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Key information

Court
High Court of Australia
Case M117/2012
View submissions, chronology etc

Kakavas v Crown Melbourne Ltd
[2013] HCA 25 (5 June 2013)

Judges
French CJ
Hayne J
Crennan J
Kiefel J
Bell J
Gageler J
Keane J

Appeal from
Supreme Court of Victoria (Court of Appeal)

[2012] VSCA 95

Judges
Mandie JA
Bongiorno JA
Almond AJA

Trial

Kakavas v Crown Melbourne Ltd [2009] VSC 559

Trial Judge
Justice Harper

 

Issues
Unconscionable conduct

Link to High Court case page
High Court

AustraliaKakavas v Crown Melbourne Ltd

[2013] HCA 25 (5 June 2013) (High Court of Australia)

Note

On 5 June 2013 the High Court unanimously dismissed Kakavas' appeal from the Victorian Court of Appeal. The matter is of considerable interest. It relates to unconscionable conduct pursuant to s 51AA of the Trade Practices Act 1974. That provision has now been replaced by section 20 of the Australian Consumer Law, but in substantially the same terms:

Section 51AA provided (relevantly): 

(1)  A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

Section 20 of the Australian Consumer Law (relevantly) provides:

(1)  A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law, from time to time.

As is now the norm, the High Court has released a judgment summary to accompany its decision and reasons for judgment.

 

In brief

Facts
Kakavas was a problem gambler who had previously been excluded from Crown, but years later was permitted to return after giving assurances he no longer suffered from a gambling problem. In the course of a little over a year he turned over almost $1.5 billion.

The claim
Kakavas claimed Crown engaged in unconscionable conduct, first by exploiting his gambling problem and entrapping him into becoming a regular visitor and second by unconscientiously allowing and encouraging him to gamble at Crown while the knew - or ought to have known - he would be required to forfeit winnings by virtue of an interstate exclusion order.

The trial judge
Rejected both claims. Kakavas presented himself as a successful businessman who had overcome his addiction. Crown was not, at the relevant time, aware Kakavas was suffering any relevant disadvantage and there was no inequality of bargaining power or exploitation of special disadvantage. On the issue of the exclusion order, his Honour found that Crown had no knowledge of its operation against Kakavas and therefore could not have exploited his 'disadvantage' in this respect; they also failed to withhold any of his winnings, so he suffered no loss as a result of the order.

On appeal to Victorian Court of Appeal
Appeal unanimously rejected. There was no unconscientous taking advantage of any special disability.

On appeal to High Court
Appeal unanimously rejected. In its judgment summary the Court stated that it:

did not accept that the appellant's pathological interest in gambling was a special disadvantage which made him susceptible to exploitation by Crown. He was able to make rational decisions in his own interests, including deciding from time to time to refrain from gambling altogether. Crown did not knowingly victimise the appellant by allowing him to gamble at its casino.

 

The story so far

Facts

[This summary is drawn largely from the Judgment summary of the trial judge, Justice Harper]

Harry Kakavas was a problem gambler. The trial judge accepted he was a 'pathological gambler' and that Crown Melbourne had 'some knowledge of his condition' (para 1 trial judgment). Following receipt of bounced cheques in 1994, Kakavas informed Crown of his gambling problem, although they were skeptical of the claim that this constituted an 'addiction'. Around a year later (late 1995) Mr Kakavas took out a self-exclusion order.

Some years later (in 1998), following a period of imprisonment for fraud, Kakavas applied to Crown to have his self-exclusion order revoked. The trial judge noted that, in making this application, and in the time that followed, he 'put himself forward as a man untroubled by any gambling problems' [para 4] The application included an expert opinion from a psychologist effectively stating that the plaintiff had made progress in overcoming his gambling problem and had the skills necessary to operate as nothing more than 'a recreational gambler'. The trial judge observed that Crown did, and was entitled to, accept this as true and, on this basis, they were entitled to revoke the self-exclusion order. Nevertheless, Kakavas was also advised by Crown that they had withdrawn his licence to enter any Crown premises. This, Crown contended, was as a result of him having been charged with armed robbery (charges later dismissed).

