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Determining criminal ‘dishonesty’: a new challenge for our courts

A professional gambler’s civil action against a casino operator in the UK has resulted in a landmark ruling that gives criminal courts in Hong Kong plenty to ponder, writes Boase Cohen & Collins Consultant Michael Jackson.

Hong Kong, 16 November 2017: What makes a defendant ‘dishonest’ under Hong Kong’s criminal law? Uncertainty about this has been introduced into the criminal law of Hong Kong by the recent decision of the UK Supreme Court in Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67 (hereafter ‘Ivey’). Ivey, a professional gambler, claimed to have ‘honestly’ relied on a sharp-eyed ‘edge-sorting’ technique while playing cards in a casino, leading to substantial winnings. Not so, ruled the Supreme Court, declaring that Ivey had taken positive steps to ‘hoodwink’ casino staff and facilitate edge-sorting, and thus acted dishonestly. In so doing, the Supreme Court considered and rejected the ‘second leg’ (as it is called) of the ‘Ghosh direction’ on ‘dishonesty’, formulated by the English Court of Appeal in 1982 (R v. Ghosh [1982] 1 QB 1053), which Ivey had relied on to deny ‘dishonesty’. According to this direction, a jury or other fact-finder tasked with determining whether a defendant acted ‘dishonestly’:

‘...must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails. If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest.’

Neither ‘dishonesty’ nor ‘dishonestly’ are statutorily defined in Hong Kong, save for the express exclusion of certain ‘beliefs’ in s.3 of the Theft Ordinance in relation only to theft (eg. D’s taking of another’s property is not to be regarded as ‘dishonest’, and thus not theft, if he took it ‘in the belief that he has in law the right to deprive the other of it’ or ‘in the belief that she would have the other’s consent if the other knew of the [taking] and the circumstances of it’). This left both a definitional gap in the criminal law, and also an analytical uncertainty, namely, does ‘dishonesty’ relate to and characterize the conduct element of dishonesty-based offences such as theft, or is it a separate mental element for such offences? Some jurisdictions have adopted the first analysis (eg. Canada), but the UK courts, in Ghosh, came down on the side of dishonesty being a mental element.

In relation to the definitional gap, Ghosh did not actually define what had to be proved to establish this mental element. Instead, it directed fact-finders to apply their understanding of community standards of honesty and dishonesty to determine whether a defendant’s conduct falls the wrong side of the line, and then ask whether they can be sure the defendant ‘realised’ his or her conduct was ‘dishonest’ by those standards. The Ghosh direction was readily adopted in Hong Kong, and has been largely applied ever since, despite its somewhat open-ended and imprecise language. Its use was given the seal of approval by the Court of Final Appeal in Mo Yuk Ping ((2007) 10 HKCFAR 386). Importantly, the CFA in Mo affirmed that ‘dishonesty’ is a ‘state of mind’, even though Mo was charged with conspiracy to defraud at common law, necessitating proof of ‘dishonest means’, rather than just ‘dishonesty’. As to its meaning, Sir Anthony Mason NPJ, for the Court, stated (at para.48):

‘Although dishonesty in its ordinary sense does not lend itself to definition, it is not an arbitrary standard and a citizen should have little difficulty in appreciating what is dishonest judged by the ordinary standards of reasonable and honest people.’

As the CFA affirmed, the first ‘leg’ of the Ghosh direction requires assessment of the defendant’s conduct (‘what was done’) against community standards of ‘honesty’ and ‘dishonesty’, and involves the application of an ‘objective’ test by fact-finders. In other words, the standard is fixed by the fact-finder, reflecting its intuitive sense of community standards, and is external to the defendant’s personal view about what amounts to dishonesty. But the second - or ‘subjective’ - leg directs attention to the defendant’s state of mind, and was intended to prevent conviction of a person acting with a state of mind which would negate a finding of dishonesty, or perhaps without sufficient understanding of the concept of honesty (eg. a person of low intelligence). So for example, a customer who leaves a shop without paying for an item, thereby acting in a manner which would prima facie be considered dishonest by ordinary standards, but who claims to have been distracted or absent-minded at the time, may pray in aid Ghosh’s second leg to prevent conviction, assuming that none of the three exclusions in s.3 of the Theft Ordinance apply (cf. someone who leaves the shop in the mistaken belief the item is a ‘free sample’, who could rely on either s.3(a) or (b)). Since s.3 applies only to the offence of theft, the second leg expands to encompass those same s.3 beliefs in relation to offences of dishonesty other than theft.

