Reynolds v Katoomba RSL All Services Club

[2002] HCATrans 294

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S244 of 2001

B e t w e e n -

CHRISTOPHER REYNOLDS

Applicant

and

KATOOMBA RSL ALL SERVICES CLUB LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 9 AUGUST 2002, AT 11.20 AM

Copyright in the High Court of Australia

MR J. BASTEN, QC:   If the Court pleases, I appear with MR J. STOLJAR for the applicant.  (instructed by Public Interest Advocacy Centre (PIAC))

MR C.J. BIRCH, SC:   If the Court pleases, I appear with my learned friend, MS N. BUTLER, for the respondent.  (instructed by Pigott Stinson Ratner & Thom)

GLEESON CJ:   Yes, Mr Basten.

MR BASTEN:   Your Honours, the concern raised by the judgments in this case flows from the application by the Court of Appeal of principles underlying the establishment of a common law duty of care to the equitable doctrine of unconscionable conduct.  In particular, the case was determined on the basis that equity would only intervene in circumstances where it had been shown that the exercise of will by the applicant was other than independent and voluntary.  It was not apparently sufficient to show that unconscientious advantage had been taken of a disadvantageous position of the applicant, an approach which was apparently derived from the judgments of this Court in Perre v Apand and Agar v Hyde. 

May I take your Honours to page 24 of the application book in the judgment of the Chief Justice.  At paragraphs 4 through to 7 on that page his Honour set out three factors:  firstly, the extent to which the applicant was a problem gambler and had an inability to control himself; secondly, the knowledge of the manager of the Club of that fact; and thirdly, that which the manager had been asked to do to alleviate the problem, namely not to cash cheques and to provide cash to the applicant.  At page 28, after a discussion in the judgment of the decisions of this Court, there is reference to the principle derived from Agar v Hyde.  In particular, may I just note the statement at line 48 in paragraph [90] of that decision:

The decision to participate –

this, of course, was in a sport –

is made freely.  That freedom, or autonomy, is not to be diminished.

The concept of freedom, your Honours, or an exercise of free will stated as a general principle is not inconsistent with equitable intervention in cases of impaired judgment in an individual case.

HAYNE J:   What exactly is the equitable intervention that you say might have been made?  Leave aside the course of events that seems to have occurred at trial where equity seems to have taken very much a back seat.  We may come to that in a moment, but what is it you say equity could or should have done?

MR BASTEN:   Equity could and should have been given relief in the form of setting aside the transactions.

HAYNE J:   What transactions?

MR BASTEN:   The transactions where the provision of cash and the cashing of cheques by the manager of the Club ‑ ‑ ‑

HAYNE J:   “The provision of cash”?  I do not understand.  What transaction is it that is occurring?

MR BASTEN:   It is the provision of cash on a cheque either drawn by the applicant himself on his account or a third party cheque which he has endorsed through the Club.

GLEESON CJ:   If he had gone to the local grocer shop to get the cheque cashed or he had entered into one of those transactions that everybody who goes ahead of me in the supermarket does and got cash, would he be able to recover from the supermarket?

MR BASTEN:   No, your Honour.

GLEESON CJ:   What if the supermarket had known he was going to use the money for gambling?

MR BASTEN:   In that circumstance he might have if it had also known that he had a problem with gambling, but the problem seems to have arisen in relation to the actual activity in the Club which he was unable to control.

GLEESON CJ:   What I am interested to know is whether the unconscientious conduct on the part of the Club depends upon the fact that he was playing the Club’s poker machines.  Would it also apply to anybody else who, to use your expression, provided him with cash knowing he was going to use the cash to gamble?

MR BASTEN:   Only if it knew further that he was unable to control his gambling and that the cash was being provided in circumstances where it was being used in that context.

GLEESON CJ:   You said “only if”.

MR BASTEN:   Yes.

GLEESON CJ:   So if, for example, a relative had cashed a cheque for him knowing that he was going to use the cash to go to the local RSL Club and gamble on the poker machines, the conduct of the relative would be unconscientious.

MR BASTEN:   Not unless the cash was provided in circumstances where there was sufficient knowledge to know that he was not exercising appropriate control of his own activity and could not do so.

GLEESON CJ:   But if there was such knowledge, then the conduct would be against conscience.

MR BASTEN:   That might be so, your Honour, yes, on the facts.  It is unlikely.

GLEESON CJ:   So it does not depend upon the fact that the Club was getting the benefit of his gambling?

MR BASTEN:   It does, your Honour, yes.  I am sorry, I should have added that.

GLEESON CJ:   Well, it is a rather important addition because it answers all the previous examples I gave you.

MR BASTEN:   I am sorry.  It does, your Honour, yes.

GLEESON CJ:   If the key to the unconscientious behaviour on the part of the Club is that the Club was getting the benefit of his gambling, is your proposition accompanied by the proposition that if he had won on the poker machines, he was legally obliged to give the winnings back to the Club?

MR BASTEN:   No, your Honour.

