hill, Homebush West, North Bondi, Eastlakes and Lake Haven.
"Despite claiming that Mr Otton had been successful financially "in following these ideas and strategies", there was almost no evidence that [Mr Otton and WBH] had used the strategies, let alone used them to make money," Justice Gleeson said.
"I conclude that, in reality, the respondents' strategies do not and cannot enable a consumer to buy a house without needing a deposit, bank loan or real estate experience."
The ACCC instituted proceedings against We Buy Houses and Otton in March 2015 following an investigation with New South Wales Fair Trading.
"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," <a href="https://www.accc.gov.au/media-release/property-spruiker-made-false-or-misleading-representations" target="_blank">ACCC Deputy Chair Delia Rickard said.</a>
In a statement, 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.
"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," Otton said.
"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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