What Ghosh did not intend to permit, however, was a defendant, knowing all the relevant facts and circumstances leading to a finding of ‘dishonesty’ by ‘ordinary standards’, brazenly to say, as Ivey did, ‘well, I don’t agree with those standards … I regard what I did as honest’. If accepted, this would turn dishonesty into a purely subjective standard, based on a defendant’s own views about honesty and dishonesty (which could, of course, be either higher or lower than ‘ordinary standards’). According to Ghosh, a defendant who engages in conduct which is ‘obviously dishonest by ordinary standards’ will almost always fall within the second leg, since the ‘dishonesty’ of his conduct will almost certainly have been ‘obvious’ to him, leading to the conclusion he ‘realised’ this. This would be so ‘even if he asserts or genuinely believes that he is morally justified in acting as he did…’ (ie. the so-called ‘Robin Hood’ defence). In Ivey, the Supreme Court expressed doubt about the inevitability of this conclusion, with Lord Hughes identifying this as the major difficulty with Ghosh’s second leg (at para.58):

‘The principal objection to the second leg of the Ghosh test is that the less the defendant’s standards conform to what society in general expects, the less likely he is to be held criminally responsible for his behaviour.’

Also problematic are cases in which the ‘ordinary standards’ to be applied are not so ‘obvious’, or are made to seem not ‘obvious’. This is often asserted, for example, in cases of complex commercial fraud, where fact-finders may not only struggle to understand the nature of the transactions involved, but also lack any intuitive sense of the ‘honesty’ or ‘dishonesty’ of the transactions by ‘ordinary standards’. This category of case clearly troubled the Supreme Court in Ivey, and provided an additional reason for doing away with Ghosh’s second leg in England. Arguably, this problem is less pronounced in Hong Kong, given the relative sophistication of Hong Kong juries (due to English language requirements), but Ghosh’s second ‘subjective’ leg facilitates such obfuscation, and can potentially be exploited with a view to creating a ‘reasonable doubt’ in the fact-finder’s mind as to the defendant’s dishonesty. These misgivings about Ghosh have been explicitly recognized by the HK courts, with the Court of Appeal ruling in HKSAR v Lam Hin Fai ([2016] 2 HKLRD 1210) that a Ghosh direction need not be given in every case; instead, ‘It was only required in a minority of cases where the defendant might have believed that what he had allegedly done was in accordance with the ordinary person's idea of honesty’.

Ivey essentially involved the former, relatively simpler, ‘brazen’ case. Ivey brought civil proceedings to recover ₤7.7m he claimed to have won ‘honestly’ playing cards in one of Genting’s casinos using an ‘edge-sorting’ technique. Ivey admitted that he and a companion used various pretenses, including ‘superstition’, to induce a croupier in the casino to ‘rotate’ cards as they were dealt from a ‘shoe’ containing six or seven decks of cards, and then re-use that same shoe over several hours, over consecutive days. This enabled Ivey to detect barely visible differences in the edge patterns on the back of the cards as they were subsequently dealt from the shoe, and predict reasonably accurately whether a card was a high or low number, which greatly increased the odds in his favour. Genting claimed Ivey’s conduct constituted ‘cheating’ under the Gambling Act 2005, which would invalidate his claim.

The UK Supreme Court agreed with Genting’s claim of ‘cheating’, as the trial judge and Court of Appeal had likewise done. Lord Hughes, delivering the judgment of the Supreme Court, explained (at para.50):

‘What Mr Ivey did was to stage a carefully planned and executed sting. … It may be that it would not be cheating if a player spotted that some cards had a detectably different back from others, and took advantage of that observation, but 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.’