Crown formally restored his licence to enter the premises in January 2005. At this time Kakavas was known as a high roller at other casinos (including in Las Vegas) and was known - or believed to be - a wealthy and successful businessman. When Kakavas returned to the Casino a few months later he turned over approximately $1.479 billion over a period of approximately 14 months.

Kakavas' claims

Claim relating to problem gambling

Kakavas claimed that, by restoring his licence, Crown was seeking to exploit his gambling addiction. The trial judge observed that, prior to allowing him to return, Crown required him to sign a letter disavowing any continuation of his prior gambling problems and required that he obtain an assessment from a psychologist or psychiatrist indicating he was not a problem gambler. Kakavas saw a psychologist; she declined to make a professional assessment as she had not previously seen him, but did provide a report of their meeting in which Kakavas did not advise of any gambling problems. Crown allowed him to return despite the absence of the assessment. Kakavas contended that Crown sought to 'entrap him into becoming a regular visitor for as long as it took for him to gamble his fortune out of his hands and into the coffers of Crown' (in the words of the trial judge at para 14).

Justice Bongiorno described the claim as follows [para 169]

'The appellant’s case at trial was put as being a ‘simple’ case: that he was under a disability by reason of being a compulsive or pathological gambler and that that disability was such that he was not able to judge what was in his own best interests; that Crown took unconscientious advantage of that disability and that equity should intervene to restore to the appellant the amount he lost at the casino over the relevant period. The case advanced depended upon the application of the principle expounded by the High Court in Commercial Bank of Australia Ltd v Amadio'

Claim relating to interstate exclusion order

In addition, by virtue of a new legislative scheme, from 1 July 2004, a person subject to an exclusion order in another state, forfeits to the State of Victoria all gaming winnings paid or payable to that person (Casino Control Act 1991 (Vic)). Neither Kakavas nor Crown were aware that Kakavas was caught by this exclusion order by virtue of the fact that Kakavas had been excluded from the Star City Casino in September 2000. Kakavas claimed that, in those circumstances, it was 'Crown acted unconscientiously in allowing – indeed, encouraging – him to gamble at the Casino when it knew or ought to have known that he would be required to forfeit any winnings.' (para 26 trial judge)

Trial Judge (Justice Harper)

On the issue of unconscionable conduct based on problem gambling

The trial judge did not accept the argument that Crown was seeking to exploit Kakavas' addiction. He stated (at para 11) 'he was not a person so helplessly entrapped by his love of cards that he found it impossible to resist Crown’s attentions'.

His Honour observed that Kakavas was fully aware of his right to self-exclude and used his bargaining power to threaten withdrawal of patronage. There was no inequality of bargaining power 'which is the essence of a claim that a person with a special disadvantage or disability has been unconscientiously exploited.' (para 16)

At the time of Kakavas' return to Crown, Crown 'had no conception of Mr Kakavas as suffering from any kind of relevant disadvantage. There was, indeed, no inequality of bargaining power, and no exploitation of, or any plan to exploit, any special disability from which Mr Kakavas might have been suffering.' (para 21)

On the issue of unconscionable conduct based on interstate exclusion

Justice Harper observed that it was a significant omission on the part of Crown that they were not aware Kakavas was subject to an interstate exclusion order (they were aware he had been excluded from Star City, but had not made the connection between that exclusion and the new scheme). However, the fact that Crown was careless in this regard does not assist Kakavas with his claims. The trial judge observed that, in the absence of knowledge of the interstate exclusion order, Crown could not be guilty of taking unconscientious advantage of any disability Kakavas might be suffering by virtue of his own ignorance of the effect of that order (para 27). In fact, Kakavas did not forfeit any winnings (being unaware of the effect of the order Crown allowed him to keep them) and therefore suffered no loss.

Victorian Court of Appeal

The Court of Appeal unanimously rejected the appeal by Kakavas

Mandie JA

[at para 33] Mandie JA, after reviewing the law of unconscionable conduct and the findings of the trial judge, held that the appellant had

'failed to demonstrate that the judge’s conclusion that the appellant was not in a position of special disadvantage was erroneous. The appellant’s argument was that he was in a situation of special disability or disadvantage because he lacked the ability to control the frequency with which he gambled and the amount of money that he wagered or to make rational decisions about those matters. The judge rejected that argument and in my view was entitled on the evidence to do so. Further, the special disability or disadvantage must be one that exists ‘in dealing with the other party’ and that puts the person at a disadvantage in dealing with that other party. Here, the wagers were standard gambling transactions and Crown had no greater advantage over the appellant than it had over any other gambler. ... In the long run, the appellant was neither more likely nor less likely to win than any other gambler. These considerations also show that the wagering transactions were in any event not unfair, unjust or unreasonable as required by the Amadio doctrine.'

