What constitutes cheat? The Ivey Case


Phillip Ivey a high stakes professional gambler won, with the assistance of another professional gambler Cheng Yin Sun, around £15 million playing Baccarat at the Crockfords Club in Mayfair, London (£7.7 million on 20 and 21 August 2012) and at the Borgata Hotel Casino in Atlantic City, New Jersey ($2,416,000 in April 2012, $1,597,400 in May 2012, $4,787,700 in July 2012 and $824,900 in October 2012).  Ivey and Sun used a technique called “edge-sorting” to give them an advantage over the casino.  Crockfords refused to pay £7.7 million in winnings to Ivey and as a result he brought an action against them in the High Court and the Borgata Hotel Casino brought an action to recover $9.6 million in winnings that had been paid out to Ivey.  The central issue in both cases was whether “edge-sorting” constituted cheating.

On 8 October 2014 the High Court (Mitting J) handed down judgment in Phillip Ivey v. Genting Casinos UK Limited T/A Crockfords Club [2014] EWHC 3394 (QB).  This article considers Ivey’s appeal against the decision of Mitting J to the Court of Appeal.

On 21 October 2016 the US District Court for the District of New Jersey handed down judgment in Marina District Development Co., LLC v. Ivey [2016] U.S. Dist. LEXIS 146084. The District Court held that Ivey had breached his contract with Borgata Hotel Casino to play by the rules of the New Jersey Casino Control Act when he “knowingly engaged in a scheme to create a set of marked cards and then used those marked cards to place bets on the markings.” It accepted that Ivey had not marked the cards in a traditional way, but found that a liberal interpretation should be applied to what “marked” meant. “Marking” arose when something was done to the card that identifies the value of the card to the player but to no one else.  The result was that Ivey was ordered to return his winnings.

On 3 November 2016, the Court of Appeal handed down judgment in Ivey v. Genting Casinos UK Ltd T/A Crockfords Club [2016] EWCA Civ 1093. The Court of Appeal dismissed the appeal brought by Ivey against the decision of Mitting J, which entitled the Crockfords Club to withhold Ivey’s gambling winnings on the basis that he had breached an implied term in the parties’ contract not to cheat by edge sorting.

The Facts

On 20 and 21 August 2012, Ivey won over £7.7 million playing Punto Banco, a variant of Baccarat. Ivey used a technique called “edge-sorting,” which involves distinguishing between cards by examining irregularities on the backs of the cards. Knowing whether the first card was or was not a 7, 8 or 9 gave Ivey a long-term advantage of about 6.5% over the house. He gained this knowledge by inventing a superstition, which convinced the croupier to turn the 7s, 8s, and 9s differently. Crockfords refused to pay out and Ivey sued for his winnings.

In rejecting his claim, Mitting J held that “in civil proceedings it is for the court to determine what the standard [of honesty] is and to apply it to the facts of the case.” Applying an objective standard, he found that Ivey had cheated as: he gave himself an unfair advantage; he did so by using the croupier as his innocent agent; and he did so knowing that Crockfords were not aware that his conduct affected the odds in the game. In reaching this conclusion, Mitting J decided it was unnecessary to consider the criminal offence of cheating created by s.42 of the Gambling Act 2005.

The Issues

The Court of Appeal (Sharp LJ dissenting) affirmed Mitting J’s ruling, but on different grounds to those which found favour with the judge at first instance.

The Court of Appeal considered four issues:

(i) Whether the meaning of cheat in civil proceedings should be determined by reference to the criminal law?

(ii) The mens rea of the offence created by s.42 of the Gambling Act 2005

(iii) Whether Ivey’s actions were justified on the basis that he was an advantage player?

(iv) Whether the trial judge was right in his assessment that the facts constituted cheating?

Findings

(i) The meaning of “cheat” for the purpose of the implied term should follow s.42.

Arden LJ and Sharp LJ held that the trial judge erred in deciding the case by reference to a civil concept of cheating. Instead, the meaning of cheat should be determined in the context of s.42. Not only was this a contract for a game regulated by the Gambling Act 2005, but also the implied term was “intended to do no more than reflect the basic common law rule that a contract to do an unlawful act is not enforceable.”

