Australia: Life on the edge: an honest cheater?

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.

Facts

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.

Cheating

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'.

Footnotes

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions