On October 25, 2017, the United Kingdom Supreme Court issued a fascinating and potentially groundbreaking opinion (PDF: 357 KB), in a civil suit for contract breach called Ivey v. Genting Casinos (UK) Ltd.[1] As this post will explain, the UK Supreme Court refined a major component of English law of white-collar crime, while purporting to relegate that component to the dustbin.
The central problem in the substantive criminal law of white-collar offenses—an issue I have pursued in much of my scholarship (here, here, here, and here, for example)—is how the law draws lines between seriously morally wrongful business practices and those that are acceptable, even if, in hindsight, regrettably unwelcome. The perennial challenge is to draw lines that are sufficiently clear to warn potential wrongdoers of criminal sanctions and that mark out only serious wrongdoers for imprisonment, while crafting those lines to be sufficiently broad and flexible to apply, and thus be effective, in an ever accelerating and more complex industrial world.
This is why we have criminal statutes against fraud that say little more than “do not commit fraud,” even as we also have complex regulatory regimes that specify many prohibited behaviors but must continually play catch-up with evolving commercial practices.
Rules like “do not commit fraud” arguably fail to draw lines that are clear enough to fairly warn citizens and are insufficiently narrow to capture only the seriously blameworthy. On both sides of the pond, the law’s answer has been to focus on mental state (mens rea). Individuals who act with a culpable state of mind when engaging in innovative but deceptive and/or potentially harmful practices may be eligible for criminal punishment.
This approach, of course, prompts the question of how the law ought to specify necessary and sufficient culpable states of mind. To say that the required state of mind is, for example, “the intent to commit fraud” or “the intent to obstruct justice” circles back to the initial problem, that is, how to determine which behaviors constitute fraud or obstruction of justice.
This is where the Ivey decision comes in. Over two days in August 2012, Phil Ivey, a famous World Series of Poker champion, won £7.7 million at Crockfords Casino in London, playing a card game called Punto Banco Baccarat. After reviewing video records of Ivey’s play, the casino refused to pay his winnings. Ivey sued for breach of contract. The casino answered on the ground that Ivey had “cheated,” in violation of both the terms of the casino’s contract and The Gambling Act of 2005, a statute that prohibits “cheats at gambling,” without defining those terms.
Ivey’s Baccarat play worked as follows. This version of Baccarat uses playing cards but is a game of pure chance. To simplify, two pairs of cards are dealt face down and the player blindly bets a chosen sum on which of the two pairs totals closest to 9 (under an odd system of counting card values). The dealer then turns over both pairs of cards. If the player’s chosen pair totals closer to 9 than the other pair, the player’s bet wins; if not, the house wins. At casinos such as Crockfords, dealers distribute the cards by sliding them out onto the table one at a time from the bottom of a card “shoe” that is loaded with eight shuffled decks.
To repeat, this is a game of pure chance. It is common for players to speak frequently, and even peculiarly, amongst themselves and with the dealers about how superstitions and beliefs affect success in the game. The casino and its dealers indulge such talk to encourage more wagering—to the point that dealers will follow idiosyncratic requests of gamblers about how to handle the cards, as long as the players do not touch the cards.
Ivey has an extremely keen eye and he knows cards. He determined that, due to tolerances in the manufacturing process, the cards used at Crockfords bore slight, barely visible differences in the width of blank space between the uniform pattern printed on the back of the card and the edge along one perimeter of the card. After playing and winning, Ivey admitted that he used this knowledge to his advantage by making a series of purportedly superstitious requests of his dealer: to turn the cards back over in specified directions when discarding them at the end of each hand; to reuse the same eight-deck collection of cards successively; and to shuffle the cards in between “shoes” with an automatic shuffling machine rather than by hand.
In this way, after playing one full shoe of cards without unusual success, Ivey ensured that he could identify the more favorable cards as they were dealt out of the reloaded shoe. This he did with great success, winning millions. The dealer bought Ivey’s routine as a superstitious gambler playing a game of luck. The casino’s managers, however, after examining the tapes, figured out that Ivey had discovered a way to track the Baccarat cards.
The central question for the court was whether Ivey had cheated. The court first had to decide whether the legal meaning of “cheat” in the Gambling Act (and thus also in Crockfords’ gaming contract) includes a requirement of “dishonesty.” The court ruled no, explaining that lots of things that are treated as cheating at games do not involve dishonesty: for example, deliberate time wasting, upsetting the card table to necessitate a new deal, or peaking to have a look at another player’s cards. (The court likewise pointed out that dishonesty is not always cheating: for example, an unorthodox lead or discard in bridge that is designed to send a false signal or some bluffing strategies in poker.)
The question of cheating is thus not one of dishonesty but of the normative architecture of the game. The court determined that Ivey had cheated on the ground that he turned a game of chance into something else. It was as if Ivey had gained access to the shoe and rearranged the cards himself. Ivey’s was, the court said, “a carefully planned and executed sting.” Ivey lost his breach of contract claim and his £7.7 million.
The court could have stopped there. But it continued, into a discussion of great importance to white-collar crime. The court explained, at some length, that even if dishonesty were a required element in the legal definition of cheating, Ivey had acted dishonestly.
This move required the court to take up the famous case of R v. Ghosh,[2] in which a UK court defined “dishonesty,” a term that is not found in the Gambling Act but textually appears as a required element in the modern UK statutes prohibiting theft and fraud. For several decades, the “Ghosh test” has been central to UK law’s method of using mental state inquiry to identify culpable white-collar offenders in novel circumstances.
Ghosh said that dishonesty is for the jury to determine under a two-part inquiry: First, was the defendant’s conduct dishonest by the standards of ordinary reasonable and honest people? Second, did the defendant realize that ordinary honest people would view his conduct as dishonest? Only if the answer is yes to both questions can a defendant be found guilty.
The benefit of the Ghosh test is that it allows juries to convict in cases involving novel and/or complex white-collar offenses, while also ensuring that juries convict only those actors who subjectively knew their conduct was wrongful and pressed forward with it nonetheless. Among those who forge new ground, only the blameworthy will be punished.
The Ivey court pointed out the principal deficit in the Ghosh approach: it is underinclusive. Actors might engage in quite blameworthy conduct while being morally obtuse: “the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted of dishonest behavior,” said the Lords. A man should not be permitted to determine for himself what is right and what is wrong. Ignorance of the law is (usually) no excuse. And so on.
The Ivey court thus professed to kill the second part of the Ghosh test. A venerable part of the modern UK law of property crimes appears to be gone.
It might seem, therefore, that the Ivey decision places matters back at square one of the problem. Without the subjective element of Ghosh, UK theft and fraud law might apply to all manner of arguable wrongdoing that juries think the ordinary English citizen would disapprove of, without any showing by the prosecutor that the defendant acted culpably. This would not accommodate the basic tension at the heart of white-collar offense definition. It would simply ignore one end of the dilemma.
Buried within the Ivey opinion, however, is evidence that the UK Supreme Court indeed understands the need for a meaningful culpability inquiry in the adjudication of white-collar cases. The court seems to have refined the idea at the heart of Ghosh rather than dispensed with it.
The Ivey court said, “What is objectively judged is the standard of behavior, given any known actual state of mind of the actor as to the facts.” Mens rea is still required, said the court, as to the relevant facts.
This alone, of course, does not solve the culpability problem. An actor may be well aware of what she is doing—she knows she is sending an email to her customer and knows what it says, she knows she is publicizing her company’s financial results and what the numbers are, and so on—without being morally blameworthy.
But the Ivey court seemed to acknowledge that the relevant “facts” of which the defendant must be aware include not just the actions of the defendant but also contextual social norms. The court took up a famous example discussed in Ghosh: a man comes to London from a foreign country where buses are free and proceeds to ride a bus without paying. He is arrested for theft and claims truthfully that he did not know that London buses require riders to purchase a ticket.
The Ivey court said that this man would not have acted dishonestly—not because he did not know that average Britons would view free-riding as dishonest behavior but because he did not know that in London one pays to ride the bus. In other words, he is culpable if he thinks, “These dolts around here think free-riding is bad but I have the better view that such riding is perfectly innocent and harmless.” He is not culpable if he thinks, “Free-riding is perfectly innocent and harmless, and I see no reason to think the intelligent folks around here view the matter any differently.”
Here the Ivey court ran out of momentum. The court did not explicitly discuss what I think must be implicit in all of this: that the UK Supreme Court intends neither (1) to dispense with all inquiry into a defendant’s culpability as to contextual norms, or (2) to afford a general mistake of law defense to crimes such as theft and fraud.
I believe the Ivey opinion should be read as adopting a new or clarified version of the Ghosh test for dishonesty. The jury asks whether the defendant was aware of the significance of his behavior within the relevant social context, not whether the defendant himself shared or agreed with the applicable social norms. If this is correct, Ivey would represent adoption into UK law of a version of the concept of “consciousness of wrongdoing,” about which I have written much, including in an article by that title with my colleague Lisa Kern Griffin.
The remaining puzzle in Ivey lies in what the court said about Phil Ivey’s dishonesty. The Lords said Ivey would have lost on his contract claim even if they had concluded that “cheating” requires “dishonesty.” This would have been so, they said, even if Ivey was truthful in insisting that he thought outfoxing the casino with his edge-spotting play was fair game in the gambling world and thus not dishonest.
If only the court had said just a bit more. The Lords should have explained that Ivey acted dishonestly if (1) he chose to take the position in his own mind that edge-spotting ought to be seen as a fairly obtained advantage in the game but (2) he also knew that the Baccarat-playing community (whatever that might be) would not agree with him, or he at least had serious doubts on the matter.
As it happens, there was good evidence that Ivey had such doubts. After completing his big winning streak with the favorably arranged shoe, Ivey asked the dealer to refill the shoe with an entirely new set of cards. Then he played a little while longer before leaving the table—to make it appear that his preferences for how the dealer handled the cards had been quixotic, thus concealing his purportedly “perfectly fair” edge-spotting play. If Phil Ivey really thought his approach would be viewed within the realm of Baccarat as fair play, he would not have feared discovery once he had won. That is perhaps the more precise way of explaining how Phil Ivey was dishonest.
Footnotes
[1] Ivey v. Genting Casinos (UK) Ltd [2017] UKSC 67.
[2] [1982] QB 1053.
Samuel W. Buell is the Bernard M. Fishman Professor at Duke University School of Law. Sam Buell’s research and teaching focus on criminal law and on the regulatory state, particularly regulation of corporations and financial markets. He is the author of Capital Offenses: Business Crime and Punishment in America’s Corporate Age (W.W. Norton & Co. 2016).
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