Bongiorno JA

On Kakavas' argument that (at para 10), extensive losses over a few trips to the baccarat table was 'itself was consistent with his pathological gambling condition and provided evidence of his incapacity to conserve his own interests' is Honour responded:

(para 211) '... First, the nature of ‘high-roller’ casino gambling, particularly on high stakes baccarat, is an extremely volatile undertaking. The capacity for great losses is high - just as is the capacity for large wins. Many people, perhaps most, would regard the very idea of such gambling as absurd if not obscene and morally reprehensible both on the part of the gambler and of the casino. But high rollers who gamble in casinos throughout the world apparently do not share such opinions or, if they do, are able to suppress them in favour of self indulgence with its entirely foreseeable consequences. That losing to the extent he now says he did is consistent with his being a pathological gambler says nothing, in relevant context, about whether he was unable on the occasions he gambled during the period he selected to conserve his own interests.'

More generally, on the issue of constructive knowledge of special disability, his Honour observed:

(para 224) In this case, the principle of constructive knowledge has no application. The trial judge’s findings were that, in all the circumstances, Crown was entitled to accept the appellant as he sought to be accepted. A conclusion that it should have embarked upon further investigations is precluded by those findings and in any event was specifically rejected as being necessary by the trial judge. This was entirely consistent with his findings generally. ...

(para 225) There is no doubt that it was in Crown’s commercial interests for the appellant to return to gambling at its casino. ...

(para 226) None of the appellant’s submissions with respect to his case of unconscionable conduct against Crown based on his being under a special disability by reason of his being unable to control a propensity to gamble excessively should be accepted.

His Honour also rejected the claim based on the interstate exclusion order, noting that (para 234) 'Crown did not act unconscionably in permitting him to gamble at its casino notwithstanding the existence of the IEO.'

Almond AJA

His Honour stated that he would would adopt the approach taken by Mandie JA on 'the issues of unconscionable conduct and special disability or disadvantage' and the approach of Bongiorno JA on all other issues.

High Court of Australia

Appeal unanimously dismissed on 5 June 2013

More details forthcoming (see also judgment summary) - includes the following:

On the legal principles applicable [footnotes omitted]

[18] The invocation of the conscience of equity requires "a scrutiny of the exact relations established between the parties" to determine "the real justice of the case". Where an appeal is made by a plaintiff to the standards of equity embodied in the Amadio principle, the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff's loss should be ascribed to unconscientious conduct on the part of the defendant. In Louth v Diprose, Deane J explained the basis on which the conscience of equity is engaged to apply the Amadio principle:

    "The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization".

[19] In proceeding to consider whether equitable intervention is warranted in this case, a number of points may be made at the outset. First, the principle which the appellant invokes is not engaged by the circumstance that a plaintiff's transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship. ...

[20] Secondly, equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position.

[21] At the trial of this action the appellant sought to accomplish this task by arguing that Crown and the other respondents should be required to accept responsibility for the appellant's loss because they deliberately preyed upon his personality flaws to entice him to gamble in Crown's casino. That case having failed, the appellant now focuses upon Crown's acceptance of the benefit of the appellant's improvident activities at the gaming tables. That shift in focus is a bold strategy; bold strategies do not always succeed. The particular flaw in the appellant's new strategy is that it reveals a case which consists essentially of a complaint about the outcome of risk-laden activity between the parties conducted in the ordinary course of Crown's business. The appellant seeks to distinguish his dealings with Crown from the ordinary course of its business, but it is difficult to see the special factual foundation required to shift responsibility for his own conduct onto the party whose conduct did not go beyond accommodating the appellant's wish to engage in risky business. [emphasis added]

[22] It is telling that the parties referred to no decided case in which the doctrine articulated by Mason J in Amadio has been successfully invoked by a plaintiff complaining of the net loss suffered on account of multiple transactions conducted over many months with a putative "predator". This circumstance does not mean that the Amadio principle cannot apply to multiple transactions, but it does highlight the practical difficulty which confronts the appellant in his claim that the transactions in which he engaged are fairly described as a case of victimisation.

