Kakavas v Crown Melbourne Limited [2013] HCA 25 (5 June 2013): High court reviews the principle of unconscionable conduct, the operation of equity and the nature of special disadvantage

June 13, 2013 |

 In a unanimous decision the High Court in Kakavas v Crown Melbourne Limited [2013] HCA 25 rejected an appeal by Harry Kakavas against Crown Casino in equity.  The court undertook a detailed analysis of the principles of unconscionable conduct and special disadvantage.

FACTS

Kakavas submitted, at [6], that the principles of Amadio applied, particularly that “..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”. He also submitted that Crown had constructive notice of his special disadvantage [150].

Crown submitted:

  1. that Kakavas’ abnormally strong urge to gamble was not a compulsion which deprived him of the ability to make a worthwhile choice whether or not to gamble, or to continue to gamble, with Crown or anyone else [11];
  2. Crown’s employees did not knowingly exploit the appellant’s abnormal interest in gambling. Kakavas presented as a successful businessman able to afford to indulge himself in the high stakes gambling in which he chose to engage [11]
  3. Kakavas suffered no compensable loss [12]

DECISION

 The court undertook a detailed overview of the principle of equitable fraud.  When the considering the principles of equity enunciated in Amadio their Honours stated:

“..the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff’s loss should be ascribed to unconscientious conduct on the part of the defendant.”

When seeking equitable intervention their Honours stated the following:

  1. the principle which the appellant invokes is not engaged by the circumstance that a plaintiff’s transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship [19]
  2. A plaintiff who voluntarily engages in risky business cannot call on equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position [20].
  3. courts of equity don’t stigmatise the ordinary conduct of a lawful activity as a form of victimisation in relation to which the proceeds of that activity must be disgorged [26]
  4. The absence of a reasonable equality of bargaining power by reason of the special disability of one party to a transaction, while not decisive, is important given that the concern which engages the principle is to prevent victimisation of the weaker party by the stronger [117]
  5. it is essential that there should 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. That will not always be manifested in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker.  The rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction [118].
  6. A court of equity looks at every connected circumstance that ought to influence its determination of the real justice of the case  [122]
  7. proof of the interplay of a dominant and subordinate position in a personal relationship depends, “in large part, on inferences drawn from other facts and on an assessment of the character of each of the parties.” [144]
  8. the concept of constructive notice does not apply to the principles enunciated in Amadio [155]
  9.  the extent of the knowledge of the disability of the plaintiff which must be possessed by the defendant is an aspect of the question whether the plaintiff has been victimised by the defendant [158]
  10. 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 [161]

The Court regarded it as highly relevant that the activities took place in a commercial context in which “..the unmistakable purpose of each party was to inflict loss upon the other party to the transaction” and that there was nothing surreptitious about Crown’s conduct [25]. The court specifically stated that it was “telling” that there was no decided case that the doctrine in Amadio has successfully been applied by a plaintiff complaining of loss suffered on account of multiple transactions conducted over many months with a putative predator [22]. While that does not mean the principle cannot apply, the Court said, it highlights the practical difficulty of prosecuting such a claim.

It was not possible to consider the Kakavas’ “special disadvantage” separately, in isolation from the other circumstances of the impugned transactions which bear upon the principle invoked by him. The issue as to special disadvantage must be considered as part of the broader question, which is whether the impugned transactions were procured by Crown’s taking advantage of an inability on Kakavas’ part to make worthwhile decisions in his own interests, which inability was sufficiently evident to Crown’s employees to render their conduct exploitative [124]. The Court did not consider Kakavas’ pathological interest as being a special disadvantage which made him susceptible to exploitation by Crown and Kakavas was able to make rational decisions to refrain from gambling altogether had he chosen to do so [135].   The Court stated that significant weight should be given to the assessment of the primary judge of how Kakavas presented given his finding that he did not present to Crown as a man whose ability to make worthwhile decisions to conserve his interests were adversely affected by his unusually strong interest in gambling [146].

ISSUE

The High Court took the opportunity to clarify and tighten the principles associated with Amadio type claims.  The principles extracted from this case are not novel however the court has clarified and focused the principles.  It has also drawn the principles back to its core, which involves a person of special disadvantage involved in finite and limited transactions the subject of the claim.

 

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