Tomlinson LJ found it possible to dispose of the appeal without reference to s.42 for three reasons:

  1. It is wrong to say that the only reason that parties agree to an implied term not to cheat is because they wish to escape criminal liability.
  2. An implied term based on s.42 could be dispensed with, as recovery of winnings would be prevented by the player’s reliance on criminal conduct.
  3. Cheating existed before s.42. Earlier gambling contracts must therefore have contained similar implied terms which were independent of the criminal law.

(ii) Dishonesty is not a necessary ingredient of “cheat” in s.42 or at all.

If dishonesty is an essential ingredient of the criminal offence of cheating, then the test for dishonesty established in R v Ghosh [1982] QB 1053 applies. The Ghosh test has two stages: firstly “Whether according to the ordinary standards of reasonable and honest people what was done was dishonest” and, if so, “whether the defendant himself must have realised that what he was doing was [by the standards of or reasonable and honest people] dishonest.” This case does not satisfy the second stage of the Ghosh test as Mitting J concluded that Ivey had an honest belief that his actions were not cheating.

In coming to their decision, the Court of Appeal held that dishonesty is not part of the mens rea of s.42.  Arden LJ concluding that “in some circumstances interference with the process of the game without proof of dishonesty will be enough”.

Their reasoning, based on the drafting of the Act, had three main elements:

  1. The Act was passed long after the decision in Ghosh. Therefore, Parliament would be expected to state by express wording if dishonesty is required.
  2. The wording of s.42(3) means that, depending on the facts of the case, interference with the process of the game may by itself constitute cheating, regardless of the player’s mental state.
  3. 42(3) mentions deception, which would be superfluous if dishonesty is part of the mens rea.

In a dissenting judgement, Sharp LJ argued that dishonesty was an essential ingredient of the criminal offence. She commented that: “the addition of the word “dishonestly” to the word “cheat” would I think be a solecism.” She held that “unfairness” did not provide an appropriate alternative since cheating may result in unfairness, but unfairness does not necessarily amount to cheating. Therefore, to avoid uncertainty in the criminal law the appropriate mens rea for liability under s.42 must be one of dishonesty.

(iii) The content of the implied term is not affected by the fact that a person is an advantage player.

 Counsel for Ivey argued that, as he was a known advantage player, the casino and him were involved in a “cat and mouse game”. The casino took steps to protect its inherent advantages and he was entitled to try and “exploit a chink in the casino’s considerable armour.” In this context, his actions were legitimate gamesmanship.

The Court of Appeal disagreed with this analysis on the grounds that Crockfords did not agree to Ivey’s requests knowing that he was about to change the nature of the game by altering the odds through edge-sorting. Crockfords’ naiveté about edge-sorting and failure to suspect that the integrity of the game was being compromised could not transform Ivey’s conduct into something other than cheating.

Furthermore, it would be wrong for the construction of an implied term to depend upon identifying a player as an advantage player. Even if such a definition were possible, it would mean there being one rule for advantage players, and one rule for everybody else.

(iv) There was cheating in this case.

The Court of Appeal agreed with Mitting J that Ivey’s actions constituted cheating. They held that Ivey’s use of knowledge obtained from directing the reorientation of the cards interfered with the conduct of the game. This deprived it of its essential character as a game of pure chance.  They rejected Ivey’s submissions that his conduct bore a similarity to legitimate card counting as this only arises in games which combine chance and skill. It was also deemed cheating because Crockfords did not know that Ivey intended to practice edge-sorting, nor the real reasons behind his wish to have the cards turned, and were therefore not in a position to reject his requests.

Tomlinson LJ went further. He stated that the trial judge should have found that Ivey’s conduct amounted to deception since Ivey and his accomplice concocted a superstition “to persuade the staff to do what they would not normally have done and would certainly not have done had they appreciated the purpose.” Furthermore, Ivey sought to cover his tracks by asking for cards to be turned in a random fashion during the last shoe and by not revealing when challenged that he had been practicing ‘edge-sorting.’

The UK Supreme Court will now consider whether dishonesty is an essential element of cheating for the purposes of s.42 in view of the different approaches taken by Sharp LJ and Arden LJ.  Especially, in view of Tomlinson LJ reaching the same result as Arden LJ but for differing reasons.


Zubair Ahmad