[23] To focus, as the appellant's case now does, on his state of excitement while he was actually at the gaming table is to lose sight of the reality that he was present at the gaming table on each of these occasions because of decisions voluntarily made by him when he was not in the grip of his abnormal enthusiasm. Importantly in this regard, the appellant does not have the benefit of a finding of fact that he suffered from a continuously operating compulsion which disabled him from choosing to stay away from the gaming tables. It was the appellant's choice – exercised many times over a period of many weeks when he was indisputably not at the tables in the casino in the grip of any gambling frenzy – to put himself in the position in which he might lose money at Crown's tables.

[24] Again, it is telling that none of the authorities cited by the parties affords an example of a successful claim by a party who has voluntarily chosen to indulge his or her "special disadvantage" by a decision made when not in the grip of that disadvantage....

[25] It is also a circumstance relevant to the justice of the appellant's appeal to the conscience of equity that the activities in question took place in a commercial context in which the unmistakable purpose of each party was to inflict loss upon the other party to the transaction. Gambling transactions are a rare, if not unique, species of economic activity in a civilised community, in that each party sets out openly to inflict harm on the counterparty. In the language of Lord Hardwicke, there was nothing "surreptitious" about Crown's conduct.

...

[27] A prominent feature of the relationship between the appellant and Crown was that the appellant was a high roller. At times, he made a lot of money at Crown's expense: ...

[28] High rollers typically exhibit an abnormal interest in gambling. That abnormality might be described as pathological; it might also be that it is difficult for an observer to distinguish between a pathological high roller and one who is not. That a high roller may incur substantial losses is always, and obviously (and quite literally) on the cards. Motives other than the profit motive may explain the high roller's behaviour; but whether or not that is so in the case of a particular individual is a question which each high roller is entitled, invoking values of privacy and autonomy, to say is no one else's business. Whatever a high roller's motivation may be, members of that class of gambler present themselves to the casino, and are welcomed by it in the ordinary course of its business, as persons who can afford to lose and to lose heavily. It is for that reason that operators of casinos are prepared to incur heavy expenses to attract their patronage away from other casinos. In return for lavish complimentary benefits, high rollers deliberately put at risk, and regularly lose, vast sums of money. Even if it were open to the courts to second guess the legislature's judgment to permit this sort of activity, it would be to descend into incoherence for the courts to require the return of losses suffered by high rollers so as to oblige operators of casinos to close their doors to high rollers while leaving them open to ordinary punters who, while less extravagant in their gambling habits, are also less able to absorb their losses.

[29] The purpose of these preliminary observations is to make the point that there is little scope for the intervention of equity to undo the result of transactions undertaken on the unmistakable footing that no quarter is asked and none is given by either party to the transaction, at least so long as the transaction has been conducted honestly in accordance with the rules of the game. It was not suggested that Crown ran a dishonest game.

[30] It is necessary to be clear that one is not concerned here with a casino operator preying upon a widowed pensioner who is invited to cash her pension cheque at the casino and to gamble with the proceeds. One might sensibly describe that scenario as a case of victimisation. One could also speak sensibly of a gambler, who presents at a casino with the cash necessary to play the game, as a victim of the casino, if there are factors in play other than the occurrence of the outcome that was always on the cards. For example, the gambler may be evidently intoxicated, or adolescent, or senescent, or simply incompetent. But absent additional factors of this nature, it is difficult sensibly to describe the accommodation by an operator of a casino of a patron's desire to gamble as a case of victimisation. That is especially so in the case of the high roller who has the means, should he or she enjoy a run of luck, to hurt the casino.

[31] In the present case, there was no finding that the appellant could not afford to indulge himself as he did, much less that Crown knew that he could not do so. Nor was there any suggestion that the appellant gambled while intoxicated, or that he was, and was regarded by Crown as, an incompetent card player. ... it is clear that the appellant had access to large sums of money and that he presented himself to Crown as a successful businessman whose pleasure it was to gamble and who could afford to sustain heavy losses. As will be seen, there was no suggestion that Crown was made aware that the appellant had any financial difficulty until the last occasion on which he gambled at Crown's casino ....

