FCA as gatekeeper of UK crypto AML regime: two years in
Ivey (Appellant) v Genting Casinos (UK) Ltd t/a Crockfords (Respondent)  UKSC 67
Hearing date 13 July 2017
Judgment date 25 October 2017
Before Lord Neuberger, Lady Hale, Lord Kerr, Lord Hughes and Lord Thomas
In August 2012, the Appellant, a professional gambler, used a specialist technique called edge sorting. The result of using the technique was that he significantly improved his chances of winning. He was assisted by a companion; and over the course of a day and some hours he won £7.7m.
The casino declined to pay the Appellant on the basis that they considered his technique to be cheating. At first instance, the Judge found that the Appellant had given frank and truthful evidence of his technique. He had referred to himself as an “advantage player”, which is someone who, by a variety of techniques, seeks to reverse the house edge and to play at odds which favour them.
The material question which arose for the Supreme Court to determine, as set out at paragraph 27 was:
But the question which matters is not whether [the Appellant] thought of it as cheating but whether in fact and in law it was dishonest."
It was accepted throughout the litigation that if what the Appellant did was cheating, he was not entitled to recover his winnings, given the implied term in a betting contract that neither party will cheat.
Mitting J held that the implied term had been broken, and therefore did not go on to consider whether a statutory offence had been committed. The majority of the Court of Appeal dismissed the appeal, concluding that what had been done was cheating. Sharp LJ was of the view that there could not be cheating unless a statutory offence had been committed, and therefore would have allowed the appeal. She considered that a necessary ingredient of the Appellant’s actions was dishonesty as defined in R v Ghosh  QB 1053.
The key tenet of the Appellant’s argument was that he did not consider what he did to be cheating; therefore the second, subjective limb, of the Ghosh test could not be made out. The Supreme Court’s decision was delivered by Lord Hughes with all of the Court in agreement.
What was said about dishonesty?
Since 1982, with the introduction of the Ghosh test, in the criminal sphere, a two-stage test has been applied:
Firstly, is the conduct complained of dishonest by the lay objective standards of ordinary reasonable and honest people? If the answer is yes, the second stage must then follow;
Does the relevant individual realise that ordinary honest people would so regard their behaviour as dishonest?
If the answer to both aforementioned questions is yes, a finding of dishonesty must follow.
The Ghosh test was introduced as the courts considered it was necessary in order to maintain the principle that responsibility for dishonesty must depend on the actual state of mind of the individual. At paragraph 1063, the central reasoning is encapsulated:
Take for example a man who comes from a country where public transport is free. On his first day here he travels on a bus. He gets off without paying. He never had any intention of paying. His mind is clearly honest; but his conduct, judged objectively by what he has done, is dishonest. It seems to us that in using the word ‘dishonestly’ in the Theft Act 1968, Parliament cannot have intended to catch dishonest conduct in that sense, that is to say conduct to which no moral obloquy could possibly attach.”
However, the Ghosh test has not been followed in civil cases particularly where the court has considered accessory liability for breach of trust. In those cases a different test has developed. In Barlow Clowes International Ltd v Eurotrust International Ltd  UKPC 37 the court stated:
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.”
Whilst professional disciplinary proceedings are civil, there has been a tendency to stick with the Ghosh test. In Bryant & Another v The Law Society  EWHC 3043 (Admin) the Divisional Court suggested that there were “strong reasons” for adopting a Ghosh type test in disciplinary proceedings. This approach was also followed by HHJ Pelling QC in Sharma v GMC  EWHC 1471 (Admin). In contrast, Mostyn J in Kirschner v The General Dental Council  EWHC 1377 (Admin) indicated that the standard for dishonesty in regulatory proceedings should be the lower and less subjective civil standard.
In the present case, the Supreme Court was concerned that:
…there can be no logical or principled basis for the meaning of dishonesty (as distinct from the standards of proof by which it must be established) to differ according to whether it arises in a civil action or a criminal prosecution. Dishonesty is a simple, if occasionally imprecise, English word. It would be an affront to the law if its meaning differed according to the kind of proceedings in which it arose” [paragraph 63]
In this vein, critically at paragraph 74 of the judgment, Lord Hughes states as follows:
…..the second leg of the test propounded in Ghosh does not correctly represent the law and that directions based upon it ought no longer to be given. The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes…... When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to 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”
Where does this leave us?
It is now clear that the Ghosh test is no longer good law and the question of dishonesty should be determined in accordance with the Barlow Clowes line of reasoning as re-stated by the Supreme Court in this case. There are relatively few cases that so dramatically change the predominant approach in a given area but this is one of them.
Kingsley Napley acted for the Respondent in the Supreme Court.
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