Kakavas v Crown Melbourne Ltd
High Court of Australia · 2013
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392
He lost $20.5 million at one casino and had been diagnosed as a pathological gambler. Why did a unanimous High Court still send him away with nothing?
Kiefel CJ, Keane and Gleeson JJ said at [39] that Amadio's considerations "should not be understood as if they were to be addressed separately as if they were separate elements of a cause of action in tort", and relied on the Jenyns passage, "approved by this Court in Kakavas", that calls for a precise examination of the particular facts. So argue special disadvantage, knowledge and exploitation as one inquiry about what the stronger party did with what it appreciated, not as three boxes to be ticked in turn.
The rejection of constructive notice does not make an express finding of actual knowledge a precondition of relief. Kiefel CJ, Keane and Gleeson JJ accepted at [44] that the primary judge's findings that the lender's solicitor "should have known" did "not rise to an unequivocal finding of actual knowledge", but held that "a finding in such terms was not essential": "the question is whether Mr Jeruzalski's appreciation of the appellant's special disadvantage was such as to amount to an exploitation of that disadvantage". At [45] their Honours cited Kakavas as having approved Mason J's "knows or ought to know" emphasis, and at [46] relief followed because the solicitor "had sufficient appreciation of the appellant's vulnerability, and the disaster awaiting him". Write the knowledge element as what the stronger party appreciated.
How far Kakavas goes on knowledge is not settled. In the New South Wales Court of Appeal (an intermediate court, not binding on the High Court), Bell CJ distinguished constructive notice, "being on notice of facts that might lead on inquiry to discovery of the existence of a special disadvantage", from constructive knowledge, and held that the first "is insufficient". His Honour's view was that "the only way to reconcile Kakavas and Thorne in relation to questions of knowledge is that Kakavas must be understood as standing as authority only for the negative proposition that constructive notice is insufficient", and that Thorne and Stubbings show "a retreat from Kakavas' apparent insistence on a requirement of actual knowledge or wilful ignorance"; the case was resolved on other grounds and his Honour did not reach a concluded view. Do not state the wilful-ignorance reading as settled.
An intermediate court has also warned against resting on [161] alone. On an application to set aside a default judgment, where the only question was whether a defence of unconscionability was reasonably arguable, Griffiths AJA (White JA and Basten AJA agreeing) found "several difficulties with the primary judge's reliance on Kakavas alone": Kakavas was a two-party dealing between a gambler and a casino, whereas the case before the court involved a third-party financier, and Thorne and Stubbings suggest that the propositions in [161] "may require some modification". The primary judge fell into error, his Honour said, because he failed to appreciate that "the law was not as settled by Kakavas as he believed". The court allowed the application and remitted the matter for trial. It did not overrule Kakavas, and it decided no claim on the merits. In a guarantee or other three-party problem, do not cite [161] as if it settled the standard of knowledge or whether passive exploitation can suffice.
The predatory-state-of-mind requirement was questioned outside the commercial setting in the New South Wales Court of Appeal, an intermediate court whose observations do not bind the High Court. Bell CJ said it "may be a stretch of language" to describe a passive recipient of a gift who later learns of the donor's impairment as having "a predatory state of mind", suggested that Kakavas's statements "are properly to be confined to a circumstance involving apparently arms' length commercial transactions and not gifts", and expressed only a provisional view, on an issue not fully argued, that a predatory state of mind "may be presumed" where the donor was under a special disadvantage and the recipient actually knew of it. Ward P read the requirement as "simply another way of saying that there needs to be unconscientious exploitation with the requisite knowledge". In a commercial-dealing problem, state the Kakavas requirement as the Court did; in a gift problem, say it is contested.
What happened?
Between June 2005 and August 2006 Mr Kakavas lost $20.5 million playing baccarat at Crown's casino in Melbourne ([1]). He had a long history with it. He had been treated for gambling problems and diagnosed years earlier as a "classic pathological gambler" ([43]), and he had been barred from Crown, first by his own self-exclusion order and then by a withdrawal of licence ([42], [48]). In 2000 the New South Wales Police Commissioner made an interstate exclusion order against him; under the Victorian Casino Control Act, winnings payable to a person subject to such an order were forfeited to the State ([50], [137]).
Crown revoked the withdrawal of licence in early 2005, after approaching him, once its executives learned that he was gambling heavily and "travelling well" in other casinos and after a psychologist's report recorded his account that he had "conquered his past demons" ([57], [65], [68]). He then played on 28 occasions in 30 programs, with the inducements a high roller receives, and never suggested to Crown that he could not afford it ([74], [75]).
