Retailers carry a heavy burden to educate staff about complex matters, but written materials will be useful as a complement to oral representations.

Mystery shopping and concepts underpinning actions based on misleading and deceptive conduct are familiar features of the Australian legal landscape.

A recent decision of the Federal Court has expanded the scope of mystery shopping and the regulator's powers, and in the process blurred the line between pursuing offending conduct and actively creating such conduct (Director of Consumer Affairs v The Good Guys Discount Warehouses (Australia) Pty Ltd (2016) 334 ALR 600).

Although the regulator failed on the facts, the case is noteworthy because the court made a number of important findings of law:

  • first, the regulator had the power to enter stores and secretly record exchanges;
  • second, the tape recordings were admissible in evidence; and
  • third, the exchanges constituted conduct "in trade or commerce" within the meaning of the Australian Consumer Law ("ACL"), even though that they were made in an artificial environment.

Consumer Affairs Victoria goes mystery shopping

Inspectors from Consumer Affairs Victoria entered stores of The Good Guys posing as customers, and engaged in conversation with salespeople about consumer warranties. The inspectors taped these conversations without the knowledge of the salespeople. The regulator alleged that responses elicited from the salespeople were misleading and deceptive in contravention of the ACL.

The Good Guys succeeded in the proceeding because the court found that statements made by the salespeople were not misleading or deceptive. Many of the inspectors' questions were framed by reference to general practice and anecdotal experience, rather than the consumer warranties applicable in a particular case. For example, the inspectors asked: "Does anyone do refunds anymore?" This and similar questions were held to be too open-ended and vague so that the responses could not be said to be misleading or deceptive.

In addition, it was held that the salespeople's responses had to be considered in conjunction with customer information brochures which the inspectors received while in the stores. The brochures contained detailed and accurate information about consumer rights. The court therefore considered that the conduct as a whole was not misleading or deceptive.

Consumer Affairs Victoria's power to enter and record

On the face of it, the regulator does not have the power to enter premises and secretly record conversations. The Australian Consumer Law and Fair Trading Act 2012 (Vic) ("ACLFTA") gives the regulator the power to enter and search premises but only with consent, a warrant or in an emergency.

The Good Guys argued that because the legislature had conferred a carefully delineated set of powers on the regulator, those powers were exhaustive; the regulator's conduct was therefore unlawful and amounted to trespass (as it was not in dispute that there was no consent, warrant or emergency).

The court rejected this argument. First, the court held that as a matter of statutory construction, the power to enter premises and record conversations without a warrant or consent was conferred on the regulator by a general provision in the legislation which gave the regulator "all powers necessary to perform his or her functions."

Second, the court considered that such powers could be inferred because it was "not incongruous" for the powers to exist alongside other powers contained in the Act.

Admissibility of the regulator's recordings

The Good Guys further argued that even if the regulator had the power to enter the stores and secretly record the exchanges, the evidence of the exchanges should be excluded on public policy grounds, including breach of privacy and certain other exclusionary principles.

For example, section 138(2)(b) of the Evidence Act 2008 (Vic) confers a discretion to exclude "admissions" made as a result of questioning if the questioning contains false statements. Unremarkably, the court found that the relevant statements made by the salespeople constituted admissions against their interest as the regulator sought to rely on them as constituting misleading and deceptive conduct. Further, it found that the statements made by the inspectors to the salespeople were false, which again is not surprising because the entire operation was a contrivance.

Despite those findings, the court concluded that the evidence could be admitted because the admissions were not "caused" by the inspectors' questioning. The court concluded that the inspectors did not know that making false statements was likely to cause the salespersons to make admissions.

Conduct "in trade or commerce"

Despite the admission of the tape recordings into evidence, there remained a threshold question of whether the whole exercise undertaken by the regulator, and the responses elicited, could fairly be said to be conduct in trade or commerce. If not, then the regulator was bound to fail as a matter of law because the ACL only prohibits conduct that is misleading or deceptive "in trade or commerce".

It was argued by The Good Guys that the conduct was not in trade or commerce because it occurred in a contrived environment devoid of commerciality.

The court rejected the submission and found that the conduct was in trade or commerce because even though the responses of the salespeople occurred in an artificial environment, they formed part of the promotion by The Good Guys of goods and services for sale.

Being prepared for the mystery shopper - and all consumers

This case raises interesting legal and philosophical questions, given that the supposed promotional activity never went beyond the inspectors and therefore was not promotional in any real or operative sense. The statements were made to the inspectors only, and were not overheard by any real customers. Accordingly, no harm could ever have come from them.

This artificiality was compounded by the fact that the statements would never have been made at all but for the inspectors' quasi cross-examination. It could not be said (and was not argued) that the statements were likely to be repeated in the future or were part of a pattern of behaviour.

No doubt these principles will attract further comment and consideration. In the meantime, retailers carry a heavy burden to educate staff about complex matters. If possible, they would do well to have accurate written material to complement their oral representations, which was shown in this case to offer protection.