On 5 June 2013, the High Court dismissed an appeal from a decision of the Supreme Court of Victoria Court of Appeal, which held that Crown Melbourne Limited did not engage in unconscionable conduct. The decision provides some guidance on whether a “special disadvantage” exists in a relationship.
Kakavas v Crown Melbourne Limited:
The appellant Mr Kakavas, a property developer, argued that Crown Melbourne Limited (Crown) acted unconscionably, contrary to section 51AA of the Trade Practices Act 1974 (Cth) (now section 20 of the Australian Consumer Law) and at general law, by allowing Mr Kakavas to gamble and lose $20.5m. Two of Crown’s employees were alleged to be involved in the contravention of section 51AA.
Mr Kakavas had previously been diagnosed as a pathological gambler. In the early 1990s, he defrauded a finance company in order to support his addiction to gambling. Around this time, he applied for self-exclusion orders from Crown and other casinos. In the late 1990s, this order was revoked and replaced with a withdrawal of licence (WOL) to enter or remain on Crown premises. In 2004, after Crown discovered that Mr Kakavas was travelling well financially and was playing at casinos in Las Vegas, it agreed to revoke the WOL on the condition Mr Kakavas obtained a report from a psychologist or psychiatrist stating that he no longer had gambling problems. A psychologist prepared a report stating that although she could not provide an assessment on Mr Kakavas’ suitability for re-admission to Crown, Mr Kakavas had told her that he would not hesitate to self-exclude himself again if he relapsed into problem gambling behaviour.
Between 24 June 2005 and 17 August 2006, Mr Kakavas visited Crown’s casino on numerous occasions. He entered into premium player agreements and was provided with lavish inducements to gamble at the casino including the use of a private jet, lucky money, special rebates and commissions, cheque cashing facilities, and free food, beverages and accommodation.
Section 51AA provides that “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.” In defining unconscionable conduct, the High Court referred to the seminal case Commercial Bank of Australia v Amadio in which it was said that such conduct arises “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”. In stating the principle, the High Court in Amadio went on “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 argued that the primary judge and the Court of Appeal erred by focusing mainly on the equality of bargaining power between Mr Kakavas and Crown, rather than the trial judge’s finding that Mr Kakavas was a problem gambler. At trial, Mr Kakavas sought to establish that Crown acted unconscionably by deliberately preying upon his personality flaws to entice him into Crown’s casino. However, on appeal Mr Kakavas changed his strategy to focus on the exploitation of his inability to make proper decisions in his own interests while actually engaged in gambling, such as the amount and frequency of his wagers. Mr Kakavas submitted that Crown exploited his condition by allowing him to gamble at its casino and by providing him with inducements.
Observations as to unconscionable conduct and gambling
The High Court made some general observations as to the nature of gambling and whether equity should intervene in such circumstances. The Court noted that:
- While it would not rule out that multiple transactions could constitute unconscionable conduct, it did note the practical difficulty of such a claim and the fact that such a claim has never been successfully invoked by a party seeking the net loss of such transactions.
- There has never been a successful claim by a party who has made a voluntary decision to indulge his or her special disadvantage during a time when that party was not in the grip of that disadvantage.
- Gambling activities are unusual in that they take place in a commercial context in which the unmistakable purpose of each party is to inflict loss upon the other party to the transaction.
- Gambling is a risky business and in order to succeed, Mr Kakavas must be able to point to conduct on the part of Crown which goes beyond the ordinary conduct of business, which makes it just to require Crown to restore Mr Kakavas to his original position.
- It was difficult to see the special factual foundation required to shift responsibility for Mr Kakavas’ conduct onto Crown, whose conduct did not go beyond accommodating the appellant’s wish to engage in risky business. For example, there was no evidence that Crown was aware that the Mr Kakavas could not afford to gamble in the manner he did, that he gambled while intoxicated or that he was an incompetent card player.
Problem gambling as a special disadvantage
The Court held that Mr Kakavas’ pathological interest in gambling was not a special disadvantage which made him susceptible to exploitation by Crown. It held that he could have made the rational decision to refrain from gambling should he have chosen to do so, and he was certainly able to choose to refrain from gambling with Crown. The Court considered the following facts relevant:
- Mr Kakavas knew that he could selfexclude himself from casinos if he chose to do so and he had done so in the past in relation to Crown
- While at Crown, Mr Kakavas took breaks from the gambling table and entertained friends at the casino and enjoyed outside entertainment and meal breaks
- Mr Kakavas demonstrated an ability to bargain with Crown in pursuit of his own interests. For example, on one occasion he refused to gamble during his visit to Crown because Crown would not agree to the hand limit he was seeking, and
- He was able to refrain from gambling at Crown for periods of several months.
The IEO as a special disadvantage
Mr Kakavas argued that he was in a position of special disadvantage not only because he was a problem gambler, but also because he was subject to an interstate exclusion order (IEO) made in New South Wales by the Commissioner of Police. The effect of the IEO was that any winnings payable to Mr Kakavas by Crown as a result of Mr Kakavas’ gambling activities were forfeited to the State of Victoria. Mr Kakavas argued that if he had known that this was the effect of the IEO, he would not have gambled at Crown’s casino at all. The Court held that the imposition of an IEO was not a special disability or disadvantage; rather it was a legal constraint.
Exploitation of Mr Kakavas’ special disadvantage
The Court noted that absent additional factors such as intoxication, adolescence, senescence or incompetency, it would be difficult to describe the accommodation by an operator of a casino of a patron’s desire to gamble as a case of victimisation. The Court explained that this was especially so in the case of high roller, who has the means to financially hurt the casino should he or she strike lucky.
Thus the Court concluded that Mr Kakavas did not present as a target for victimisation by Crown any more than the other high rollers feted by Crown at its casino while they chose to gamble there. Mr Kakavas promoted his financial capacity to Crown consistently throughout the period of his gambling. The Court also noted that Crown was entitled to take the psychologist’s report at face value, namely that Mr Kakavas had a relapse plan that he would not hesitate to implement.
Further, there was no evidence that Crown employees adverted to, or exploited, the IEO. The Court accepted the trial judge’s findings that Crown employees were as ignorant to the effect of the IEO as Mr Kakavas.
The interpretation and scope of “unconscionable conduct” within section 51AA of the Trade Practices Act 1974 (Cth) (now section 20 of the Australian Consumer Law) has been subject to much debate, specifically as to whether or not moral fault is required. In Kakavas, the interpretation of the term was not brought into issue. The Court applied the general law principles from Amadio and in that case conduct was held to be unconscionable despite the absence of dishonesty or moral obloquy.
However, it is noteworthy that the Court imported traditionally criminal law phrases such as “perpetrator” and “victimisation” into the notion of exploitation. The Court said “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.” That suggests that constructive notice of a “special disability” will be insufficient and actual notice must be established in order to demonstrate that a party took advantage of a special disability.
While the case does not rule out the possibility of a problem gambler succeeding in a claim of unconscionable conduct against a gambling operator, the High Court does note that it is difficult for equitable intervention to arise in circumstances where a plaintiff engages voluntarily in risky behaviour.