Fixed the problem by removing line breaks from the "/etc/default/varnish" file.
DAEMON_OPTS="-a :80 \
-T localhost:1234 \
-f /etc/varnish/default.vcl \
-s malloc,256m"
to
DAEMON_OPTS="-a :80 -T localhost:1234 -f /etc/varnish/default.vcl -s malloc,256m"