[32] It is in this context that one must consider the appellant's claim that he was victimised by Crown by virtue of his abnormal desire to gamble and his ignorance of the effect of the IEO. These are the features on which the appellant relies to distinguish the dealings between himself and Crown from the general run of the business of a casino.

[33] As is apparent from the summary of the appellant's dealings with Crown set out below, he could and did choose to refrain from gambling. He chose to stay away from Crown's casino when it suited him to do so. The appellant knew that he could self-exclude if he chose: he had done so in the past in relation to Crown's casino and others. The primary judge found nothing in the appellant's dealings with Crown which would have suggested to Crown that the appellant could not self-exclude if he decided that it was in his interests to do so.

[34] To accept the appellant's claim that, on the occasions he turned up to gamble at Crown's casino, Crown's employees should have singled him out from the other high rollers and refused to accommodate him, would be to cast a burden of responsibility on Crown which goes well beyond refraining from exploitation. And in any event, having regard to the primary judge's findings, the appellant's likely response would have been to take his business elsewhere.

[35] The appellant does not have the benefit of a finding that he would have avoided his gambling losses by staying away from Crown's casino. ....

[36] One basis advanced by the appellant for fixing upon Crown as the "predator" who victimised him is that Crown knew or ought to have known of his pathological enthusiasm for gambling and that his gambling had been associated with his troubled past. But the appellant went to considerable lengths to assure Crown that his troubles with gambling were now behind him when he sought to be re-admitted to Crown's casino. That he did so is a circumstance to be borne in mind in considering his claim upon the conscience of equity. ...

[38] Finally, by way of preliminary observation, once attention is directed to the effect of the appellant's gambling enthusiasm while at the tables, as the occasion on which his special disadvantage was in play, it becomes difficult to see a good reason to single the appellant out as a person suffering from a "special" disadvantage by reason of his "relationship" with Crown. The observations of Mandie JA ]par 33 of the VSCA judgment] are apposite:

"[T]he special disability or disadvantage must be one that exists 'in dealing with the other party' and that puts the person at a disadvantage in dealing with that other party. Here, the wagers were standard gambling transactions and Crown had no greater advantage over the appellant than it had over any other gambler. The house had an edge as the appellant well knew. If the appellant had gambled less frequently, he may have won less or he may have lost less. If the appellant's wagers had been of smaller amounts, he may have won less or he may have lost less. No doubt there was some limit on what the appellant could afford to lose (although it is not clear on the evidence what that limit was) and if the appellant had gambled less frequently or in smaller amounts, that limit may have taken longer to reach (assuming that he was 'unlucky'). In the long run, the appellant was neither more likely nor less likely to win than any other gambler. These considerations also show that the wagering transactions were in any event not unfair, unjust or unreasonable as required by the Amadio doctrine."

 

In the course of the narrative of events leading to the claim

[88] We pause here in the narrative to note that the appellant's conduct on various occasions referred to above affords a practical demonstration of his ability to stop gambling when it suited him to do so. This ability was very much on display in mid-March 2006.

 

On the issue of special disadvantage

[131] In the light of the primary judge's findings, we do not accept that the appellant's pathological interest in gambling was a special disadvantage which made him susceptible to exploitation by Crown. He was able to make rational decisions to refrain from gambling altogether had he chosen to do so. He was certainly able to choose to refrain from gambling with Crown.

 

On the issue of constructive notice of special disadvantage

[160] Even if, contrary to the findings of the primary judge, the appellant did suffer from a psychological impairment, the issue here is whether, in all the circumstances of the relationship between the appellant and Crown, it was sufficiently evident to Crown that the appellant was so beset by that difficulty that he was unable to make worthwhile decisions in his own interests while gambling at Crown's casino. On the findings of fact made by the primary judge as to the course of dealings between the parties, the appellant did not show that his gambling losses were the product of the exploitation of a disability, special to the appellant, which was evident to Crown.

[161] Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.

[162] The appellant's attempt to rely upon constructive notice to supply the want of findings of awareness on the part of Crown's employees of any personal disability which affected the appellant should be rejected.

 

Media

It is not surprising that this case has attracted some media attention. See, for example,

 

 

Notes

Leave to Appeal to the High Court was granted on 14 December 2012.

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