Source: https://staging.mccullough.com.au/2018/02/27/life-on-the-edge-an-honest-cheater/
Timestamp: 2020-07-02 08:26:10
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Matched Legal Cases: ['UKSC ', 'UKSC ', 'UKPC ', 'UKSC ', 'UKSC ', 'UKSC ']

Life on the edge: an honest cheater? - Ivey v Genting Casinos (UK)
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Collared 27 February 2018
Ivey v Genting Casinos (UK) Ltd, t/a Crockfords [2017] UKSC 67
The decision of the Supreme Court of the United Kingdom late last year in Ivey v Genting Casinos (UK) Ltd1 has sparked significant commentary due to its relevance to the historically disparate domains of criminal law and contractual interpretation. The case dissects the notion of ‘cheating’ in the context of gambling and casts light on what is required to prove that certain conduct is ‘dishonest’. The discussion put forward is particularly relevant to the commission of white-collar crime offences such as fraud.
Mr Phil Ivey, described by some as the ‘world’s best poker player’, initiated civil proceedings to recover £7.7 million in winnings from London casino, Crockfords. The casino had previously refused to pay out his winnings on the basis that Mr Ivey had cheated at the game of Baccarat. Mr Ivey, and his associate, Ms Sun (also a professional gambler) utilised a playing strategy known as ‘edge-sorting’ to exponentially increase their chances of winning. ‘Edge-sorting’ relies on the ability of a player to recognise infinitesimally small variances in the decorative patterns on the back of playing cards in order to determine the face value of the card. The strategy involves the player convincing the dealer (also known as a ‘croupier’) to rotate certain cards, which the player knows to be of a certain face value because they have recognised a minute difference in the uniformity on the back of the cards. At no point does the player touch the cards. The dealer is persuaded by the player to rotate the cards under the guise of some superstitious belief. As Lord Hughes noted in his reasons,
‘Casinos routinely play on quirky and superstitious behaviour by punters. It is in the casino’s interest that punters should believe, erroneously, that a lucky charm or practice will improve their chance of winning…’2
By employing the ‘edge-sorting’ strategy, a player is able to greatly improve their odds of winning. When Mr Ivey commenced proceedings to recover his £7.7 million in winnings, he gave factually frank and truthful evidence of what he had done. He described himself as an ‘advantage player’, that is, someone who attempts to gamble at odds which favour him, negating the well-known, and often under-appreciated canon that ‘the house always wins’. Mr Ivey described his conduct as ‘legitimate gamesmanship’ and it was accepted by the Court throughout the litigation of the matter that Mr Ivey himself genuinely believed that ‘edge-sorting’ did not amount to cheating.
Action in contract: an implied term not to cheat
Mr Ivey brought an action in contract, relying on the ‘gaming contract’ between himself and the casino, to recover his winnings. The casino, in response, argued that Mr Ivey had cheated, and in doing so, had breached the gaming contract between them. The casino further pleaded that Mr Ivey’s conduct amounted to the offence of cheating3 under the Gambling Act 2005 (UK) (Gambling Act) such that he could not recover the proceeds of his criminal offence and would forfeit his winnings.
It was accepted between the parties that it was an implied term of the gaming contract that neither party would cheat against each other. It was this implied term that the casino alleged Mr Ivey had breached by employing the ‘edge-sorting’ strategy. Although the point was not addressed in detail by the Court in its reasons for judgment, it is well-settled both in UK and Australian law that there are several established categories for the implication of contractual terms.
Terms can be implied into a contract by fact, by law or by reference to custom or common usage. Where a term is implied by law, it is usually implied because of the contractual relationship existing between the parties. For example, in contracts for the provision of services, there is an implied term requiring the exercise of proper or reasonable care. Conversely, in recent times, it has been held in Australia that an implied term of mutual trust and confidence will not, as a matter of law, be implied into contracts of employment.4
Relevantly, a term can also be implied by virtue of the particular factual circumstances of a contract, by reference to the presumed intention of the parties. In the present case, it was accepted by both parties, throughout the litigation, that there was an implied term that neither would cheat nor otherwise act to defeat the essential premise of the game and consequently, that if Mr Ivey as the player, did so, the gaming contract would be void and he would be unable to recover any winnings.
