All of those concerned in criminal fraud litigation have taken note; the rules have just been re-written. Dishonesty has been re-defined. For those of us that have been litigating in both civil and commercial fraud the change, although profound, is not especially surprising.
In every fraud case, whether its civil or criminal, dishonesty has to be established for the prosecution/claimant to win. Before the Ivey case there were different tests to be applied in assessing dishonesty, depending on whether the case was civil or criminal.
Mr. Deb Baran Ghosh was a surgeon. He was accused of falsely representing that he carried out surgery, when in fact the operation had been carried out by someone else. He was charged with attempting to procure the execution of a cheque by deception, contrary to s20(2) of the Theft Act 1968, and three offences of obtaining money by deception, contrary to s15. Mr. Ghosh’s defence was that there was no deception as he was entitled to the money. The trial judge directed the jury that they should apply contemporary standards of honesty and dishonesty in the context of all that they had heard in the trial when deciding upon the vital issue of whether the defendant had been dishonest or not. He was convicted on all counts. That was in 1981.
The next year, the Court of Appeal gave judgment in his case. Ghosh lost on the facts but the Court laid down a test for establishing dishonesty to be applied in criminal cases. Law students have been learning it ever since and it is what judges have been directing juries to do – until now.
The defence submission in the Ghosh case was that the judge got it wrong in failing to direct the jury about whether the deception should be intentional or reckless. The Chief Justice of the day, no less, Lord Lane gave the leading judgment and found that the test of dishonesty was subjective but the standard of honesty to be applied was the standard of reasonable honest men and not that of the accused. This is the subjective/objective test that was then the standard in all criminal cases where dishonesty was alleged.
So the first limb required a consideration of whether the conduct complained of was dishonest by the lay objective standards of ordinary reasonable people and, if the answer was yes, then the second limb was whether the defendant must have realised that, by those standards, ordinary reasonable people would consider his actions dishonest.
The Supreme Court last week in the civil case of Ivey v Genting Casinos UK Ltd (t/a. Crawford’s Club)  UKSC 67 simplified matters. Mr. Ivey is the so-called Tiger Woods of gambling. He had an extraordinary ability of increasing the odds in his favour. He used a technique called ‘edge sorting’ in a card game called Punto Banco in the respondent’s Mayfair casino. The technique involves being able to pick out tiny physical differences in the edges of the card. Mr. Ivey persuaded the card-dealer to serve the cards in such a way as he could see the edge he wanted to see by claiming to be superstitious – that was not true. Mr. Ivey won over £7m at the casino in a single night. The casino believed he was cheating and withheld his winnings. He sued.
Mr. Ivey argued that the test of what was cheating was the same for the implied term in the criminal offence of cheating at gambling in s42 of the Gambling Act 2005. This seemed a fair point as that is really what he was being accused of and therefore the criminal standard should be imported, even though his case was a civil one. The Court could have just refused and applied the civil test – in fact the Court changed the criminal test.
The Court considered the difference between how the civil courts decided dishonesty compared with the criminal courts. In the civil courts there was no two-stage test, there was no requirement for the 2nd limb of Ghosh – i.e. that the defendant must himself be shown to appreciate that the conduct was dishonest by objective standards, see e.g. Barlow Clowes Intl (In Liquidation) v Eurotrust Intl Ltd  UKPC 37.
The Supreme Court clearly felt that the Ghosh test was simply wrong and the law needed simplification; which was indeed the intention of the authors of the 8th Report of the Criminal Law Revision Committee on Theft and Related Offences, which considered the use of the word “dishonestly” in the Theft Act 1968. It is that report which ended up in the clarification and simplification of offences of dishonesty in the 1968 Act; e.g. the abolition of the ‘cheat’ offence (per s32).
It must be right that a jury would find it easier to understand and apply the new test of dishonesty - which is much simpler than the rather long, meandering direction that juries had to receive up to now.
The Court considered the issues that arise when someone does something that is objectively dishonest but where he or she really has no idea that that is the case; for example, the foreigner taking a free bus ride as he believed that public transport here was free. But the Court found that the man in this example “would inevitably escape conviction by the application of the (objective) first leg of the Ghosh test. That is because, in order to determine the honesty or otherwise of a person’s conduct, one must ask what he knew or believed about the facts affecting the area of activity in which he was engaging. In order to decide whether this visitor was dishonest by the standards of ordinary people, it would be necessary to establish his own actual state of knowledge of how public transport works. Because he genuinely believes that public transport is free, there is nothing objectively dishonest about his not paying on the bus” (para 60).
The Court considered that; “there were serious problems about the second stage; the more warped the defendant’s standards of honesty, the less likely it is that he will be convicted of dishonest behaviour” (para 57). There was simply no reason a different standard should be applied in the criminal courts to the civil courts. And that was the end of the Ghosh test.
So, the Tiger Woods of the gambling world didn’t get his winnings. The effect will, on the margins, be an increase in the number of fraud and deception prosecutions. There will not be a change in the sorts of evidence that can be admitted and individual defendants will still be trying to prove that they, individually, were not doing anything they believed at the time was dishonest.