February 2010

Essays

Paul Barry

The biggest loser

Harry Kakavas and problem gamblers

Harry Kakavas was one of Australia’s top real-estate salesmen. He made a fortune selling houses on the Gold Coast. He was also one of Australia’s biggest gamblers. In 14 months from June 2005 Kakavas slapped down almost $1.5 billion on the baccarat tables at Crown Casino in Melbourne – betting $300,000 a hand – and lost more than $30 million. It was everything he had and more – much more. Now he owes millions of dollars to his lawyers, millions of dollars to his banks, and millions of dollars to his friends who believed they were funding his successful real-estate ventures.

To lure the high roller away from Las Vegas, where he was already losing millions – and to lock him into Crown – James Packer’s casino offered Kakavas free luxury accommodation, free food and drink, free limo travel and a private jet to ferry him from his home on the Gold Coast. It even flew him to the Philippines and back for a holiday. On several occasions Crown also gave him up to $50,000 in cash as ‘lucky money’, delivered in a cardboard box as he boarded the plane. The total value of these inducements came to almost $10 million, and they worked a treat.

Kakavas lost heavily – in one instance $2.3 million in 28 minutes – and continued to lose until his money was gone. Now he has lost again. In December, his multimillion-dollar damages claim against Crown was thrown out by the Victorian Supreme Court with a clear message to other gambling addicts that Australian courts are not going to give them their money back – ever.

Kakavas sued on the basis that Crown knew he was a compulsive gambler and set out to exploit his weakness. In doing so, he claimed, the casino had acted unconscionably. Kakavas’ lawyers believed that Crown had behaved so badly by luring him back to its tables that the court would be prepared to make legal history. Instead, Justice David Harper ruled that the law neither does nor should allow gamblers to recoup their losses. Unless that judgement is overturned or the law is changed, casinos and clubs will remain free to do exactly what they like and get away with it, at least where problem gamblers are concerned.

Kakavas was both surprised and devastated by the verdict. Normally brash, confident and loquacious, he was stunned into silence. His legal team, led by one of the nation’s top QCs, Allan Myers, was equally shocked, believing that Kakavas had an excellent case and that the hearings had gone well. It is believed they even took the case on tick because they were sure of victory. And Crown also appears to have been worried about the outcome. In the weeks before the verdict was handed down, the casino sent its corporate counsel, Guy Jalland, to Melbourne to offer a settlement. James Packer, Crown’s biggest shareholder, was understood to be keen to deal. It seems, however, he changed his mind, which turns out to have been a good call.

Kakavas is, perhaps, not the most sympathetic victim. He can be volatile, angry and even scary when he loses his rag. I’ve talked to him countless times in the last 18 months and on three or four occasions he’s been quite unhinged. With his white tie and chalk-striped suits, he also looks like a gangster. In 1998 he spent four months in jail for defrauding Esanda Finance Corporation of $286,000. That same year he faced charges of armed robbery, which were tossed out at the committal stage because of insufficient evidence. Yet Kakavas is also charming and clever and his army of loyal friends sat in court, for support, throughout his recent trial.

The Esanda fraud is a landmark in the Kakavas story because he claims to have committed the crime in 1994 to feed his gambling habit and because he quickly lost most of the money at Crown Casino. The fraud also led Kakavas to admit he had a gambling problem and to get himself banned from the casino.

 Just as importantly, it brought Kakavas’ activities to the attention of one of Crown’s executives, Bill Horman, a former deputy commissioner of Victoria Police. It was Horman who recommended Kakavas exclude himself from Crown, Horman who referred Kakavas to Crown’s psychologists for treatment of his gambling problem and Horman who gave a statement during Kakavas’ trial in 1998 acknowledging all this. It was also Horman, six years later, who was central to the decision to invite Kakavas back to Crown to gamble.

This occurred in November 2004, shortly after Kakavas was spotted at the tables in Las Vegas by Kerry Packer, who rang Crown’s chief operating officer, John Williams (son of Lloyd, the casino’s founder), to ask why Kakavas wasn’t losing his money in Melbourne instead. By this time, Kakavas’ self-exclusion order had long ago been lifted (at his request), but he was still barred by Crown from entering the casino – supposedly because he might cause trouble. He had also been banned from Star City Casino in Sydney in 2000 by the NSW police and had excluded himself from virtually every other casino in the country in an effort to stop gambling. Crown knew this.

The Star City ban made it illegal (under Victoria’s Casino Control Act 1991) for Crown to allow Kakavas into its Melbourne casino, illegal to send him promotional material and illegal to let him keep any winnings if he gambled (which of course was also prohibited). In doing all of these things, Crown was breaking the law. This was one reason the Kakavas case was given a good chance of success. Another was that, despite knowing of Kakavas’ gambling problem, the casino had deliberately set out to woo him back and had offered him valuable inducements.