Strict requirements have developed in case law for the implication of a term into a contract by fact. Although the position in Australia has somewhat evolved over time, the statement of Lord Simon of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings5 remains the authoritative approach:
‘For a term to be implied, the following conditions (which may overlap) must be satisfied; (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’
Although the Supreme Court did not deal with the issue, there is reason to doubt whether, had the existence of the term not been agreed, such a term could be implied by fact. The above statement of Lord Simon, which has been adopted in numerous subsequent decisions6 by Australian courts dealing with the implication of terms into contractual agreements, makes it clear that for a term to be implied it must be ‘necessary’ in the sense that both parties must have intended for the term to form part of their agreement in order to do ‘business efficacy’. In the present case, the implication of a term into a gaming contract that neither party will cheat makes logical sense. Indeed, one might argue that such a term would be an obvious part of a contract which is premised on what is essentially a simple wager. A gaming contract in which parties could permissibly cheat in their dealings with each other would be nonsensical and unquestionably lack business efficacy. However, to imply a term by fact it is not enough to simply show that the term was reasonable or equitable. It must be shown that the term was necessary.
Relevantly, the casino argued that in addition to breaching the implied term not to cheat, Mr Ivey had committed the statutory offence of cheating pursuant to the Gambling Act and therefore the gaming contract was unenforceable by reason of illegality. Consequently, the Court was required to determine whether cheating at common law was the same as the statutory offence of cheating. Lord Hughes agreed with Arden LJ in the appellate court and held,
‘there is no doubt that cheating carries the same meaning when considering an implied term not to cheat and when applying section 42 of the Act.’7
It is the existence of the statutory offence of cheating which casts doubt on the validity of the implied term, at common law, not to cheat. If Mr Ivey was to be found guilty of the offence of cheating pursuant to the Gambling Act, the contract would be unenforceable due to illegality, denying Mr Ivey’s right to recover his winnings. In these circumstances, it is difficult to see how it was ‘necessary’ for the gaming contract between Mr Ivey and the casino to also have an implied term that prohibits cheating, in effect, achieving the same result as the statutory offence of cheating. Whilst it is unquestionably desirable for parties to a gaming contract to not cheat against each other, the implication of a term to this effect does no further work than the statutory prohibition against cheating. Although this issue was not specifically addressed by the Supreme Court (perhaps because of the admissions made by Mr Ivey in respect of the existence of the implied term), it is interesting to note that the question was alluded to in the Court of Appeal by Sharp LJ.
It should, however, be noted that if the Court had rejected the existence of the implied term, the outcome would have been no different because, as outlined above, the casino would have simply relied on the statutory offence of cheating to render the gaming contract unenforceable by reason of Mr Ivey’s illegal conduct pursuant to the Gaming Act. It does, however, raise an interesting example of the validity of implied terms in contractual agreements where parallel statutory offences purport to regulate precisely the same conduct.
The central question before the Court was whether Mr Ivey, by employing his edge-sorting strategy, had cheated. Mr Ivey contended that, ‘cheating’ necessarily involves an element of dishonesty. Since the Court at first instance had found that Mr Ivey was truthful when he said that he did not believe he was cheating, Mr Ivey argued that he was not dishonest whilst using his ‘edge-sorting’ strategy and therefore he had not cheated. In support of the submission that dishonesty was a crucial aspect of cheating, Mr Ivey relied on the decision in R v Scott8 where it was held that fraud, and therefore dishonesty, was an essential element of the common law offence of cheating. Mr Ivey further argued that as a matter of ordinary English vernacular, one could not be an ‘honest cheater’. The Court, however, reasoned that it did not follow that all cheating would attract the description of ‘dishonest’ conduct. In doing so, the Court used the following example:
‘The runner who trips up one of his opponents is unquestionably cheating, but it is doubtful that such behaviour would ordinarily attract the epithet “dishonest”’9
The Court further referred to the offence of cheating under the Gambling Act, noting that under section 42(3), ‘cheating at gambling may, in particular, consist of actual or attempted deception or interference’. Ultimately the Court concluded that cheating does not necessarily involve an element of dishonesty and that Mr Ivey’s actions were ‘inevitably’ cheating. Lord Hughes said,
‘What Mr Ivey did was to stage a carefully planned and executed sting. The key factor was the arranging of several packs of cards…differentially sorted so that this particular punter did know whether the next card was a high value or low value one… Mr Ivey did much more than observe; he took positive steps to fix the deck. That, in a game which depends on random delivery of unknown cards, is inevitably cheating.’10
The Court concluded its discussion on cheating and noted that even if cheating required the conduct in question to have an additional legal element of dishonesty (which the Court decided was not required), Mr Ivey’s actions in convincing the dealer to rotate certain cards which he knew to be of a particular value would have been prima facie dishonest.
