United States: The Holler Of The Ivey: A New Ruling On The Test For Dishonesty

Introduction

One of the most famous professional poker players in the world, Phil Ivey, recently sued a London casino for his winnings in a game of baccarat. He won £7.7m over the course of two days. The casino refused to pay his winnings, accusing him of cheating. Mr Ivey sued for the full amount. The High Court and Court of Appeal agreed that Mr Ivey had cheated and ruled in favour of the casino. Mr Ivey's last hope was an appeal to the Supreme Court. In addition to ruling on Mr Ivey's case, however, the Supreme Court took the opportunity to change the test for dishonesty in all civil and criminal offences, a test that has endured for 37 years.

Background

The game of baccarat is a card game played at many casinos around the world. Similar to blackjack, it is a comparing card game played between two hands, the "player" and the "banker". In the most famous variant, Punto Banco, the object of the game is to achieve, on one of the two positions, a combination of two or three cards which, when added together, is nearer to 9 in total than the combination on the other position. Aces to nine count at face value, ten to King inclusive count as nothing. The 'house edge', the advantage the casino has over the gambler, is approximately 1.24%.

Several variations of baccarat have been popular since at least the 19th century. As with all card games played for money, its history is intertwined with cheating. The most famous example is the royal baccarat scandal of 1891, also known as the Tanby Croft affair. In that case a lieutenant-colonel of the Scots Guards, Sir William Gordon-Cumming, was accused of cheating at a private game of baccarat at the home of Tanby Croft. His friend, the Prince of Wales - the future King Edward VII - was acting as the dealer.

Sir Gordon-Cumming was caught cheating and made to sign a declaration that, on condition that the other gentlemen would keep their silence, he would "solemnly undertake never to play cards again as long as I live". The secret was not kept for long. Sir Gordon Cumming publicly denied the allegations of cheating and brought an action against his accusers for slander. The Prince of Wales was called as a witness, the first heir to the throne to be compelled to attend court since 1411.

The jury found against the lieutenant-colonel, who was dismissed from the army the next day. The leader in the Times stated:

"He is condemned by the verdict of the jury to social extinction. His brilliant record is wiped clean and he must, so to speak, begin life again. Such is the inexorable social rule. He has committed a mortal offence. Society can know him no more."

Baccarat is also the favoured game of James Bond, appearing in many of Ian Fleming's novels. In his 1953 debut, Casino Royale, the entire plot revolves around a game of baccarat chemin-de-fer between 007 and the villain Le Chiffre. Naturally Le Chiffre attempts to cheat by trying to kill Mr Bond, but fails to do so, subsequently losing the game and his life.

Mr Ivey's alleged cheating was more pedestrian in nature. He had discovered that the patterns on the backs of cards produced by a certain manufacturer were not precisely symmetrical. The difference was sub-millimetric, but the machine which cut the cards left very slightly more of the pattern visible on one long edge of each card than on the other.

Before a card is dealt from the bottom of a 'shoe' (a device used to hold multiple decks of cards ready for dealing) one of the two long edges of the next card is on display. Someone with very sharp eyes sitting next to the shoe can therefore determine which long edge is displayed on the card that is to be dealt next.

That information on its own is of no help to the gambler. All the cards have the same tiny differences between the left and right edges, so knowing which edge is displayed tells the gambler nothing about the value of the next card in the shoe. What the gambler needs to achieve is an arrangement of all the cards in the shoe such that all the high value cards (7, 8 or 9 in this variant of baccarat) are all facing the same way. If that is done, the gambler will know whether either of the two hands "player" or "banker" has been dealt a high value card and is more likely to win, and can bet accordingly. Such knowledge would reverse the advantage of the casino and give the gambler a long term edge of approximately 6.5%, if played perfectly accurately.

So how to achieve this state of affairs? Mr Ivey couldn't just rotate the cards himself - the invariable practice at casinos is that any cards touched by the player would not be used again. The only person who touches the cards is the croupier. What Mr Ivey needed to do was persuade the croupier to rotate the high value cards without her realising why she was being asked to do so.

