The case concerned whether a casino could be held liable to a patron for unconscionable conduct insofar as it permitted him to gamble while knowing that he suffered from a gambling addiction. The High Court (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ) held that casinos were a unique business in which the sole goal of both casino and patron were to inflict financial harm on each other via winning money from the other in games of chance. In this context, while there may be some circumstances where a casino could be liable for unconscionable conduct, such as where a gambler was intoxicated, it could not be in the ordinary course of conducting its business. Furthermore, knowledge of a gambling condition suffered by a patron is not sufficient if that patron held himself or herself out as able to manage that condition.
Facts
Between June 2005 and August 2006, Harry Kakavas lost $20.5 million playing baccarat at the Crown Casino in Melbourne (at [1]). He was what is known as a ‘High Roller,’ a wealthy individual who gambles large sums of money at casinos around the world (at [28]).
However, for years since 1995, Mr Kakavas had been excluded from Crown, as well as other casinos in New South Wales and Queensland on various grounds including clinical diagnoses as a pathological gambler, criminal acts and charges, and police orders (at [41]-[42], [46], [48]-[54]). Many of these exclusions were self-exclusion orders, applied for by Mr Kakavas and granted by the relevant casinos, including Crown, even though it did not believe that Mr Kakavas actually had a gambling problem (rather that it had originally been made up in relation to fraud charges as a plea in mitigation) (at [41]-[42]). For this reason, along with “an acknowledgment that the appellant [Mr Kakavas] had given careful consideration to the matter and would contact Crown immediately if he had any concerns about his decision”, and a favourable report from a psychologist, the order was lifted in 1998 (at [46]). However, while the self-exclusion order was lifted, it was replaced in June 1998 by a “withdrawal of licence (WOL) to enter or remain in the casino or on Crown premises”, due to pending armed robbery charges (at [48]). Mr Kakavas made repeated attempts to have the order lifted between 1998-2001 and 2003, before ultimately being successful in January 2005 (at [68]). As a condition of having the WOL lifted, Crown required a further report from a psychiatrist or psychologist clearing Mr Kakavas of any gambling problems (at [62]). Although he could not obtain such a report from his treating psychologist at that time, at the urging of Crown to “try any psychologist” he was successful in obtaining one from another which stated that, while an assessment was unable to be performed, Mr Kakavas had said that he could successfully self-exclude if he relapsed (at [63]-[65]). Needless to say Crown accepted this as being sufficient, as its primary concern was not Mr Kakavas’ gambling problem (which it did not believe was real), but rather his “behavioural issues” (at [67]) relating to the WOL. At the time of his application to have the WOL lifted though, and throughout the relevant period, he was also the subject of an interstate exclusion order (IEO) made by the NSW Police Commissioner, the effect of which under the Casino Control Act 1991 (Vic), s 78B, was to forfeit any gambling winnings of Mr Kakavas to the Victorian government (at [8]). The existence of the IEO was known by Crown in late 2004 (at [60]).
The above being said, the trial judge found against Mr Kakavas, stating that, “Crown accepted what Mr Kakavas wanted Crown to believe: that, by November 2004, he had become a highly respected Gold Coast businessman whose liking for the gaming tables had caused problems in the past, but who had since conquered those problems to the extent that he had been able to amass wealth from his business activity.” (Kakavas v Crown Melbourne Ltd [2009] VSC 559 at [441]). This decision was upheld by the Victorian Court of Appeal (Kakavas v Crown Melbourne Ltd [2009] VSC 559).
Mr Kakavas’ Case
The cases in the courts below were contested on a quite different basis than that advanced before the High Court. Mr Kakavas had previously argued that Crown lured him to its premises and prayed on his gambling addiction (at [5]). The arguments advanced before the trial judge and the Victorian Court of Appeal were, “Crown … 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.” (at [21]). The case he advanced before the High Court was that Crown exploited his inability to cease gambling once he was there (at [5], [21]). The problem this caused for Mr Kakavas was that, in the view of the court, he was essentially now advancing a case resting on “a complaint about the outcome of risk-laden activity between the parties conducted in the ordinary course of Crown's business.” (at [21]).