A new test for dishonesty?
Perhaps the most significant outcome from the decision in Ivey was the Court’s reasoning on the requirements to prove that certain conduct is ’dishonest’. After dealing with the issue of whether cheating necessarily required an element of dishonesty, the Court took the opportunity to examine the law regarding ‘dishonesty’ more generally.
Mr Ivey had relied on the test for dishonesty laid down in R v Ghosh11 which established that to demonstrate that particular behaviour was ‘dishonest’ it was necessary to prove:
the conduct of the defendant was dishonest according to the standards of ordinary, reasonable and honest people, and
the defendant was aware that such conduct would be considered ‘dishonest’ according to this standard.
Mr Ivey’s undisputed evidence was that he believed that his edge-sorting strategy was simply an honest advantage. On this basis, he argued that he did not satisfy the second limb of the test in Ghosh and therefore what he did could not be considered cheating. Although it was not specifically required to do so, the Court rejected the second limb of the test in Ghosh, noting that it, ‘does not correctly represent the law’. This represented a major departure in principle within English theft and fraud law, with the test in Ghosh having been used for nearly 35 years to define ‘dishonest’ conduct. Lord Hughes, in rejecting the application of Ghosh, highlighted the inherent problem with the approach of the second limb of the test, noting, ‘it has the unintended effect that the more warped the defendant’s standards of honesty are, the less likely it is [they] will be convicted of dishonest behaviour’.12 Lord Hughes, referring to an earlier decision in R v Greenstein13, noted that the effect of the second limb of the test in Ghosh was to create a situation whereby ‘Robin Hood would be no robber’.
Interestingly, the English law position appears to have now coalesced with the position under Australian law. The majority judgment in the 1998 High Court decision of Peters v R14 expressly rejected the application of the two-limbed test in Ghosh. In 2015, the Queensland Court of Appeal in R v Dillon15 affirmed the decision in Peters and held that to satisfy the element of dishonesty for the purposes of the Criminal Code (Qld), it was not necessary to prove that the defendant ‘must have realised that what he or she was doing was dishonest by the standards of ordinary honest people.’ Indeed, one need only look to the Queensland Benchbook relating to the criminal offence of fraud, used by judges when directing juries on matters of law in criminal trials, to see that the second limb of the test in Ghosh is no longer used in the Australian interpretation of ‘dishonesty’. Indeed, it would seem that this has been the case, at least at common law, for a number of years.
Interestingly however, the two-limbed test in Ghosh survives in certain federal legislation in Australia, perhaps most notably in the Corporations Act 2001 (Cth). For example, section 1041G of the Corporations Act, which prohibits certain conduct in relation to financial products and financial services, explicitly preserves the second limb of the test in Ghosh. Under this provision, ‘dishonest’ is defined as,
‘a) dishonest according to the standards of ordinary people, and
b) known by the person to be dishonest according to the standards of ordinary people.’
The Crimes Act 1900 (NSW) retains an identical definition.
Ultimately, it remains to be seen whether these statutory definitions of dishonesty will subsist in Australian law following the decision in Ivey, or whether the two-limbed Ghosh test will no longer have a place at the table when it comes to defining conduct which amounts to ‘dishonesty’.
1 [2017] UKSC 67.
2 Ibid, [13]
3 Gambling Act 2005 (UK), section 42.
4 Commonwealth Bank v Barker [2014] HCA 32
5 [1977] UKPC 13; 180 CLR 266 at 23.
6 See for example, Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 41 ALR 367; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 43 ALR 68; Hospital Products Ltd v United States Surgical Corporation and Others (1984) 55 ALR 417.
7 [2017] UKSC 67 at [38].
8 [1975] AC 819
9 [2017] UKSC 67 at [45].
10 Ibid at [50].
11 [1982] QB 1053
12 [2017] UKSC 67 at [57]
13 [1975] 1 WLR 1353 at p 1064.
14 [1998] HCA 7; 192 CLR 493.
15 [2015] QCA 155
Alan Wrigley, Lawyer