So why did the case fail? Certainly not because the inducements didn’t work. Justice Harper found that these had played an important part in attracting Kakavas to Crown. Nor was it because Crown was unaware of the Star City ban. Harper found that Crown knew about it but just decided to “ignore” it because it was in its commercial interests to do so. Nor was it because Kakavas failed to convince the judge of his disability. “In my opinion it is clear that Mr Kakavas was a problem, and indeed very possibly a pathological, gambler,” said Harper. The case failed because, according to His Honour, Crown didn’t know in 2004 that Kakavas still had a gambling problem – because he seemed rich, tough and in control – so it could not possibly have set out to exploit this disability. Consequently, according to His Honour, the fact that Kakavas was a gambling addict was “not of particular relevance”.

Shocking as this conclusion might be, it’s less surprising when you consider how Australian judges have treated cases like this and how Justice Harper approached the case at the beginning. In his interlocutory judgement in 2007, allowing the matter to go to trial, the judge effectively set the bar so high that it was almost impossible for Kakavas to clear it. Back then, Harper ruled that casinos have no duty of care towards problem gamblers and no duty to stop such people committing financial suicide. The most that could be argued, Harper believed, was that casinos and clubs might have a duty of care not to take unfair advantage of a problem gambler’s weakness. This was what Kakavas was required to prove.

In framing the question like this, Harper was following the precedent of a famous NSW case from 1999, in which pokie addict Chris Reynolds attempted to sue the Katoomba RSL. Reynolds had asked repeatedly that he be denied credit to play the machines. He had, nevertheless, been allowed to cash cheques and lose hundreds of thousands of dollars. The court found he had told the club’s manager, “I have a problem. I can’t control myself. Once I start I can’t stop. Please don’t cash my cheques or give me credit to start me off, even if I beg you.” The court found that the club manager had replied, “OK, that won’t be a problem.” Even so, the club was still held to have no liability for failing to keep to this agreement. Reynolds took his case to the NSW Court of Appeal and got the same answer from the NSW Chief Justice, James Spigelman, who essentially said that courts should never give gamblers their money back, because their losses resulted from “a deliberate and voluntary act”. In theory, conceded Spigelman, there might be exceptional circumstances to justify redress. In practice, he couldn’t think of any.

The Kakavas case was thought to involve such exceptional circumstances – in the shape of the Star City ban and Crown’s $10 million inducements – but Harper was unmoved. Quoting Spigelman at length, he argued that even pathological gamblers should not be compensated for choices they have freely made. Central to this conclusion was Harper’s contention that “Had Mr Kakavas wished to escape the enticements of the casino, he could have done so with ease. He could have arranged for self-exclusion.” Whether this misunderstands the nature of addiction is a moot point. Harper was unshakeable in his belief that it was all Kakavas’ fault, that he could and should have just said no to gambling, that his behaviour should have been “valiant”, “vigilant” and “disciplined”. You might argue that this is precisely what a gambling addict is incapable of doing.

It’s worth noting here that had Kakavas managed to exclude himself and then weakened in his resolve, Harper would almost certainly not have found in his favour. In 2007, a gambler called Foroughi sued Sydney’s Star City Casino for allowing him to breach his self-exclusion order on 65 separate occasions, causing him to lose $600,000. The NSW judge ruled that the gambler had only himself to blame.

Reading the Kakavas judgement, it sometimes feels Harper is bending over backwards to find in Crown’s favour. He is, for example, extremely critical of the casino’s two key witnesses: Chief Operating Officer John Williams and Community Affairs Officer Bill Horman. “I was not impressed with much of the evidence given by Mr Horman,” says Harper. Yet he was prepared to believe the ex-cop on a couple of key issues where his evidence seemed more than a little implausible.

For instance, Horman claimed not to know that Kakavas had been treated for a gambling addiction in 1998, even though it was he who had suggested that the gambler exclude himself from the casino, and even though he had referred Kakavas to Crown’s psychologists for counselling. Horman also claimed he did not believe that Kakavas had a gambling problem, even though Kakavas’ doctors had no doubt about their diagnosis. Harper accepted both these claims, which were central to Crown’s defence.

Harper also managed to find for Crown despite condemning the casino’s processes in letting Kakavas (whom it knew to have been a problem gambler) back into the casino in 2004. He describes these as “a pathetic excuse for world’s best practice”, adding that Crown does not deserve to portray itself as a “world leader in responsible gambling”.

Yet none of these shortcomings translate into liability, because Harper believes that casinos and clubs should have no duty to prevent problem gamblers from harming themselves. “The seeds of tyranny,” His Honour observes, “are to be found in the footsteps of those who profess to know more about what is good for the subjects of their attention than do the subjects themselves.” For Harper, requiring casinos or clubs to bar problem gamblers would be like getting them to play God.

But is he right? Casinos and clubs rely on problem gamblers to make their money. The best estimates suggest that such people lose around 40% of the $18 billion that the Australian gaming industry wins each year, chiefly on the pokies. People blow their savings, their super, their inheritances, their jobs and their friendships. Family breakdown, bankruptcy, crime and even suicide can follow.