It was argued that ‘dishonesty’ is a necessary element of ‘cheating’. The Supreme Court rejected this submission, but took the opportunity to reconsider criminal dishonesty generally, and the correctness of the second leg of the Ghosh direction specifically. After a robust discussion, Lord Hughes, for the Supreme Court, re-affirmed that dishonesty is a ‘state of mind’ (quoting, at para.62, from Lord Hoffman in Barlow Clowes International Ltd v. Eurotrust International Ltd ([2006] 1 WLR 1476) to that effect), but re-asserted that ‘Dishonesty is a simple, if occasionally imprecise, English word’ (at para.63), which should be assessed using an ‘objective test’, akin to that under the civil law. The ‘second leg of the test propounded in Ghosh’, declared Lord Hughes, ‘does not correctly represent the law and … directions based upon it should no longer be given.’ (at para.74).

Dishonesty PHOTO

The UK Supreme Court heard how a professional gambler secured substantial winnings by identifying barely visible differences in the edge patterns on the back of cards as they were dealt from a ‘shoe’.

In doing away with the second leg, the Supreme Court did not thereby simply exclude consideration of a defendant’s actual state of mind. It remains relevant, declared Lord Hughes, but as a factor or circumstance relevant to the application of the objective test, rather than by way of a second, subjective leg as such. Referring to an example of an overseas visitor alighting from a public bus without paying, in the mistaken belief that public transport is free, which was used in Ghosh to justify the inclusion of the second leg, Lord Hughes stated (at para.60):

‘But the man in this example would inevitably escape conviction by the application of the (objective) first leg of the Ghosh test. That is because, in order to determine the honesty or otherwise of a person’s conduct, one must ask what he knew or believed about the facts affecting the area of activity in which he was engaging.’

So, the ‘second leg’ of Ghosh is unnecessary, because the defendant’s subjective state of mind can be taken into account in applying the objective test. Indeed, must be taken into account, declared Lord Hughes in reformulating the dishonesty direction as follows (at para.74):

‘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, dishonest.’ [emph. added]

So far as Ivey himself was concerned, his subjective knowledge or belief was thus of no assistance. Not only was his conduct clearly ‘cheating’, for the purposes of the Gambling Act 2005, but also (had it been necessary to determine this in order to establish ‘cheating’) it was unassailably ‘dishonest’ on an objective test. As Lord Hughes re-iterated (at para.75):

‘… it is a fallacy to suggest that [the trial judge’s] finding that Mr Ivey was truthful when he said that he did not regard what he did as cheating amounted to a finding that his behavior was honest. It was not. It was a finding that he was, in that respect truthful. Truthfulness is indeed one characteristic of honesty, and untruthfulness is often a powerful indicator of dishonesty, but a dishonest person may sometimes by truthful about his dishonest opinions … . For the same reasons which show that Mr Ivey’s conduct was, contrary to his own opinion, cheating, the better view would be … that his conduct was, contrary to his own opinion, also dishonest.’

Ivey will be welcomed by prosecutors in the UK since it seemingly simplifies the proof of criminal dishonesty, and does away with the potential exploitation of Ghosh’s second leg, especially by those charged with commercial fraud, insider trading and the like.

But it presents Hong Kong courts with a problem. In terms of precedent, Ivey is not formally binding on the Hong Kong courts. Furthermore, its declarations on criminal ‘dishonesty’ are obiter, since Ivey was a civil, not criminal, case, and it concerned ‘cheating’ under the Gambling Act 2005, rather than an offence under the UK Theft Acts or other common law offence expressly or impliedly requiring proof of ‘dishonesty’. But given the similarity between Hong Kong’s law on criminal dishonesty and that of the UK, prosecutors in Hong Kong will inevitably submit that Ivey’s reformulation of criminal dishonesty should be followed in Hong Kong, despite the CFA’s previous affirmation of the Ghosh direction. In one sense, this would seem urgent, given the daily prosecution of ‘dishonesty’ based offences in the Theft Ordinance and conspiracy to defraud; but at the same time, given that the Ghosh direction does not appear to have produced gross injustice in Hong Kong, a more cautious approach may be justified.

