Summary: The Supreme Court has expressly disapproved of the test for dishonesty, established 35 years ago in R v Ghosh, by stating that it is no longer fit for use in criminal proceedings. This will have a real impact in most white collar crime cases, including those cases involving all types of fraud under the Fraud Act 2006, where dishonesty is frequently a critical component.
On 20 and 21 August 2012, Mr Phillip Ivey, a well-known professional gambler, used a specialist technique called ‘edge sorting’ to win £7.7 million playing Punto Banco (a derivation of Baccarat) at Crockfords, an exclusive casino in Mayfair.
Unbeknownst to the croupier, Mr Ivey used edge sorting to spot minute differences in the decorative pattern printed on the back of the playing cards, to gain an advantage. Crockfords refused to pay out on the basis that the technique was cheating under section 42 of the Gambling Act 2005 and, as such, breached the implied term in its betting contract with Mr Ivey that neither party would cheat. Mr Ivey contended his deployment of edge sorting was simply legitimate gamesmanship. A key issue considered by the Court was whether cheating in this context necessarily involves dishonesty.
The legal tests for dishonesty
R v Ghosh established the following two limb test for dishonesty in criminal proceedings:
- Is the conduct of the defendant dishonest by the standards of ordinary, reasonable and honest people? (The objective test)
- If the answer to (1) is “yes”, did the defendant realise that his conduct was dishonest by those standards? (The subjective test)
Only if the answer is “yes” to both questions, will an individual be found to be dishonest.
In relation to civil actions, the leading authority on dishonesty is Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming. As explained in Barlow Clowes International Ltd v Eurotrust International Ltd, the test for dishonesty in Royal Brunei prevents a defendant from using their mental state as an absolute defence:
”[A]lthough 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 journey to the Supreme Court
High Court, Queen’s Bench Division
At first instance, Mr Ivey openly and comprehensively explained his conduct, referring to himself as an ‘advantage player’ who uses sophisticated gambling techniques to try and reverse the house edge. This was not cheating, Mr Ivey contended, because he believed such techniques to be lawful and therefore he was not acting dishonestly under the second limb of the Ghosh test. Crockfords, on the other hand, argued dishonesty was irrelevant; Mr Ivey had cheated simply because he had acted deliberately to gain an unfair advantage and his opinion was irrelevant as a matter of law. Mr Justice Mitting agreed with Crockfords and dismissed the claim.
Court of Appeal
The majority of the Court of Appeal upheld the High Court judgment. However, in her dissenting judgment, Lady Justice Sharp stated that a necessary ingredient of Mr Ivey’s actions was dishonesty according to the test in R v Ghosh. This gave Mr Ivey an avenue of further appeal to the Supreme Court.
The Supreme Court judgment
The Supreme Court unanimously dismissed the appeal and held that dishonesty was not an essential requirement of cheating pursuant to section 42 of the Gambling Act. In such circumstances, the need to consider the concept of dishonesty did not arise; indeed neither party submitted any arguments about the Ghosh test and it was not an issue between them. Nevertheless, Lord Hughes seized the opportunity to highlight the shortcomings of the Ghosh test. In particular, he noted that:
- It has the unintended effect that the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted. In other words, however much an individual’s view may be out of kilter with the prevailing view of society, they will be acquitted provided they genuinely believe their conduct isn’t dishonest.
- It sets a test which jurors and others often find puzzling and difficult to apply.
- There is no logical or principled basis for the meaning of dishonesty to differ according to whether it arises in a civil action or a criminal prosecution.
Speaking obiter, Lord Hughes concluded that the second leg of the test propounded in Ghosh does not correctly represent the law and that directions to juries based upon it ought no longer to be given. Instead, the test for dishonesty in criminal cases should be the one set out in Royal Brunei and Barlow Clowes. To that end, Lord Hughes stated that:
“the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts […] When once his actual state of mind as to the knowledge or belief as to the facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying 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 shift towards a unitary, and largely objective, test may result in more convictions for dishonesty offences, as the prosecution no longer has the burden of proving that the defendant appreciated how their conduct would be regarded by others.
Whilst the Royal Brunei test does retain an element of subjectivity, it is only insofar as the court is required to consider what the defendant actually knew and believed about the facts. The test does not involve any consideration of the defendant’s state of mind as to whether ordinary, reasonable and honest people would regard his conduct as dishonest.
Given a defendant can no longer rely on the subjective limb of the Ghosh test, he will be compelled to fall back on either: (i) focusing on the objective element; or (ii) finding more creative arguments in defence, such as prosecution not being in the public interest. In many cases, the latter will be a difficult argument to run successfully.
As a final comment, we note that Ivey was a civil action and Lord Hughes’ comments in relation to dishonesty were strictly obiter dicta. Whilst the Court of Appeal (Criminal Division) may need to provide some clarity in due course, in practical terms Magistrates and Crown Court judges are already acting as if they were bound by the Supreme Court decision and are giving directions in line with Lord Hughes’ reformulation of the test for dishonesty.