In Victoria’s hearings into poker-machine licence renewals in mid 2006, Tim McCorriston from Gamblers Help told the committee: “I’ve certainly worked with a lot of clients who have attempted suicide and been suicidal … All of those issues were wrapped up in the case of a senior policeman who I worked with at one stage and he’d had a long and successful career in the police force, only to stumble into problem gambling. He was estranged from all his family members. His wife he divorced. His three children refused to stay in contact with him. He lost all of his assets and in the end he attempted to commit suicide by gassing himself in his car … So at the pointy end of this problem people actually die.”

More recently, Reverend Bill Crews told the Productivity Commission’s 2009 hearings into problem gambling that most of the 1000 people his Exodus Foundation feeds every day have been brought down by “booze or gambling”. And listeners to his weekly 2GB radio show confirm this impression: “By far the biggest problems I get are people ringing up about gambling,” Crews said. “It’s the biggest social issue that I deal with.”

As the law stands, there is precious little incentive for clubs and casinos to do anything to help. The civil courts refuse to penalise even their worst behaviour and gaming regulators appear not to give a damn. The Victorian Council for Gambling Regulation had an observer in court during the Kakavas trial, and claims to be “investigating”; yet it agreed to a 43% increase in Crown’s table numbers while the case was still running. Victoria’s politicians showed a similar lack of concern by agreeing to Crown’s expansion just days before the verdict; they formally approved it a week later.

But there is pressure for change. In November 2008, the federal government asked the Productivity Commission to conduct a public inquiry into gambling and to make recommendations on what might be done to minimise harm. Its final report is due late February, but the draft version, released in October 2009, has already suggested tough new measures. One of these would be to give problem gamblers like Harry Kakavas and Chris Reynolds a statutory right to seek damages from casinos or clubs if they behave badly, by, for example: failing to enforce a self-exclusion order, supplying alcohol to a gambler who is intoxicated, or helping someone who is self-excluded to gamble by breaching or revoking a self-exclusion order.

Some want the duty of care to be even broader. Richard Brading, who is principal solicitor at Sydney’s Wesley Community Legal Service and who initiated the Reynolds case, believes that clubs and casinos should be required to identify problem gamblers, monitor their gambling and give them an enhanced level of consumer protection. Furthermore, he argues clubs and casinos should be obliged by law to ban such gamblers if they “reach a point of crisis”.

The gaming industry’s response to this sort of proposal is that you can’t identify such people with any certainty, but in Canada the Saskatchewan Gaming Corporation, which runs the casinos in that state, believes otherwise. It already employs software called iCare that (it claims) identifies problem gamblers with “97% accuracy”. It must be said that the SGC doesn’t generally ban them, though it does offer counselling.

The industry would also use the defence that you can’t interfere with individual freedom, and here it would have Justice Harper on side. But why is it such an awful thought to ban people from a club or casino if they’re doing themselves severe financial harm? And why shouldn’t the gaming industry, which makes so much money out of people’s misery, be required to do this?

The Productivity Commission’s draft report suggests other ways of minimising harm, especially in relation to poker machines, where 70% of problem gamblers lose their money. One recommendation is to allow (but not compel) gamblers to set a limit on their spending in each session and to bar them from the machines once they have lost that much. (Brading suggests this could be compulsory for people who have been identified as problem gamblers.)

Another recommendation is to cut the maximum loss on any machine from $1200 an hour (where it now stands) to $120, so that people can still get their entertainment but won’t lose so much. This has been greeted with horror by Leagues Clubs Australia, whose CEO, Peter Turnbull, told the Productivity Commission, “The impact will reverberate through the whole community. Jobs will be lost, sporting and social amenities would be diminished, community funding would be severely affected. At the NRL level only five or six privately-owned teams would survive.”

While in opposition, Kevin Rudd said, “I hate poker machines and I know something of their impact on families.” Not long afterwards, his Minister for Family Services Jenny Macklin announced, “The Prime Minister has asked me to investigate ways of tackling problem gambling. Problem gambling can wreck lives. It hurts not only the person with the addiction but the people around them.” But such passion was noticeably absent from her response to the Productivity Commission’s draft proposals.

If I were a betting man like Kakavas, I wouldn’t stake much on Australia’s politicians getting tough and making gaming operators more accountable. After all, about 10% of the states’ revenue comes from gambling, and cracking down on problem gambling is bound to reduce the take. Nor would I bet heavily on Justice Harper’s judgement being overturned, but it certainly will go to appeal. Despite his multimillion-dollar debts and bankrupt real-estate business, Kakavas intends to fight on. His lawyers are apparently still confident of success and (one imagines) still prepared to risk not getting paid.

Paul Barry
Paul Barry is a journalist and investigative reporter. He is the author of Who Wants to be a Billionaire? The James Packer Story and The Rise and Rise of Kerry Packer.

Cover: February 2010

February 2010

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