GLEESON CJ:   So he had a bet going to nothing.  The effect of the law is that the Club was obliged to indemnify him against his losses but he was not obliged to pay the winnings to the Club.

MR BASTEN:   No, because in equity relief would be accommodated to the circumstances of the case and it may be that if you set aside the transactions, that which is to be returned – it would have to be assessed on either of one of two bases:  either a disgorgement of the benefit which the Club obtained from his activity in this circumstance or equitable compensation for the loss which he had suffered.  Either way, there would be allowance made for winnings.

GLEESON CJ:   But the transaction your client has set aside is not the gambling transaction.

MR BASTEN:   No, it is not.

GLEESON CJ:   It is the transaction of cashing the cheque.

MR BASTEN:   That is right, yes.

HAYNE J:   In which full value is given, sometimes it seems over‑full value, in that a cheque which likely would not be met was cashed at face value.

MR BASTEN:   I am not sure whether the likelihood of it not being met was a circumstance which was ‑ ‑ ‑

HAYNE J:   But at least full value was given in each transaction.

MR BASTEN:   Yes, and if it had not been met, your Honour, or the likelihood was that it would not have been met, there was a provision of credit which is perhaps the more serious concern, but that perhaps does not matter for the purposes of the argument.

HAYNE J:   But how much, if at all, were any of these issues explored below?  The trial judge dismisses all this in half a par.  You get about one sentence.  It was run as a negligence case, was it not?

MR BASTEN:   It was run as both, your Honour.  Obviously what I was seeking to do was to indicate that the manner in which it was dealt with seemed to assume that this Court’s decisions in Agar and in Perre were determinative of the matter either way.  Perhaps that is not as clear from the judgment of the Chief Justice, but at page 36 it is clear that he treats the conclusions which he reaches in relation to vulnerability at paragraphs 47 and 48 as sufficient to dispose of both the common law and the equitable claims at line 45.  In the judgment of ‑ ‑ ‑

HAYNE J:   Before you go on, can I just understand the factual base that you say might give rise to these questions, assuming they do arise?  Are the only facts found that would provide you with a base for this claim those found at page 3 between lines 20 to 40 in which there is reference to a total of, as I read it, $21,500 worth of cheques?

MR BASTEN:   I think that is right, your Honour, yes.

HAYNE J:   What are the facts with which this Court would grapple in identifying these rather large equitable issues which you seek to agitate?  For the moment, Mr Basten, I see no sufficient factual foundation established in the courts below to even get us to the questions that you would seek to agitate.

MR BASTEN:   Can I put it in this way, your Honour, that there are two levels of fact which may be important in answering the ultimate question.  They are perhaps separated by Justice Powell in some detail.  One is the circumstances in which the transactions are undertaken which involve the state of mind, psychological position, of the applicant on the one hand and the manager of the Club on the other.  The facts in that regard, we would say, were fully found and were accepted in the Court of Appeal and were favourable to the applicant.

GLEESON CJ:   They appear, do they not, at the bottom of page 57 and the top of page 58?

MR BASTEN:   They appear in a number of places, your Honour.

GLEESON CJ:   How would you deal with those findings on the bottom of 57 and the top of 58?

MR BASTEN:   The findings of the trial judge were twofold.  At lines 45 to 50 at the bottom of page 57 his Honour accepts that the applicant was responsible for his own actions.  He did not accept that he did not have a free will but he did accept Dr Alcock’s evidence that at the time he had a severe psychological problem in his inability to control his gambling.  I am sorry, I was intending to take your Honours to that finding at page 24 at line 20.  I think it comes in one of the passages here, but that was the way it was quoted by the Chief Justice in similar terms.  We accept, and it was conceded below, that he did not have a total lack of a free and independent will; it was purely an impaired judgment which was ‑ ‑ ‑

GLEESON CJ:   When you say “impaired judgment”, the way it was put at pages 57 and 58 was that the thrill he got from gambling overrode his prudence.

MR BASTEN:   Yes.

GLEESON CJ:   The thrill a lot of people get from doing a lot of things overrides their prudence and makes them take risks, but what follows from that?

MR BASTEN:   Nothing follows from that specifically, your Honour, because it obviously has to go a stage further than that.  We have to establish – and we say we did establish in the trial court – that this person was at a special disadvantage.  He had a psychologically identified problem.  The consultant psychiatrist gave evidence of it.  That put him into the same state as somebody who is intoxicated or sick or suffers from some other disability for the purposes of Blomley v Ryan.  That was the basis upon which the court was asked to approach the matter.

HAYNE J:   What is the “taking advantage”?

MR BASTEN:   The “taking advantage” is continuing to provide money so that this activity is carried out on the Club’s premises to the Club’s benefit knowing of the circumstances in which it is sought.

HAYNE J:   The provision of money to which you refer not being gift but, in effect, facilitating his exchange of his assets into coin that he could feed into the machine.

MR BASTEN:   That is so.  It may be illegal now – I think it is – but in circumstances where a person is not subject to a disability, there would be no complaint about such transactions.  It entirely flows from the finding that there was a lack of control psychiatrically identifiable as a problem which was known to the manager of the Club at the time the transactions took place.

