By Jeannie Marie Paterson and James Ryan
Issues of gambling, the responsibilities of gaming venues and the regulation of problem gambling have been prominent in recent political debate. Kakavas v Crown  HCA 25 concerned the claim by a so-called ‘high roller’ gambler, Harry Kakavas, to $20 million dollars while gambling at Crown Casino in Melbourne between 2004–06. Kakavas claimed this amount on the basis that Crown had engaged in ‘unconscionable conduct’. Unconscionable dealing is a concept based in equity and given statutory force under s 20 of the Australian Consumer Law (Cth) (previously s 51AA of the Trade Practices Act 1974 (Cth)). As explained by Justice Mason in Commercial Bank of Australia Ltd v Amadio  HCA 14, the equitable doctrine of unconscionable dealing will set aside a transaction:
whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.
Kakavas was seeking to ‘set aside’ his decision to gamble $20 million with the result that the money he had gambled would be returned to him.
Kakavas’ claim failed for two reasons. First, the High Court doubted that Kakavas suffered from a ‘special disability’ in the sense required to make out unconscionable conduct. Secondly, even Kakavas did suffer from a special disability, the High Court found that Crown did not actually know of it at the time when the allegedly unconscionable conduct took place. Critically, the High Court said that a trader in the position of Crown had to have actual knowledge of the disadvantage of a problem gambler such as Kakavas.
The Problem Gambler
Kakavas had a history of gambling problems. At age 27 he lost $110,000 of his father’s money at Crown Casino and in 1998, he spent four months in gaol for defrauding Esanda Finance Corporation of $286,000. In 1996, mental health professionals diagnosed him as suffering from a pathological gambling condition. In 1995, he sought and was granted a self-exclusion order from Crown. A self-exclusion order involves the gambler requesting the casino not to admit him to the premises for a period of time. He later revoked the self-exclusion order. In 1998, Kakavas was the subject of a withdrawal of licence order where Crown chose to exclude him from the premises on the basis of pending armed robbery charges. In 2000, the NSW Police Commissioner excluded him from Sydney’s Star City Casino and in the same year he chose to exclude himself from Jupiter’s Casino on the Gold Coast. In 2000, he moved to the Gold Coast and established a highly profitable business there. In 2003, he began travelling to Las Vegas for gaming purposes and this was brought to the attention of Crown, who then made efforts to attract his business. In late 2004, he was approved for a return to Crown Casino.
On the face of the previous difficulties Kakavas had suffered, it may seem surprising that Crown approved his return, but they did so partly on the basis of a report by a psychologist who said that Kakavas no longer had a problem with gambling, and because Kakavas could apparently choose to exclude himself if his gambling became a problem. The attempts to attract his business from this point onwards included being a guest of Crown at the Australian Open in 2005, use of a corporate jet, special rebates and commissions and free food and beverages.
In 2007, Kakavas instituted proceedings before the Supreme Court of Victoria to recover the $20 million he had gambled at Crown, but he was unsuccessful. He then lost an appeal to the Full Court in 2012. These actions were based on the argument that Crown had engaged in unconscionable conduct by attempting to entice the custom of Kakavas. In the High Court the claim was changed, and it was alleged instead that Crown had engaged in unconscionable conduct by failing to respond to Kakavas’ inability to make worthwhile decisions whilst at the gaming table.
Why did the High Court find that Crown’s conduct was not unconscionable?
The High Court (Chief Justice French, Justices Hayne, Crennan, Kiefel, Bell, Gageler and Keane) was unanimous in rejecting the appeal.
In applying the Amadio principle, the Court emphasized the importance of the factual setting of each case. Their Honours confirmed that an assessment of unconscionable conduct ‘calls for a precise examination of facts, scrutiny of relations and a consideration of the mental capacities, processes and idiosyncrasies of the parties’. The Court also emphasised that the essence of the doctrine of unconscionable conduct is not to relieve parties against improvident or foolish transactions but to prevent victimisation.
In this case the Court simply did not accept there had been any ‘victimisation’ by Crown of Kakavas in the relevant sense. An influential factor that was that gambling was by its very nature a risky transaction for both of the parties concerned. The very purpose of gambling from each party’s point of view is to inflict a loss on the other party.
Did Kakavas suffer from a special disability?
