Yesterday, the High Court of Australia, in a unanimous joint judgment1, dismissed an appeal brought by ‘high roller’ Harry Kakavas who sought to recover over $20 million in losses from Crown Casino incurred whilst gambling at the casino in Melbourne.

Background

Kakavas is a property developer and a high roller well known to casinos both in Australia and overseas.

Kakavas alleged that Crown had provided him, a known problem gambler, with a number of inducements to gamble, including:

  • the use of a jet on about 30 occasions to fly to Melbourne;
  • gifts of thousands of dollars on many occasions, including when Kakavas boarded the plane or arrived at the casino hotel; and
  • the provision of lines of credit of up to $1.5 million.

During the period June 2005 to August 2006, Kakavas wagered around $1.5 billion at Crown, in some cases betting upwards of $300,000 a hand.

Mr Kakavas commenced proceedings against Crown to recoup his losses.  At first instance, he pleaded a number of causes of action, including negligence and unconscionable conduct under the relevant provisions of the then Trade Practices Act 1974 (Cth).

Crown applied to strike out the claim in its entirety. In an interlocutory decision2, Harper J ruled that claims of active and deliberate intervention by a casino operator in the knowledge and exploitation of a patron’s vulnerability are not claims in negligence. Nonetheless, his Honour allowed the claim to proceed on the basis of unconscionable conduct.

Kakavas subsequently re-pleaded his claim on the basis of unconscionable conduct against Crown (and two Crown employees) but still did not succeed3. Harper J held, among other things that Kakavas did not suffer from a special disadvantage. Rather, Kakavas was able to negotiate very favourable terms for his visits to Crown, and was able to abstain from visiting the casino until his demands were met.

The Court of Appeal of the Victorian Supreme Court unanimously upheld the decision of the trial judge4, finding that Kakavas had not displaced the finding that he was not in a position of special disadvantage.

The High Court Decision

The High Court provides a useful summary5 of the basis for the appeal and the general principle relating to unconscionable conduct:

“In this Court the focus of the appellant's forensic strategy shifted away from the proposition that Crown lured or enticed him into its casino. The emphasis of the case advanced here, by the appellant, was upon the exploitation of the appellant's inability, by reason of his pathological urge to gamble, to make worthwhile decisions in his own interests while actually engaged in gambling. The appellant submitted that Crown exploited his condition by allowing him to gamble at its casino.

The appellant submitted that, on the findings of fact made by the primary judge, he had made good his claim to relief in accordance with the statement by Mason J in Commercial Bank of Australia Ltd v Amadio of the "principle which may be invoked 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", to relieve the innocent party of the consequences of that conduct. In stating the principle, Mason J 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."

To succeed, Kakavas would have needed to satisfy the Court of the following two propositions:

  • that he suffered from a special disadvantage whilst actually gambling (namely, his pathological urge to gamble, which impaired his capacity to make rational decisions in his own interests); and
  • that Crown exploited Kakavas’ special disadvantage.

Special Disadvantage

The Court had regard to the trial judge’s findings, including that Kakavas’:

  • "level of functioning in each of the personal, familial, financial, vocational and legal levels was ... unremarkable."; and
  • "finances were, at least to outward appearances and perhaps in fact, in sound, perhaps excellent, shape."6

While the Court accepted that Kakavas had a pathological interest in gambling, it held that this did not amount to a special disadvantage. Indeed, the Court held that Kakavas had the capacity to make rational decisions to refrain from gambling altogether, including to refrain from gambling at Crown casino.

Kakavas sought to run an alternative argument that he suffered from a special disadvantage by virtue of an interstate exclusion order made against him, the effect of which is that all winnings earned whilst gambling at Crown were to be forfeited to the State of Victoria, however that argument was swiftly rejected by the Court.

Exploitation by Crown

Notwithstanding its findings in relation to the issue of there being a ‘special disadvantage’, the Court considered whether Crown had knowledge of, or were put on inquiry as to, Kakavas’ pathological urge to gamble.

In relation to actual knowledge, Kakavas relied on the following facts:

  • Crown had required Kakavas to undergo a assessment of his gambling problems and was aware of certain matters which suggested that Kakavas had a history of problems with gambling; and
  • Crown was aware of the interstate exclusionary order made in respect of Kakavas.

However, the High Court referred to the trial judge’s findings and observed that:

  • In respect of Kakavas’ psychological assessment, it did not necessarily indicate that Crown employees were alive to Kakavas’ ‘special disadvantage’. Moreover, among other matters, Kakavas had indicated that he had “conquered his past demons” and had a “relapse plan” which he was open to implementing.
  • In respect of the interstate exclusionary order, Crown officers did not appreciate the significance of the order. Indeed, they paid Kakavas his winnings when they should have been forfeited. In that regard, Crown could not have been said to have exploited Kakavas’ ‘special disadvantage’.

The Court also had regard to the trial judge’s findings as to how Kakavas presented as a witness during the trial. Matters such as his highly confident demeanour and his ability to remain clear and focused in expressing himself were held to be indicative that Kakavas would not have presented to others as someone whose capacity to make worthwhile decisions in his own interests was impaired by a pathological urge to gamble.

Kakavas also sought to rely upon the notion of constructive knowledge, namely that Crown should have been alert to Kakavas’ condition having regard to the course of dealings between the parties. The Court rejected this argument, observing7 that:

“[e]quitable 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.”

Does the Decision Rule Out Future Claims by Problem Gamblers?

The Court made a number of interesting general observations in its overview of Kakavas’ case and the issues it raises, many of which would tell against the prospects of success for claims brought by problem gamblers against casinos and other gambling operators. For instance, the Court noted the reluctance of equity to intervene in circumstances where “a plaintiff voluntarily engages in risky business8.

Such claims, however, cannot be ruled out altogether and the possibility that a problem gambler can succeed in an unconscionable conduct claim against a gambling operator remains open.  In circumstances where a problem gambler suffers from a continuous compulsion which impaired him/her from staying away from the gambling tables, that gambler may be able to establish the requisite special disadvantage. Where the gambler can also prove that the gambling operator was aware of this disadvantage and actively sought to take advantage of it, then a claim by that gambler may ultimately succeed.

The assistance of Nicholas Rozenberg, Solicitor, of Addisons in the preparation of this article is noted and greatly appreciated.