The question is: should Ivey be followed in Hong Kong? Two key concerns spring to mind. The first is doctrinal. Criminal liability for serious offences, such as those in the Theft Ordinance, or conspiracy to defraud, should be based on proof of a ‘culpable state of mind’, not merely ‘objectively’ culpable conduct. Self-evidently, taking property belonging to another with the intention of keeping it, or undertaking a business plan which will prejudice the financial interests of a competitor, should not, in themselves, constitute theft or fraud, unless done ‘dishonestly’. Culpably acting ‘dishonestly’ in this context ought therefore, to arise either from proof of a defendant’s awareness of the community standards of honesty and his realisation he is in breach of them (even if he doesn’t agree with the standards), or at least from proof of his knowledge or belief about all the facts and circumstances attending his conduct which make his conduct dishonest (eg. he knows he is leaving a shop without paying for an item). Anything less is arguably a breach of the presumption of mens rea, which compels proof of a ‘culpable’ state of mind against the defendant, and applies almost as a constitutional requirement in relation to serious offences potentially attracting substantial periods of imprisonment. In most cases, proving such a subjectively culpable state of mind presents little difficulty for a prosecutor, because it will ordinarily be the only reasonable inference from what the defendant did.

What of the Supreme Court’s solution, which is to relocate consideration of the defendant’s state of mind and beliefs to an initial stage of the enquiry, before asking whether the impugned conduct is dishonest by objective standards. With respect, this is only good enough if we are content with the second, weaker form of culpability, and do not consider it necessary to be sure the defendant appreciated his conduct fell on the dishonest side of community standards. Ivey’s reformulation of dishonesty – with the defendant’s subjective knowledge and belief taken into account at an initial stage - may seem familiar to Hong Kong lawyers, since it bears a striking similarity to the test adopted by the CFA in 2014 in HKSAR v. Pang Hung Fai ((2014) 17 HKCFAR 778) in relation to Hong Kong’s money-laundering offences. But the culpability element considered in Pang Hung Fai is ‘having reasonable grounds to believe’, an unequivocally objective form of culpability, which was expressly enacted by the legislature to facilitate prosecution of money-laundering offences. Indeed, what the CFA did in Pang Hung Fai arguably runs counter to Ivey, since the CFA concluded that an objective notion should nonetheless expressly take the defendant’s knowledge and subjective beliefs into account. Ivey says the same, but does so in relation to a mental element - ‘dishonesty’ - which, in the absence of express statutory definition, should require proof of subjective culpability.

Even if this weaker view of culpability may be acceptable, there is a second concern, relating to the burden of proof. The Ghosh direction requires the prosecution to prove both ‘legs’ beyond reasonable doubt, thereby ensuring that the defendant’s actual state of mind does not slip through the definitional gaps which exist in relation to ‘dishonesty’. Ivey opens the way for a defendant to be convicted by the application of objective standards, without any real determination by the fact-finder as to ‘actual state of the individual’s knowledge or belief as to the facts’, other than by way of inference that the defendant ‘must have known’ all the relevant facts and circumstances. Arguably, this imposes an evidential burden on a defendant, obliging him or her to adduce evidence of any claim he or she may have to ‘honesty’, perhaps even compelling him or her to testify, save which fact-finders may have no alternative but to infer knowledge for the purposes of the first part of Ivey’s reformulation.

Furthermore, even if a defendant gives evidence about his state of mind, and even if this evidence is accepted, ultimately the fact-finder could still conclude, perhaps based on an over-zealous view of community standards or an adverse view of the defendant’s subsequent dealings with law enforcement authorities (eg. the defendant lied), that the defendant acted ‘dishonestly’. Not only does this weaken a defendant’s entitlement to have his or her subjective ‘dishonesty’ proved, but it potentially invites conviction based on ‘keeping up appearances’.

The CFA has previously shown that Hong Kong’s criminal law will not religiously mimic that of the UK when circumstances warrant a different approach. It is to be hoped that the current law relating to criminal dishonesty in Hong Kong will be carefully addressed, and not undermined by a hasty, blinkered adoption of Ivey’s objective reformulation of dishonesty.