White-collar crime: law on dishonesty re-written

For 35 years the standard test for dishonesty in criminal trials has been that set out by the Court of Appeal in R v Ghosh. But last month, the Supreme Court overturned this authority in obiter comments in the judgment of Ivey v Genting Casinos. We examine the reasoning behind this decision and its likely consequences, particularly for white-collar crime cases.
Ivey v Genting Casinos concerned whether Mr Ivey had cheated the casino by using a complex technique of card sorting to give him an advantage in a game of Punto Banco Baccarat, at which he won £7.7m. Mr Ivey was open about what he had done and felt he had simply used tactical play to beat the house. He was found to be a reliable witness by the trial judge, but ultimately it was still found that his behaviour constituted cheating and the casino was entitled to refuse to pay out. Although the issue of dishonesty was not at issue in the case, the question of a defendant’s perception of the propriety of their actions did arise and this led the Supreme Court to consider the criminal law on dishonesty regardless, seeing a need for change.

The Ghosh test

The two-stage Ghosh test applied since 1982 requires the following to be considered:

  1. was the conduct complained of dishonest by the standards of ordinary and reasonable people (the objective test); and
  2. if so, must the defendant have realised that ordinary people would consider their conduct dishonest (the subjective test).

At first glance this would appear to be a relatively simple and robust test to establish dishonesty. There are, however, two fundamental concerns with this test that the Supreme Court, in our view, sought to rectify.

The first is a conceptual concern. Say an individual takes another person’s wallet. This appears to be a clearly dishonest act and one would expect the jury to have no difficulty in making such a finding. However, what if the defendant’s understanding of societal values was so warped that they did not realise that what they did would be viewed as dishonest by society at large? This could lead to an activity that, whilst objectively dishonest, was excused on account of the defendant not sharing ordinary values.

The second issue is a procedural concern. Dishonesty arises in civil proceedings as well, where certain torts require an element of dishonesty to be proved. The civil courts have never adopted the second limb of the Ghosh test, however. The Supreme Court saw no reason for this inconsistency and considered it potentially unjust.

The Ivey test

In Ivey, the Supreme Court stated that the second leg of the test in R v Ghosh does not correctly represent the law and directions based upon it ought no longer to be given to juries. If a jury finds that a person’s conduct was dishonest by ordinary standards, it will be no defence for the defendant to show that he did not realise others would view it as dishonest.

From a practical perspective, it is questionable how often cases have turned on the subjective element of the Ghosh test rather than whether the jury (as ordinary and reasonable people) would consider the conduct to be dishonest. Few defendants will be able to persuade a jury that their view of honesty differed from that of society at large.

However, it is notable that the Supreme Court referred in its judgment to the test being applied in cases involving insurance claims, high finance, market manipulation and tax evasion claims. In these contexts it is less difficult to envisage a case where previously the jury might have acquitted a defendant because they could not be sure the defendant realised their conduct would be viewed as dishonest. Where the context of the case involves activities in a complex and arcane area, the fact that a defendant thought ‘everyone was doing it’ might lead a jury to find a subjective belief by the defendant that the activity was not dishonest. The Ivey test removes the need for the jury to consider what a small elite group of financiers thought was right and instead empowers them to decide if they think that the conduct placed before them is dishonest or not.

The impact

The job of the prosecution in dishonesty cases has, as a result of this decision, become a little bit easier. This will have a significant impact on how those defending those accused of white-collar crimes approach their defence strategy. A defence of ‘everybody else was doing it’ is less likely to be fruitful in such instances. This is especially the case as the judgment makes express reference to not excusing:

‘Those who make a mistake about contemporary standards of honesty… in the context of insurance claims, high finance, market manipulation or tax evasion.’

A subjective element will still come into dishonesty cases, as the jury is obliged to consider the surrounding facts of the case, which would include a defendant’s subjective view of the particular circumstances. Where someone acted under a misunderstanding, for example by taking something they thought was free, when in fact payment was required, they will still not have been dishonest under the Ivey test. This may therefore subtly alter how a defence case is put on behalf of financiers and other professionals accused of dishonesty.
This is not a development to which the in-house practitioner needs to react by taking action. But it is one of which those businesses and professionals commonly in the sights of regulators and enforcement agencies should be aware. Defence teams will need to consider how they deal with the defendant’s perception of their conduct in white-collar trials going forward.