In both arguments, the foundation of his claim for relief was that Crown had engaged in unconscionable conduct as defined by Mason J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462 as being a “general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.” Mr Kakavas claimed his pathological gambling condition constituted just such a special disadvantage. (at [5]). A further contention was advanced that the IEO also constituted a special disadvantage (at [8]). Mr Kakavas argued that Crown knew, or ought to have known about these special disadvantages, took advantage of them, and therefore should “be made to disgorge its takings” back to him (at [9]).
The Decision
In discussing how unconscionable conduct is to be assessed, the court identified the following factors:
- As the principle seeks to invoke the conscience of equity it looks to the conduct of both plaintiffs and defendants (at [15]-[16]);
- Courts must therefore look closely at the facts and circumstances that exist between the parties (at [17]-[18]); and,
- Mere loss or hardship suffered by one party is not sufficient, equity will not relieve a party of the consequences an improvident transaction (at [18]-[20]).
The fundamental hurdle for Mr Kakavas to overcome was the fact that gambling is a commercial transaction, in which parties engage for the sole purpose of inflicting financial loss on one another (at [25]). Given the advantages enjoyed by ‘the House’, casinos might well in a social and moral context be described as being in “the business of victimisation of the gamblers who chose to frequent it” (at [26]. But nonetheless, so far as the law is concerned, such business activity is perfectly legal (at [26]). That is not to say that a casino may not, in the course of conducting its business, be found to have engaged in unconscionable conduct. A patron may present themselves to a casino in such a way as such to make it apparent they suffer from a special disadvantage, for example: an intoxicated person, someone who is underage, or even a person who appears to be “simply incompetent” (at [30]). A further instance cited by the court may be “a widowed pensioner who is invited to cash her pension cheque at the casino and to gamble with the proceeds” (at [30]).
Another obstacle for Mr Kakavas was that he was a high roller, a species of gambler who regularly wagers monumental sums of money, sustain incredible loses and because of this are regularly sought out by casinos with incentives of many and various complimentary benefits (at [28]). During the period of gambling for which Mr Kakavas sought relief, he regularly won and lost millions of dollars, and for his patronage was paid handsome commissions by Crown, provided with free accommodation and food, and was even granted the use of Crown’s private jet (at [77]-[106]).
The final problem for Mr Kakavas in maintaining his claim was that he regularly ceased gambling during his visits at Crown to entertain guests, and at times did not frequent Crown for months (at [108]). While the primary judge did find that Mr Kakavas was a pathological gambler, nonetheless as a result of the above and his ability to self-exclude, he did frequently demonstrate his ability to control this condition (at [126]). Most importantly, he demonstrated it to Crown.
On these facts, the High Court could not conclude that Mr Kakavas suffered from any special disadvantage in his dealings with Crown. Indeed, many of the benefits he enjoyed (commissions, private jet, etc.) were the product skilful negotiations he conducted with Crown in consideration for his patronage (at [108]). Accordingly it could not be concluded on this basis that Crown had any reason to believe Mr Kakavas suffered from any disadvantage, regardless of whatever conditions he claimed to have suffered from.
The argument as to the IEO was given short shrift as:
- It could not be described as a personal disability, merely a legal constraint on Mr Kakavas’ ability to retain his winnings (at [138]); and,
- There was no finding that Crown adverted its mind (via its employees) to the effect of the IEO when Mr Kakavas resumed frequenting its casino, nor was it aware that he did not appreciate its effect (at [139]).
