On 9 April 2024 the Federal Court handed down a consumer protection decision in Australian Competition and Consumer Commission v Master Wealth Control Pty Ltd [2024] FCA 344 – the Vestey Trust case. Let me reiterate that - the Federal Court held that Master Wealth and its Principal - Dominique Eva Grubisa were guilty of “false and misleading” advertising in relation to two of their products – the “No Equity” product and the “Vestey Trust” arrangement.
The case was an action taken by the ACC and at the outset it was noted that there was no specific consumer taking part in the case but the class of consumers who bought into various training programs, strategies and products of Master Wealth. One of the main charges brought by the ACCC was that Master Wealth and Grubisa, as an accessory, engaged in conduct that was that misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth).
What was the outcome?
The Court reviewed hours of trainings given by Grubisa as well as promotional material for Master Wealth and held as follows:
1. "No Equity" product
The No Equity product told students to acquire distressed property at a discount, particularly where it was under mortgage stress, stating that the Bank would not give any equity in the property back to the legal owner post sale. One of the many examples cited by Justice Jackson was from a training video – “after 2 hours and 57 minutes, Ms Grubisa explained the “equity deal”, giving as an example that the mortgage may be $500,000, the debt to the bank may be $300,000, and there is $200,000 of equity in that property “that will get chewed up in fees and costs and expenses, nothing left over for the homeowner”.
We don’t really need to go much further - in all cases upon settlement the bank takes its loan monies and any penalties with the remainder to be transferred to the vendor of the property. It is only in cases where the loan was greater than the equity value that there would be no equity.
Was this false and misleading?
Jackson J stated that “I am satisfied that the statements made in the four videos such as “banks don’t give change”, “there is no equity left”, “they keep everything” and “everything else would have got chewed up in fees and charges” would be understood by consumers in the relevant class as bearing their ordinary meaning. Statements such as these conveyed that if the mortgagee were to repossess and sell the property, the homeowner would lose all remaining equity as a matter of course, regardless of how much equity remained in the property. …. I have found that, taking into account all of the circumstances and the relevant class of persons to whom the representations were addressed, the No Equity Representations were false and misleading as an objective matter.”
2. The Vestey Trust
Justice Jackson laid out what the strange Vestey Trust strategy was:
The effect of the Transaction Documents may thus be summarised at its most basic level as follows:
(a) a discretionary trust would be created and controlled by the client;
(b) all future income of the client was intended to be assigned to the trustee and paid into the trustee’s bank account, although as a matter of law that was only valid to the extent of existing debts at the time the Notice of Assignment was given;
(c) the client would then withdraw money from time to time from the trustee’s bank account to meet personal expenses of the client, thereby borrowing money from the trustee free of interest and with no obligation of repayment for at least 50 years; and
(d) that loan would be secured by the Equitable Mortgage, and would also be the subject of a caveat on the title of any real property and could be the subject of PPSR registration in respect of personal property.
In terms of the strategy Jackson J noted:
That structure has an obvious flaw as a structure designed to protect the client’s property from creditors, in that it will only afford protection to the extent of the amount of the secured loan by the trustee to the client. In the early stages of the structure, the amount of the loan will be relatively small. The amount of the loan will be limited by the amount of the existing debts which are assigned to the trustee, and will be limited further by the amount of the withdrawals from the trustee’s bank account to meet personal expenses of the client. For example, a person who earns and spends about $2,000 per week (ie about $100,000 per annum) might have a debt to the trustee at the end of the first week of the life of the structure of about $2,000, and at the end of the first year of about $100,000. However, most members of the relevant class would be likely to have net assets worth more than, say, $2,000 or $100,000. For example, if one takes a person with net assets of $500,000, and income and expenses of $100,000 per annum, the amount of the secured loan from the trustee to the client will not equal or exceed the net assets of the client for 5 years, even if one wrongly assumes that the assignment applies to all future income and even if one makes the unrealistic assumption that the value of the client’s net assets would not change at all over that period. However, the MWC program claimed to provide clients with complete and immediate protection from creditors to the extent of all their net worth.
As can be seen from the Judge’s statements, the strategy, which was an assignment of wages, rents and income to a discretionary trust (that was not allowed to borrow) with a loan back - by way of an open-ended Promissory Note (which was not a PN as there was no fixed sum) did not provide full protection from creditors. The Court held as with the No Equity representations that the claim of full protection was false and misleading.
As an aside the Court was scathing on the fact Grubisa did not appear as a witness to explain the above and held that she was an accessory.
SAPEPAA Takeaways
1. Be careful when you read headlines such as ‘Gift and loan back’ arrangement ruled invalid by Federal Court as there is nothing in the case that remotely canvasses the traditional gift and loan back strategy. The real truth is in the case - which is why hearsay evidence is not admissible in Court!
2. The case was a consumer protection case. MWC made more than $9M over a four-year period selling courses and template documents for a range of strategies including the No Equity and Vestey Trust. As noted above the strategies promised the world in terms of asset protection but delivered, from a legal perspective, far less than promised and thus promotional material making that promise was held to be false and misleading.
3. Get the real story. On 23 April at 12pm we will be going into relevant cases dealing with gift and loan backs and where they are now. In that regard there are a number of cases dealing with gift and loan backs and in this one hour intensive Grant Abbott from Abbott and Mourly Lawyers and LightYear Docs will be doing an analysis of all the effective asset protection cases including the famous Atia v Nusbaum and Sharrment plus the ones where document was held to be invalid and why. We will also be doing a deep dive into the Protector and why it is vital for business clients right now. Registration details will be forthcoming but in the meantime if you would like to read the case:
P.S if you would like to read the Vestey Trust case - https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2024/344.html