On the question of whether the Kakavis suffered a ‘special disability’, necessary for a finding of unconscionable conduct, the Court accepted the factual findings of the trial judge that Kakavis was a problem (even pathological) gambler. In this respect a great deal of expert evidence was adduced to support the finding. But these findings did not demonstrate that Kakavas was unable to control the urge to gamble. The court did not consider that Kakavas was at a special disability vis-à-vis Crown because it was he who made the decision to enter a gaming venue and, moreover, because he was able to refrain from gambling at Crown when he chose to do so.
What knowledge was required to establish unconscionable conduct, and did Crown have that knowledge?
Even if Kakavas did suffer from a special disability, the Court also found that Crown did not have the knowledge of this disadvantage required to taint its conduct in its dealings with Kakavas as unconscionable. The Court highlighted that Kakavis did not present himself as someone incapable of making worthwhile decisions for himself. Kakavas appeared to be a successful businessman whose finances were in good shape, and he appeared to be making he own choices about whether and where to gamble. Crown knew of Kakavas’ problems with gambling in the past but had subsequently been given a report by a psychologist which had indicated that Kakavas was now in control of his gambling.
One of the most significant aspects of the case is the Court’s pronouncement on the level of knowledge that must be held by a party (usually the trader) in order to find that they have engaed in unconscionable conduct. In this particular case Kakavas argued that either actual or constructive knowledge by Crown of his special disadvantage was sufficient. Actual knowledge, as the name suggests, involves actually knowing of the special disadvantage. However, a person who has constructive knowledge does not actually know of the special disadvantage. Rather the trader is said to have constructive knowledge of special disadvantage if she would have known of the special disadvantage had she made reasonable inquiries into the matter. The Court dismissed the place for constructive knowledge in cases of this kind. Knowledge for the purpose of unconscionable conduct meant actual knowledge or at least wilful ignorance (where a trader closes its eyes to the vulnerability of a customer). The Court explained that actual knowledge of the special disability was central to the finding of victimisation necessary to establish unconscionable conduct in equity. The Court explained at :
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.
This is a narrow conception of what amounts to unconscionable conduct, ruling out cases where a trader neglects to take reasonable steps that would alert it to the vulnerability of the customers with whom it is dealing. However, responsibilities to take care when dealing with potentially vulnerable consumers may be imposed under ss 21–22 of the Australian Consumer Law, which contains broad prohibitions on unconscionable conduct that go beyond the equitable doctrine discussed in Kakavas, and under the Contracts Review Act 1980 (NSW) which contains a wide ranging power for courts to reopen ‘unjust contracts’. [See J M Paterson, ‘Knowledge and Neglect in Asset Based Lending: When is it Unconscionable or Unjust to Lend to a Borrower Who Cannot Repay’ (2009) 20 Journal of Banking and Finance Law and Practice 1]
Unconscionable conduct in future gambling cases?
The decision in Kakavas does not rule out the possibility of unconscionable dealing being successfully argued in other cases involving problem gamblers. One suspects the likelihood of success will be increased by the presence of a somewhat more conventionally disadvantaged victim, whose vulnerability should be well apparent to the gaming venue. The Court itself gives some examples of cases where there might be unconscionable dealing by a gaming venue in allowing a vulnerable customer to continue to gamble. These examples (listed at ) were:
- ‘a widowed pensioner who is invited to cash her pension cheque at the casino and to gamble with the proceeds’,
- ‘someone who gambles, when there are factors in play other than the occurrence of the outcome that was always on the cards’, and
- a person who is ‘intoxicated, adolescent or even incompetent.’
These sorts of case are also likely to be brought under s 21 of the Australian Consumer Law, which, as discussed above, contains a broader prohibition on unconscionable conduct than under the equitable notion considered in Kakavas.
AGLC3 Citation: Jeannie Marie Paterson and James Ryan, ‘Casino Not Liable for Bets Made by Problem Gambler: Kakavas v Crown Melbourne Ltd’ on Opinions on High (6 August 2013) <http://blogs.unimelb.edu.au/opinionsonhigh/2013/08/06/paterson-ryan-kakavas/>.
Dr Jeannie Paterson is a Senior Lecturer at Melbourne Law School.
James Ryan is a JD candidate at Melbourne Law School.
About James Ryan
James Ryan is a second year JD student at Melbourne Law School, and holds a BA in politics and history from Deakin University. His research interests include commercial transactions and gaming regulation, stemming from taking Contracts with Dr Jeannie Paterson and previously working in betting regulation for Racing Victoria Ltd.