Casinos, unconscionability and gamblers

Harry Kakavas v Crown Melbourne Limited [2013] HCA 25

The High Court rejected an appeal in relation to alleged unconscionable conduct pursuant to s 51AA of the Trade Practices Act 1974 (Cth).  The key issue in the earlier proceedings¹ was whether Crown Melbourne Limited (Crown) acted unconscionably in inciting the appellant, Harry Kakavas, a known problem gambler, to gamble at its casino.

Background

The appellant commenced gambling at Crown’s casino in 1994, a decade before the alleged unconscionable conduct.  In that year he lost $110,000 in gambling and was guilty of fraud of approximately $286,000.  In seeking to mitigate his offence, the appellant asserted that his fraud was committed to support a gambling addiction.  Crown referred the appellant to a doctor, who ran a program for problem gamblers.

In 1995, the appellant applied for and was granted a self-exclusion order by Crown, which prevented him from gambling at the casino.  In 1996, the doctor referred the appellant to a clinical psychologist who specialised in gambling related diseases.  The appellant was diagnosed as a classic pathological gambler.  To Crown’s knowledge, the appellant was treated for his problem.

In 1998 the appellant sought to revoke his self-exclusion order.  The application was accompanied by a report from a psychologist stating that the applicant “no longer felt the pathological compulsion to gamble”.  The self-exclusion order was revoked but replaced with a withdrawal of license (WOL) to enter or remain on the Crown premises, pending certain charges against the appellant.

Between 1998 and 2001 the appellant repeatedly sought re-entry to Crown’s casino and revocation of the WOL.  On or around this time, the appellant was excluded from various casinos around Australia, in some cases, at his own volition.  Crown, through the knowledge of its employees, was found to know of these exclusions.

In 2003, the appellant met with the then VIP Services Manager of Crown and discussed how well the appellant was doing and his trips to gamble in Las Vegas.  This prompted discussions as to allowing the appellant back to Crown casino.

In 2004, Crown initiated contact with the appellant.  One of Crown’s senior executives informed the appellant that the WOL would be revoked upon the appellant making a written application accompanied by an opinion from a psychiatrist/psychologist stating that he no longer had a gambling problem.

The first psychologist that the appellant visited refused to provide the appellant with a letter clearing him of his gambling problems.  At the recommendation of another of Crown’s senior executives, the applicant visited another psychologist who wrote a report to the effect that the appellant had informed her of his gambling compulsion but had turned his life around, also stating that if he “had a relapse he would again self-exclude”.

In January 2005, Crown decided to revoke the WOL.  By this time, the appellant had represented to Crown that he was a highly respected Gold Coast businessman, that he was able to amass wealth from his business activity, and that he had conquered his “demons”.  Prior to returning to the casino, the appellant negotiated with the senior executives at Crown for incentive benefits such as the use of Crown’s private jet, rebate losses and various other amenities.

Between June 2005 and August 2006, the appellant visited Crown’s casino several times, losing approximately $20m on a turnover of $1.4b.  He also gambled elsewhere.  His patterns of play during this time were consistent with the picture he portrayed of himself, with an appropriate awareness of balance.

On or about 17 August 2006 he had a conversation with a Crown senior executive in which he raised, for the first time, concerns over his gambling losses.  Subsequent to this Crown refused the appellant’s requests that Crown allow him to deposit “front money” into an account at the casino.

The appellant argued that Crown’s employees knew, or ought to have known, of his pathological urge to gamble in a number of ways and acted unconscionably in providing him with incentive benefits to gamble at their casino.

Supreme Court and High Court findings

The appellant submitted that the primary judge and the Court of Appeal erred by giving insufficient attention to the finding by the primary judge that the appellant is a problem gambler and in failing to apply the principles of constructive notice that Crown was aware of the possibility that a situation of special disadvantage may exist.

The primary judge concluded that Crown had no basis to form the view that the appellant was suffering from any kind of relevant disadvantage.  There was no exploitation of any special disability from which the applicant may have been suffering.

Even if an individual possesses the degree of control over the behaviours that may be associated with the disorder ie pathological gambling, having the diagnosis itself does not demonstrate that a particular individual is (or was) unable to control his or her behaviour at a particular time.  The primary judge rejected the appellant’s claim that his pathological interest in gambling was a special disability which made him susceptible to exploitation by Crown.

The High Court emphasised the importance of the principle that there must be an unconscientious “taking advantage” by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests.  The issue was whether this was a case of serial victimisation.

The High Court further cited the principle that the extent of the knowledge of the disability of the appellant which must be possessed by the respondent is an aspect of the question whether the appellant has been victimised by the respondent. That is, it must be sufficiently evident to the other party to make it prima facie unconscionable that the other party procure the disadvantaged party’s assent to the impugned transaction.

Even if it was found that the appellant did suffer from a psychological impairment, the issue was whether it was sufficiently evident to Crown that the appellant was so affected by that difficulty that he was unable to make worthwhile decisions in his own interests while gambling at Crown’s casino.

By way of the depiction he created, his finances were to outward appearances, sound. This was found to be inconsistent with the view that he was a person unable to make a responsible decision in relation to his gambling.  More notably, it was inconsistent with the notion that Crown knew, or ought to have known, that this was in fact not the case.

The appellant did not present to Crown as a man whose ability to make worthwhile decisions to conserve his own interests was adversely affected by his “unusually strong interest in gambling”.  This was accorded significant weight by the High Court. 

Lavan Legal Comment

This case raises four important considerations in relation to the equitable doctrine of unconscionable dealing:

  • In a given transaction, the way in which a party presents themselves to be can impact the constructive knowledge element of special disability.

  • By extension, the relative vulnerability of the plaintiff is a determinant factor.

  • The extent of other dealings.  The plaintiff’s ability to enter into similar transactions with parties other than the defendant will further weaken the burden of knowledge on the defendant.

  • Whether there is a predisposition to vulnerability only, or whether there is a taking of advantage of the vulnerability.

¹ Kakavas v Crown Melbourne Ltd [2009] VSC 559