GLEESON CJ:   Lack of self-control is something that comes in varying degrees.

MR BASTEN:   It does.  That is why I take the point that absent medical evidence to suggest that this is something other than that which might be found in any situation, depending on the individual concerned, we would not have a case.  There is accepted that perhaps 1 per cent of the population of Australia have a severe problem with gambling.  That is the situation which must arise to the knowledge of the Club before one could establish the principle we seek to rely upon.  So that it is not as if a mere lack of self‑control, however it may be explained or unexplained, would be sufficient to invoke the equitable principle, nor would we have suggested that Blomley v Ryan‑type principles would ever have applied in such circumstances.  The question is whether it was appropriate in the present case to deal with the matter on the basis that, so long as he had an independent mind and could make what at law would be a voluntary act in deciding how to deal with his funds, that was sufficient.  We say it was not.

What has happened, we say, in relation to the way that the court has dealt with it is that it has imported those principles from the common law into determining a matter in equity which was not an appropriate exercise to be undertaken.  The reason that it was not an appropriate exercise is that the purpose of the common law principles based on autonomy and control or its counterpart, vulnerability, was to confine the potential breadth of the circumstances in which the duty of care is imposed by the law. 

The equitable doctrine by contrast is concerned with the interrelationship of two parties dealing directly with each other in circumstances where there is no necessity to confine the operation to prevent indeterminate liability of the kind which was the concern in Perre v Apand, especially where economic loss is concerned.  So that it is the unconscientious taking advantage of a special disadvantage which was the issue for purposes of equitable concern in the present case.

Your Honours, we accept that in a sense the case was run primarily on the basis of a common law claim, but it is also clear, and it is set out in the judgment of Justice Powell exactly how the matter was put, that there was also a claim based upon the equitable principles to which I have been referring.  It is set out at the top of page 63.  Your Honours do not have the pleadings, but that was the manner in which Justice Powell summarised the issue as taken from the submissions, I think, in the court.  His Honour dealt in more detail than other members of the court with the equitable doctrine and he did so in a lengthy passage commencing at page 66 where his Honour discussed Preston v Star City and some of the cases to which the court was taken.

Your Honours will see that that concluded at the bottom of page 67, paragraph 107, a “case based upon undue influence/unjust enrichment”, and at the bottom of page 69, a “case of unconscionable conduct”, a matter which his Honour dealt with by expressly considering what the Chief Judge of common law had said about the matter at the bottom of page 71, where he dealt with the question of unconscionable conduct in paragraph 110.  His Honour Justice Powell then said at page 78 line 20:

What, then, is one to make of all this?

Having discussed a number of cases, his Honour said:

The analysis which I have made of the Judgments in the High Court in Perre v Apand Pty. Limited leads me to conclude that, in the present case, the Club owed no duty of care to protect Mr Reynolds –

After dealing with a statutory concern, at line 45 he says:

Further, it does not seem to me that Mr. Reynolds was “vulnerable” in the sense contemplated by the various judgments in the High Court in Perre v Apand.

At page 79 his Honour then makes two more propositions which are directly relevant.  At line 30 he says, dismissively, it is true:

Save only that the Club could have refrained from cashing cheques for Mr. Reynolds or could have placed a limit on the amount for which on any day or during any period cheques could have been cashed for Mr. Reynolds –

there was nothing it could do.  That is what we say it should have done.

GLEESON CJ:   He went on to say there is nothing it could do to prevent him from gambling.

MR BASTEN:   That is so.  We accept that.

GLEESON CJ:   He was legally entitled to gamble.

MR BASTEN:   He was.  It was only the provision of the funds by the Club to permit him to do so in circumstances where it had certain knowledge that we complain of.  At paragraph 130 ‑ ‑ ‑

GLEESON CJ:   So the unconscientious behaviour of the Club consisted of him cashing his cheques rather than sending him down to the supermarket or the bank to cash his cheques.

MR BASTEN:   It did, your Honour.  For the reasons that I have given in answer to your Honour’s earlier questions, that would be a critical difference as a matter of fact, probably because of awareness; as a matter of equity, because there would be no benefit obtaining to the supermarket from his gambling activities, which was hypothetically the known circumstance.  Then at line 40 his Honour notes that Mr Reynolds approached the manager in the first instance to seek to set up the facility and then at line 50 he said:

Those matters also lead me to conclude that Mr. Reynolds failed to make out a case of unconscionable conduct –

So it is clear that his Honour gave express consideration in some detail to the equitable claim for relief.  He rejected it on the basis of the points that I sought to make, namely that it would be inconsistent with the judgments of this Court in Agar and Perre.  We say that was an error of principle and a matter which this Court should reconsider.  If the Court pleases.

GLEESON CJ:   We do not need to hear you, Mr Birch.

The Court is of the view that on the facts found in the courts below, there are insufficient prospects of success of an appeal to warrant a grant of special leave in this matter.  The application is refused with costs.

AT 11.40 AM THE MATTER WAS CONCLUDED