He sued Crown and two of its executives, relying on s 51AA of the Trade Practices Act 1974 (Cth) and the general law that informs it ([2]). The primary judge and the Victorian Court of Appeal dismissed his claims ([4]). In the High Court he dropped the case that Crown had lured him and argued instead that Crown had exploited his inability, because of a pathological urge to gamble, to make worthwhile decisions while he was at the tables ([5]), and also his ignorance of the effect of the exclusion order ([8]). His counsel disavowed any challenge to the primary judge's findings of fact ([14]).
What did the Court decide?
The appeal was dismissed with costs, the claimant's challenges to the Court of Appeal's decision failing ([163]-[164]). The Court took the primary judge's findings of fact as they stood.
Two things the Court expressly left undecided. It did not decide the respondents' arguments on illegality and causation ([12]). And, having observed that the claimant's change of tack meant the courts below had addressed a different case from the one now put, it said it was unnecessary to reach a final view on whether the primary judge's focus on equality of bargaining power was orthodox ([120]-[121]).
Proposition
What is the principle?
Each proposition below is the reasoning of the whole Court, which gave one joint judgment (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ).
Where a claimant invokes the Amadio principle, special disadvantage is not assessed on its own. The Court said it "does not accord with" the orthodox approach in Jenyns to "consider the appellant's 'special disadvantage' separately, in isolation from the other circumstances of the impugned transactions" ([124]). The question is whether the transactions were procured by the defendant taking advantage of the claimant's inability to make worthwhile decisions in his or her own interests, an inability sufficiently evident to the defendant to make its conduct exploitative. On the findings, a diagnosis of pathological gambling did not establish that the claimant could not decide to refrain from gambling, and he was "certainly able to choose to refrain from gambling with Crown" ([135]). The exclusion order was "a legal constraint", not "a personal disability", and could count as a disadvantage "only because the appellant was ignorant of its effect"; there was no finding that Crown's employees knew he did not appreciate it ([138]-[139]).
On knowledge, the Court rejected the claimant's reliance on constructive notice. It said that Mason J "cannot be taken to have supported the importation of the concept of constructive notice into the operation of the principle he enunciated in Amadio" ([155]), and that what his Honour was speaking of was "wilful ignorance, which, for the purposes of relieving against equitable fraud, is not different from actual knowledge" ([156]). The Court did not say that inquiry is never called for, and at [146] left open what a practical inquiry would have turned up.
Finally, "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" ([161]). That was said of an arm's length commercial transaction, and the Court added that the principle is not engaged merely because a transaction caused loss, even hardship, or because a plaintiff met the risks of a lawful business conducted in the ordinary course ([19]-[20]).
Why does this case matter?
This is the High Court's worked example of an unconscionable dealing claim that fails, and it fails despite every ingredient a sympathetic narrative could ask for: a clinical diagnosis, a very large loss, a defendant that profited and knew a good deal about the claimant's past. Keep that in mind whenever an answer is tempted to rest on how sympathetic the claimant is.
It is also a case about how a case is put. What the trial evidence showed about how the claimant presented to Crown, and what he told it, counted for more than any label for the doctrine ([133], [146]).
Do not carry the gambling setting to other facts as though the Court had drawn a general line. It said what it was not deciding: "one is not concerned here with a casino operator preying upon a widowed pensioner" ([30]), and it named the factors that would change the description, for example a gambler who is "evidently intoxicated, or adolescent, or senescent, or simply incompetent".
Exam and application relevance
Identify what the weaker party could not do, and when, and prove it from the facts rather than from a label. A diagnosis, an addiction, a legal restriction or a financial pressure is the beginning of the analysis. Then say what the stronger party appreciated and what it did with that appreciation. Kakavas is an authority for treating these as one inquiry about the dealing as a whole ([124]).
Two citations from this case are often run together and should be kept apart. One is the narrow point about constructive notice ([155]-[156]); the other is the failure of the claim on its facts ([160]-[161]). The later authority recorded on each proposition above shows where each has been qualified; cite the point you need and the treatment that goes with it, and do not describe Kakavas as settling more than the Court decided.
Do not cite the case as holding that unequal bargaining power is irrelevant, or that the primary judge's approach was orthodox: the Court said it was unnecessary to decide the second ([120]), and it said at [117] that the absence of a reasonable equality of bargaining power by reason of special disability, "while not decisive, is important".
Check your understanding
1. A man with a diagnosed gambling disorder gambles at a venue that knew of his history but was told by him that he had recovered. List the facts a court would look for before it could say he was exploited, and say why the diagnosis alone does not supply them.
2. A lender's officer is told facts that would lead a careful person to ask whether a borrower is suffering from a disability, and does not ask. Which reasoning in Kakavas would the borrower have to confront, and what would the borrower need to show about the officer's own appreciation of the position?
3. A claimant says the defendant was indifferent to the claimant's interests in an ordinary commercial dealing. What does the Court say about indifference in that setting?