This was possible because of the tendency of casinos to pander to the superstitious requests of gamblers, particularly high-stakes ones, who erroneously believe that such requests will improve their chance of winning. On his first time playing with a shoe with the asymmetrical cards, Mr Ivey therefore pretended that he was superstitious and wanted the croupier to rotate certain cards in order to "change his luck". The unsuspecting croupier obliged, having no idea of the true purpose of his request.

Once all the cards in the shoe were exhausted, Mr Ivey claimed that he "had won £40,000 with that deck" and wanted to re-use the same cards again. The croupier didn't know whether the claim was true but was happy to oblige. Using the same cards again would of course mean that the cards would have to be shuffled, potentially upsetting the careful sorting Mr Ivey had achieved. In order to prevent this, he asked for an automatic shuffling machine to be used, which would keep all the edges of the cards the same orientation as before.

During play with the second shoe of cards, now rotated, Mr Ivey increased the stakes he was betting significantly. While during the first shoe he was placing comparatively modest bets of between £4,000 to £75,000 per hand, bets were now being made of up to £150,000 per hand. By the end of the first day Mr Ivey had won approximately £2million. When the croupier ended her shift he stopped playing and asked for the same shoe of cards to be used tomorrow.

The next day Mr Ivey maintained his winning streak and played through the whole shoe (around 8 packs of cards). At that point the senior croupier of the casino told Mr Ivey that the cards would now be replaced. Mr Ivey played for a while longer, now asking for cards to be rotated at random in order to cover his tracks. By the end of play he had won £7.7million.

The casino's practice after such a large win was to conduct an ex post facto investigation and work out how it occurred and if any foul play was involved. After several days examining the CCTV footage, and the cards that had been used, they discovered Mr Ivey's technique, known as 'edge sorting'. The Managing Director spoke to Mr Ivey and told him the game had been "compromised" and the casino would not be paying his winnings. Mr Ivey sued.

Honest cheating?

The question before the court was simple. Had Mr Ivey cheated? It was accepted by both parties that there was an implied term of the contract between Mr Ivey and the casino that neither party would cheat. If Mr Ivey had breached that term, no winnings would be payable.

Mr Ivey's position was that he hadn't cheated because he hadn't been dishonest. The judge at first instance found that Mr Ivey gave factually frank and truthful evidence of what he had done. He held that Mr Ivey did not believe what he was doing was cheating but was instead legitimate gamesmanship. Despite that finding, that court and the Court of Appeal held that Mr Ivey had indeed cheated. Mr Ivey appealed, his main defence being that the courts' finding that he was honest was not compatible with their finding that he cheated. Dishonesty is a necessary part of cheating. There was no such thing as an 'honest cheater'.

The Supreme Court was taken through the legal history of cheating in the UK. The Gaming Act 1664 first addressed the social ill of gambling when not conducted for "innocent and moderate recreation" but as a means of making a living. Anyone who gained winnings by cheating would face a forfeit of three times the amount won. If the person who was cheated did not sue, someone else could on their behalf. Half the forfeit would go to the loser and half to the Crown.

If this seems harsh, it was about to become even harsher. By the time of the Gaming Act 1710 the forfeit became five times the winnings and cheating was recognised as a criminal offence, attracting corporal punishment. In fact if anyone lost more than £10, even if no cheating was involved, they could recover a forfeit of three times the loss, half now going to the poor of the parish instead of the Crown. Forfeits were eventually abolished in 1845 but the criminal offence of cheating remained. That offence is now enshrined in section 42 of the Gambling Act 2005, which states:

  1. Cheating

    1. A person commits an offence if he -

      1. cheats at gambling, or
      2. does anything for the purpose of enabling
        or assisting another person to cheat at gambling.
    2. For the purposes of subsection (1) it is immaterial
      whether a person who cheats -

      1. improves his chances of winning anything, or
      2. wins anything.
    3. Without prejudice to the generality of subsection (1) cheating at gambling may, in particular, consist of actual or attempted deception or interference in connection with-

      1. the process by which gambling is conducted, or
      2. a real or virtual game, race or other event or process to which gambling relates."