Finally, the court considered Mr Kakavas’ argument that if Crown did not know of his special disadvantages, that they ought to have known, i.e. it had constructive notice. Mr Kakavas relied on the further statement of Mason J in Amadio (at 467) that “if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.” (at [151]). However, the court here was wont to point out that constructive notice only applies to determining priorities with regard to competing interests in property (at [152]). Constructive notice is not to be applied to commercial transactions (at [152]). Rather, what Mason J in Amadio should be taken to refer to is wilful ignorance (at [156]). The difference is that constructive notice is knowledge a person would have had he or she made inquiries “usually made in similar transactions, and of which he or she would have received notice had he or she investigated a relevant fact which has come to his or her notice and into which a reasonable person ought to have inquired” (at [152]). Wilful ignorance, on the other hand, is “if the dealings are such as fairly to lead a reasonable man to believe that fraud must have been used in order to obtain [the advantage], he is bound to make inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject.” (Owen and Gutch v Homan (1853) 4 HLC 997 [10 ER 752] at [275], cited at [155]). Therefore, “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.” (at [161]).
The court therefore dismissed the appeal with costs (at [164]).
Conclusions
The case stands as authority for the propositions, firstly, that unconscionable conduct is heavily context dependent, and the courts will therefore look, not only to the circumstances and conduct of both parties, but also to their mental states. In this case, despite the seriousness of gambling addiction, Mr Kakavas held himself out to Crown as having it under control, and it was entitled to rely on this representation. This gives effect to the proposition stated above that the conscience of Equity looks to the conduct of both parties, not just the defendant’s. The second proposition, which is indelibly related to the first, is that given the nature of the casino business, and that Equity will not intervene to relieve the consequences of improvident transactions, the principle of unconscionable conduct will be difficult to invoke in the relationship of gambler and casino operator. This is because the very nature of the transaction is, as noted repeatedly above, for parties to inflict financial loss on each other. The gambler is walking into this situation with both eyes open, so-to-speak. Thus there can be nothing unconscionable in he or she losing money to the casino, unless there is something in their behaviour that indicates to the casino they do not know what they are doing by engaging in gambling activities.
The problem arising from their Honours’ conclusions in this case is that it completely turns on the understanding the court took of the condition of pathological gambling and its effects on Mr Kakavas. In other words, the question is not one of law but a question of fact, answered by reference to expert evidence. The court devoted a considerable portion of its judgment to detailing Mr Kakavas’ activities at Crown during the relevant period by way of demonstrating that he had full control of his gambling proclivities. Taken alone, it might be surmised that the court did not accept that Mr Kakavas had a gambling addiction and nor should have Crown. Unfortunately, it accepted the findings of the trial judge that he was a pathological gambler, but that he could control his condition. Firstly, by way of analogy, such is akin to asserting that because an alcoholic sometimes drinks water, that they have control of their condition. A similar comparison could be made with smokers. The fact is, whatever Crown’s motivations in seeking undertakings with regard to Mr Kakavas’ gambling problems, through its employees it knew that he could not obtain a psychological assessment clearing him to gamble. In other words, it was prepared to accept his word that he was okay to gamble, even though it knew a psychologist did not think he was. If it is accepted that a pathological gambler might not always gamble, but will do to dangerous excess by virtue being unable to resist the urge (such being the nature of the condition; for example, see the University of Maryland Medical Centre, Pathological Gambling [http://www.umm.edu/ency/article/001520.htm] retrieved June 2013), then the reasoning of the trial judge and the court of appeal, which was accepted by the High Court is erroneous and based on a misunderstanding of the condition. Indeed, it is difficult to see how the court can take the view that simply because someone is elderly, female, widowed and on the pension, they suffer from a special disadvantage (a rather insulting proposition to many people, I am sure), but someone with a disclosed gambling problem is not, by reason of their net worth and business acumen. Even if such a conclusion as to the nature of the disease was reasonably open to the court, it should, at the very least, have noted that this is a relatively new condition and medical and psychological understanding of it is developing all the time, in which case, the finding as to it being controllable by sufferers is open to revision in future. While this must be the ultimate effect of the decision (since if medical and psychological understandings do change, the factual basis of this decision vanishes), it nonetheless presently stands as authority for the proposition that, even if a person has a disclosed condition relevant to a transaction, if they somehow represent that it will not affect the transaction (even if, by definition, it would otherwise), then the other party is entitled to rely on that representation whatever knowledge it has to the contrary. Whether the other party is entitled to disregard this knowledge and rely on the representation will depend on current understandings of the applicable condition taken by experts and the ultimately the court.
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