What is the proper test for ‘dishonesty’ in English law? That was the important question addressed by the Supreme Court in Ivey v Genting Casinos (UK) Ltd.
Mr Ivey is a professional gambler. In August 2012 he played Punto Banco at Crockfords casino. For those wondering, Punto Banco is a close relative of the card game Baccarat. The game is played with several packs of cards, which are shuffled by a croupier and dealt from a ‘shoe’. Two cards are dealt face down to the punter (“punto”) and banker (“banco”) respectively and bets placed. The aim is to hold cards with a count of nine or closest to nine. The bet is placed as to whether the hand held by the punto or the banco will win, or whether there will be a tie. Mr Ivey won £7.7 million over the course of two days but the casino refused to pay out because they believed he had cheated by the use of a process of ‘edge sorting’. For those wondering again what that may mean, edge sorting is possible when the manufacturing process of playing cards causes tiny differences to appear on the edges of cards so that, for example, the edge of one long side is marginally different from the edge of the other. A sharp-eyed punter will be able to identify the difference in the cards. Of course, identifying such a discrepancy is useful only if things can be arranged so that the cards in which the gambler is most interested are all presented with one long edge facing the table, while all the less interesting cards present the other long edge. Then the gambler knows which card is next out of the shoe and the case reveals that using edge sorting to identify high value cards in Punto Banco will give the player a long term advantage of about 6.5% over the house.
Mr Ivey’s winnings followed plays after he asked the croupier that the same shoe of cards be re-used if he won. Mr Ivey’s associate, Ms Sun, also asked the croupier to turn the cards in a particular manner after the plays if she indicated they were “good” or “not good”, for purported reasons of superstition. The croupier did not realise the significance of what she was being asked to do. In consequence, the long edge of the “not good” cards were orientated in a different way from the long edge of the “good” cards. This procedure was followed for each game of Punto Banco until the shoe was finished. The shoe contained eight packs of cards so this was a long process. Mr Ivey then indicated that he had won with that shoe and so the cards were reshuffled and replaced (as the casino had agreed to use the same cards). The use of a machine shuffler ensured that the cards were shuffled without any of them being rotated before they went back into the shoe. When the game recommenced the next day (with the same shoe, same cards and same croupier) Mr Ivey could now identify high value cards and his betting accuracy increased sharply (as, it appears, did the size of his bets). He made substantial wins (on very substantial bets).
Mr Ivey sued Crockfords for the £7.7 million he said was owing. Both the High Court and the Court of Appeal held that his use of/operation of edge sorting (to which he openly admitted) was cheating. Mr Ivey appealed to the Supreme Court, arguing, in essence, that edge sorting was not cheating but legitimate gamesmanship. The issue to determine was therefore whether, if Mr Ivey thought what he did was legitimate gamesmanship, it could nonetheless be regarded as dishonest such that Crockfords would not have to pay out.
The two-stage test for dishonesty in the criminal law context was set down in R v Ghosh  as follows:
1. Was the defendant’s conduct dishonest by the ordinary standards of reasonable and honest people (the objective test)?
2. If so, did the defendant realise that what he was doing was, by those standards, dishonest (the subjective test)?
The Ghosh test was introduced as the courts considered it was necessary in order to maintain the principle that whether or not an individual had been dishonest must depend on his actual state of mind. It has not, however, been followed in civil law actions. In those cases a different test has developed. In Barlow Clowes v Eurotrust  the Privy Council stated that, “Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.” [It may be worth noting that in certain areas, including professional regulation, an ‘objective/subjective’ test continued to be applied after Barlow Clowes].
In Ivey, the Supreme Court has held that there can be no logical or principled basis for the meaning of ‘dishonesty’ to differ according to whether it arises in a criminal prosecution or a civil action. It has therefore concluded that the second leg of the Ghosh test did not correctly represent the law and that judicial directions based on it ought no longer to be given. The test of dishonesty, it held, is that used in civil actions – which it has determined is the objective test in Barlow Clowes. The court must ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts and then determine whether his conduct was honest or dishonest by the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
This is a monumental change of approach to the determination of dishonesty in a criminal context. Now, in criminal and civil cases alike, the Barlow Clowes line of reasoning, as restated by the Supreme Court in Ivey, will be applied. As the courts and practitioners have had difficulty articulating and applying the dishonesty test for many years we may hope that this will bring some clarity for the future (whether the reasoning is welcomed or not). We could probably place bets on how soon we will see the dishonesty test return to the Supreme Court….