What does it mean "to act dishonestly?"

Insuring solicitors means providing liability against mistakes, but dishonesty is excluded - which makes a clear definition critical.

In a number of recent cases, the Courts have wrestled with the differing tests by which dishonesty is judged in civil, criminal and disciplinary proceedings. The long standing “Ghosh” test in criminal and disciplinary cases has now been thrown out by the Supreme Court, in favour of applying the same test as the civil courts when looking at the mental state required to establish dishonesty.

Criminal law – the Ghosh test

It has long been accepted that dishonesty is a state of mind, not a type of behaviour. The law in this sphere seeks to punish deliberate wrongdoing, not innocent mistakes. Problems arise, however, when a defendant has a different view of what is honest from that of the general population. 

The established test for dishonesty in criminal law was for many years the “Ghosh” test, following R v Ghosh (1982) 75 CR App. R. 154. The Court referred to an example of someone coming from a country where public transport is free, who gets on a bus with no intention of paying.  Is that dishonest?

To prevent the conviction of defendants who genuinely believe their conduct is acceptable, the Court imposed a two stage test, with an objective stage followed by a subjective stage:

(1) Was the defendant acting dishonestly according to the ordinary standards of decent people? and if so

(2)  Did the defendant realise that his conduct was, by those standards, dishonest?

The unwitting fare-dodger is acquitted on this test, but the problem is that, in the words of Hughes LJ in Ivey v Genting Casinos, discussed below, “the more warped the defendant’s standards of honesty are, the less likely it is that he will be convicted…”.

Civil Law - Barlow Clowes

The civil law developed differently.  In Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37 the Privy Council held that, whilst dishonesty must be judged in the light of the defendant’s actual state of knowledge, “if objectively no honest person would in that light have acted as they did, it is unnecessary to show that the respondents actually recognised that what they were doing was dishonest.”

Disciplinary proceedings – Bryant v Law Society

Although technically in the civil jurisdiction, disciplinary proceedings are a hybrid forum in which many of the procedures, and penalties, more closely resemble a criminal case.  In Bryant v Law Society [2007] EWHC 3043 (Admin) a solicitor applied for judicial review of a decision by the Solicitors’ Disciplinary Tribunal that he had been dishonest in acting for clients involved in “clearly dubious” investment schemes.  The dishonesty ruling was set aside because the Tribunal had not considered the question of whether the defendant knew he was acting dishonestly.  The Court rejected an argument that the weaker Barlow Clowes test should be applied in the disciplinary context.

This approach has come in for criticism on the basis that the same conduct could amount to dishonesty in a civil fraud action, whilst producing a not-guilty verdict in related criminal or disciplinary proceedings.

The position now: Ivey v Genting Casinos [2017] UKSC 67

This decision of the Supreme Court has resolved the problem of different tests in different jurisdictions by throwing out the Ghosh test in favour of applying Barlow Clowes across the board, to criminal and disciplinary cases, as well as civil.

The facts provide a fascinating insight into the world of gambling. The judgment begins with a detailed explanation of the game of Punto Banco, and the practice of edge-sorting.  In summary, Mr Ivey, a gambler, sought to gain an advantage over the casino by tricking a croupier into rigging the deck so that Mr Ivey could see whether the next card would be favourable or not, and place his bets accordingly.  He did this by working out that a brand of playing cards used by the casino had a pattern on the back which was not exactly symmetrical.  To the trained eye, the margin around the pattern was narrower along one edge than the other.  To use this information, he played several rounds of the game and, with an accomplice, persuaded the croupier to turn the valuable cards round when returning them to the shoe, saying this was a matter of superstition on his part.  Being sympathetic to gamblers’ superstitious preferences, which keep them coming back to lose more money, the croupier on behalf of the casino complied and turned the cards she was asked to turn.  When the same cards were used again in the next set of games, Mr Ivey was able to distinguish the valuable cards from the others as they came out face down, and improved the accuracy of his betting to the extent that he finished over £7m up.

The casino identified the trickery and refused to pay Mr Ivey his winnings, so he sued the casino to recover them.  He freely admitted using the edge sorting technique, but was adamant that (in his view) this was not cheating.  He regarded it as legitimate gamesmanship.  The judge at first instance agreed that Mr Ivey genuinely believed what he was doing was not cheating.

Under the Ghosh test, Mr Ivey would not have been found to be dishonest because he genuinely considered his conduct was acceptable, and he believed that honest people would regard it as acceptable.  Under the Barlow Clowes test applicable to civil cases, he was dishonest because, in the court’s view, no honest person would regard the conduct as acceptable.  Ivey v Genting Casinos was a civil case, so the Court could have applied Barlow Clowes and stopped there but, noting that opportunities to correct the criminal law are unlikely to arise while judges at first instance are applying the Ghosh test, the Supreme Court has taken this unusual opportunity to sort out the problem of the objective test for dishonesty, once and for all.

The Supreme Court has now declared that R v Ghosh was wrongly decided.  The test for dishonesty in criminal cases is the same as that set out in Barlow Clowes for civil matters, and is encapsulated in the following description (Ivey v Genting Casinos, 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…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.”

The unwitting fare-dodger in the example above still escapes under this test, because the first stage is to establish what the defendant actually understood about the facts.  Even if his belief about the facts (i.e. universal free transport) is unreasonable, that subjective belief is still the starting point, if the Court is satisfied he genuinely held it.  Only then is the objective test applied, as to whether the ordinary decent person would regard the conduct, based on those facts, as dishonest.

Bryant v The Law Society is also impliedly overruled, along with R v Ghosh on which it was based.  This means that the same, weaker test will now be applied in disciplinary tribunals as well.  Professionals will be found dishonest, even if they genuinely believe they were acting honestly, if an ordinary decent person would regard their conduct, based on their actual knowledge of the facts (not their view of the morals) as dishonest.