Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67

Professional gambler Phil Ivey won £7.7m at Punto Banco Baccarat using edge-sorting, persuading the croupier to rotate cards unwittingly. The Supreme Court held this constituted cheating, refused payment, and famously reformulated the test for dishonesty by abolishing the second limb of Ghosh.

Facts

Mr Ivey, a high-stakes professional gambler, together with Cheung Yin Sun, attended Crockfords casino in August 2012 and played Punto Banco Baccarat over two days, winning approximately £7.7m. He employed a technique called ‘edge-sorting’, which exploits microscopic asymmetries in the patterns on the long edges of certain playing cards. By persuading the croupier, under the pretext of superstition, to rotate ‘good’ cards (7s, 8s and 9s) differently from other cards, and ensuring the cards were machine-shuffled to preserve their orientation, Mr Ivey could predict whether the next card from the shoe was high or low value, gaining approximately a 6.5% edge over the house in a game otherwise based on pure chance.

The casino refused to pay the winnings, returning only his £1m stake. Mr Ivey sued for the winnings. Mitting J held that his conduct amounted to cheating in breach of an implied contractual term. The majority of the Court of Appeal agreed. Mr Ivey appealed to the Supreme Court.

Issues

The Supreme Court identified three issues:

• The meaning of ‘cheating’ at gambling, both for the purposes of the implied contractual term and section 42 of the Gambling Act 2005;
• Whether dishonesty is a necessary legal element of cheating; and
• If dishonesty is required, what the proper legal test for dishonesty is, particularly whether the second limb of R v Ghosh [1982] QB 1053 remains good law.

Arguments

Appellant (Mr Ivey)

Mr Spearman QC submitted: (i) the meaning of cheating must be the same for the implied term and section 42; (ii) cheating necessarily involves dishonesty; (iii) since the trial judge accepted that Mr Ivey genuinely believed his conduct was not cheating but legitimate ‘advantage play’, the second limb of the Ghosh test was not satisfied; and (iv) therefore his conduct was not cheating and he was entitled to the £7.7m. Reliance was placed on R v Scott [1975] AC 819 and the common law offence of cheating, said to require dishonesty.

Respondent (Genting Casinos)

The casino argued that Mr Ivey’s conduct amounted to cheating, breached the implied term in the gambling contract, and also constituted the statutory offence under section 42 of the Gambling Act 2005, precluding recovery.

Judgment

The meaning of cheating

Lord Hughes (with whom the rest of the Court agreed) held that cheating carries the same meaning under the implied term and under section 42. The concept long pre-dated the 2005 Act and historically extended beyond deception or fraud to ‘ill practice’. Section 42(3) is explanatory, not definitive, and recognises that cheating may consist of deception or interference. The Court declined to attempt an exhaustive definition, observing that cheating normally involves ‘a deliberate (and not an accidental) act designed to gain an advantage in the play which is objectively improper, given the nature, parameters and rules (formal or informal) of the game under examination’.

Dishonesty as an element of cheating

The Court rejected the argument that dishonesty is a necessary legal element of cheating at gambling. The common law offence of cheating discussed in Scott was a different historical offence, largely abolished by the Theft Act 1968. The expression ‘cheating’ in the gambling context ‘carries its own inherent stamp of wrongfulness’ and requires no additional dishonesty element. While most cheating would be regarded as dishonest, not all conduct that is cheating (e.g. tripping an opponent, doping a horse) would naturally attract the description ‘dishonest’. Adding a dishonesty requirement would either add nothing or risk legitimising cheating.

Application to the facts

Mr Ivey’s actions amounted to a ‘carefully planned and executed sting’. Punto Banco is a game of pure chance with cards delivered randomly. By tricking the croupier into rotating cards so as to differentially sort the shoe, Mr Ivey achieved exactly what he would have achieved by surreptitiously rearranging the cards himself. His conduct went well beyond mere observation; he ‘took positive steps to fix the deck’. That was inevitably cheating, regardless of his skill or his genuine belief that it was legitimate ‘advantage play’.

Reformulation of the test for dishonesty

Although not strictly necessary to the decision, the Court took the opportunity to address dishonesty. Lord Hughes identified six serious problems with the second limb of R v Ghosh: it had the perverse effect that the more warped a defendant’s standards, the less likely conviction; it was unnecessary to preserve the principle that criminal responsibility depends on the actual state of mind; it was difficult for juries to apply; it created an unprincipled divergence between civil and criminal dishonesty; it departed from the pre-1968 law without indication that such change was intended; and it was not compelled by authority.

The Court held that the correct test is that articulated by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476. The fact-finder must first ascertain (subjectively) the defendant’s actual state of knowledge or belief as to the facts; reasonableness is evidential, not a requirement. Then the question whether conduct was honest or dishonest is determined by applying the objective standards of ordinary decent people. There is no further requirement that the defendant must himself have appreciated his conduct was dishonest by those standards. The second limb of Ghosh is no longer to be applied.

Result

The appeal was dismissed. Mr Ivey’s conduct was cheating; even if dishonesty were a necessary element, applying the correct (reformulated) test, his conduct would also have been dishonest.

Implications

On cheating at gambling

The decision confirms that cheating at gambling, whether under section 42 of the Gambling Act 2005 or under the implied term in a gambling contract, does not require proof of dishonesty as a separate legal element. Whether conduct amounts to cheating is an objective question to be determined by reference to the nature, rules and conventions of the game in question. Skilful manipulation of the conditions of play, even without touching the cards or making explicit false statements, can constitute cheating where it subverts the essential character of the game.

On the test for dishonesty

The most significant doctrinal consequence is the effective abolition of the second limb of R v Ghosh. The civil and criminal tests for dishonesty are now aligned: the fact-finder ascertains the defendant’s subjective state of knowledge or belief about the facts, then judges the honesty of the conduct by the objective standards of ordinary decent people. A defendant cannot escape liability by showing that he personally did not appreciate his conduct was dishonest by those standards.

Status of the dishonesty reformulation

Although the reformulation was strictly obiter (the Court having decided the case on the basis that cheating does not require dishonesty), it was set out with the clear intention that it represents the correct legal test. Subsequent case law has treated the reformulated test as binding. The decision has affected a wide range of contexts in which dishonesty is in issue, including theft, fraud, regulatory matters, professional discipline and civil claims involving dishonest assistance.

Wider significance

The case is of major importance both in gambling law and in the criminal law of dishonesty. For gambling, it draws a clear line between legitimate advantage play (such as card counting based on observation alone) and impermissible interference with the conditions of the game. For the criminal law more broadly, it removes a long-standing anomaly that allowed defendants with idiosyncratic moral standards to escape conviction, and restores coherence between civil and criminal conceptions of dishonesty.

Verdict: Appeal dismissed. Mr Ivey’s conduct amounted to cheating, breaching the implied term against cheating in the gambling contract; the casino was therefore not obliged to pay his £7.7m winnings. The Supreme Court also held that the second limb of the test for dishonesty in R v Ghosh should no longer be applied.

Source: Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67