Earlier this year, in the case of Director of Consumer Affairs Victoria v The Good Guys, the Federal Court held that the secret recording of the responses of The Good Guys' staff members about consumer policies was not only within the legitimate investigative powers of the regulator but that such conduct was also “in trade or commerce” for the purposes of the Australian Consumer Law (ACL).

Although the relevant conduct was ultimately held not to contravene the ACL, the decision reinforces the importance of ensuring that your staff are regularly trained in understanding and communicating consumer rights and refunds policies in accordance with the ACL.

The facts of this case

Inspectors from Consumer Affairs Victoria (CAV) visited five Good Guys stores posing as customers interested in purchasing a television. The inspectors conversed with staff members about the quality of certain brands then proceeded to ask questions about warranties. On four of the five visits the inspectors secretly recorded the conversation.

The Director of Consumer Affairs Victoria (Director) claimed that staff members made inaccurate statements about the position the customer would be in if a product failed or was faulty after the manufacturer’s warranty expired. The Director also claimed that staff members failed to refer to the consumer guarantees and associated remedies within the ACL and thus engaged in conduct that was misleading or deceptive or likely to mislead or deceive.

The CAV commenced proceedings against The Good Guys for contravening the ACL.

Was evidence obtained improperly?

The Federal Court held that CAV inspectors did not act beyond their powers by conducting the mystery shopping exercise or secretly recording the conversations with staff. This was because such investigative strategies were not incompatible with inspection powers under corresponding ACL stated-based legislation. In addition, pursuant to this legislation, the Director has all powers necessary to perform their functions to investigate potential contraventions of the ACL. Whilst this power is expressly conferred on the Director it can be delegated to inspectors as a matter of practical necessity.

The Federal Court also held that the relevant evidence was not obtained through trespass as The Good Guys stores were open to the public generally. Even if the scope of permission to enter the stores was limited to shopping behaviour (browsing, comparing and buying) the inspectors would not have been trespassing as they were engaging in this behaviour.

CAV inspectors also did not infringe the staff’s right to privacy as the conversations were conducted in a public area and were capable of being overheard by others. In these circumstances the conversations were not private and the staff members could not reasonably expect that their words were only to be heard by the people they were addressing.

Is mystery shopping “in trade or commerce”?

The respondent argued that mystery shopping was not ‘in trade or commerce’ because the inspectors visited the stores in their capacity as CAV inspectors rather than consumers. This would mean that there was no actual or potential trading and a commercial relationship was not created.

The Federal Court disagreed finding that the sales conduct undertaken by The Good Guys during the conversations with the inspectors bore a trading or commercial character as it was part of the promotion of selling products and associated extended warranties. It was immaterial that the inspectors were pretending to be customers and had no intention to purchase the televisions.

Why was the conduct not misleading or deceptive?

The conduct of The Good Guys was held not to be misleading or deceptive in contravention of the ACL because:

  • The words used in both the questions asked by the inspectors and the answers provided by The Good Guys staff members were vague and general;
  • In some instances, the questions and answers focused on the policies and practices in relation to issues other than rights and remedies that were available under the ACL; and
  • In all situations the statements and omissions the Director relied upon formed part of a broader course of conduct that included The Good Guys making available in store their extended warranty brochure which provided a description of consumer guarantees and associated remedies in compliance with the ACL.

What you need to know and do now

It is important to ensure that your consumer refund, warranty and other policies are compliant with the ACL to avoid the risk of regulator investigation and potential financial penalties.

Even if your policies are ACL compliant, it is critical that staff be trained on a regular basis as to what they can and cannot say in accordance with those policies.

Your policies should be more broadly available in store and pre-purchase so that if a staff member does not accurately represent a consumer’s rights under the ACL, any risk may be minimised by “correcting” any misleading impressions through notice of such documentation.

If you are concerned that a rival’s conduct about consumer rights is misleading, you could act as a mystery shopper and provide the information to the regulator (but do not endeavour to collect evidence or record conversations which you may not be permitted to do).