The Supreme Court thought the concept of cheating at common law was the same as in the criminal offence of section 42. They considered the connection between cheating and dishonesty. Although the great majority of cheating would involve behaviour that the ordinary person would describe as dishonest, they could think of many examples in which cheating and dishonesty did not align.

The runner who trips up his opponent would of course be cheating, but would not ordinarily be described as 'dishonest'. The stable lad who starves the favourite horse of water for a day and then gives two buckets of water to drink just before the race, so that he is much slower than normal, is also cheating, but not dishonest.

Similarly, one can be dishonest without cheating. The Supreme Court recalled the Victorian "three card trick", in which a group of associates pretending not to know each other would lure an unsuspecting victim into playing the game by demonstrating how easy it was to win. Once lured in, however, the game was often played genuinely, and the gambler lost simply because the dealer had sufficient speed of hand to deceive the eye.

It was foolish to attempt to define cheating, but it was clear to the court that Mr Ivey's actions were a clear example. There would be no doubt he had cheated if he had gained access to the cards and re-arranged the cards himself. He had accomplished the same thing by tricking the croupier into thinking what she did was irrelevant. Mr Ivey did more than observe, he took active steps to fix the deck. The Supreme Court concluded:

"That, in a game which depends on random delivery of unknown cards, is inevitably cheating. That it was clever and skilful, and must have involved remarkably sharp eyes, cannot alter that truth."

New test for dishonesty

That resolved the case. Mr Ivey would not recover his winnings, and would instead be left with a sizeable legal bill. The Supreme Court was left uneasy, however, by the first instance judge's decision that Mr Ivey had not been dishonest, even though what he had done was to deceive the croupier. This was a result of the application of the test for dishonesty first laid down in the criminal case of R v Ghosh [1982] QB 1053.

Ghosh involved a two stage test. First, was the conduct complained of dishonest by the standards of reasonable and honest people. Second, did the defendant realise that the ordinary and honest person would regard his behaviour as dishonest. Only if the answer to both questions was the test satisfied. The court at first instance accepted that Mr Ivey genuinely did not realise that ordinary honest people would consider what he was doing to be dishonest, and so he did not satisfy the second limb of the Ghosh

The Supreme Court thought that this conclusion was evidence that there was something wrong with the law. It had the unintended effect that the more warped the defendant's standards of honesty are, the less likely he will be convicted of dishonest behaviour. Moreover, in criminal cases juries found it puzzling and difficult to apply. It was time for a restatement of the law:

"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."

A two limb test remains, with one 'subjective' and one 'objective' limb as before, but it is now irrelevant whether the defendant thinks their behaviour was dishonest. One must first ascertain the defendant's belief as to the facts, then ask whether the ordinary decent person would consider someone with those beliefs, acting as the defendant did, to be dishonest. Applying the test to the facts of this case the Supreme Court held that on the facts known to Mr Ivey, his conduct was dishonest by the standards of ordinary decent people. Mr Ivey had been truthful, yes, but truthful about his dishonest opinions.

The result was that the Supreme Court had gone out of their way to reformulate a test that had stood for 37 years just so that they could call Mr Ivey dishonest. This was unfortunate for a man that, the Supreme Court found, "is jealous of his reputation and is adamant that what he does is not cheating".

By the time of the Supreme Court judgment however, his reputation was hardly pristine. Within a few months of playing baccarat in London, he had used exactly the same edge sorting technique to win $9.6 million at the Borgata casino in Atlantic City. The casino initially paid his winnings but sued Mr Ivey a couple of years later, eventually obtaining a judgment from a federal judge that Mr Ivey repay the full amount with interest. Mr Ivey continues to win millions of dollars every year as a professional poker player, fair and square.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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