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Ivey v Genting Casinos Pt II: The Debate on Defining Dishonesty

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About The Author

Connor Griffith (Consulting Editor)

Connor is a law graduate from the University of Nottingham with a particular interest in intellectual property and corporate law. He is currently a trainee solicitor at a large national firm, sitting in the Real Estate department. Outside the law, he enjoys stand-up comedy and moaning about Brexit.

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This article is part of the 'Ivey v Genting Casinos: A Landmark Case' series, edited by Connor Griffith.

The Supreme Court’s decision in Ivey v Genting Casinos [2017] heralds a major change in what constitutes ‘dishonesty’ in criminal law. The unanimous decision, penned by Lord Hughes, is rich with talking points and looks set to transform how a number of key offences are dealt with by the courts. In a two-part series, Connor Griffith examines the reasoning and ramifications of the decision.

Other articles from this series are listed at the end of this article.

The landmark judgment of Ivey v Genting Casinos [2017], handed down in October of this year, represented a dramatic shift in how the courts determine the scope of ‘dishonesty’. Within it, the Supreme Court rejected the long-standing two-limbed test in R v Ghosh [1982] and, instead, adopted an objective-based approach that has been used by the courts when determining the liability of an accessory to a breach of trust in civil law.

This decision has been widely praised: as discussed previously in this article series, it does away with the oft-criticised R v Ghosh [1982] test. However, it must not be overlooked that it has brought light to the skeletons in the closet of certain areas of civil law. Indeed, the line of authority on accessory liability to a breach of trust upon which the definition of dishonesty adopted in Ivey v Genting Casinos [2017] is based has in recent years endured what Rebecca Lee has termed ‘tortuous revisions and clarifications’. This has seen the courts confuse with one another the precedents set down by different judgments, resulting in a great level of uncertainty as to where the law currently stands.

Therefore, this article – aiming to provide context as to the background in which Ivey v Genting Casinos [2017] was decided – will consider the five main judgments on the state of mind needed to trigger accessory liability for breach of trust, demonstrating how the definition of ‘dishonesty’ has been developed in recent years.

Modern Beginnings: Royal Brunei Airlines v Tan

Under the law of accessory liability, a third party defendant will be held personally liable for any loss suffered by beneficiaries from a breach of trust by a trustee, where it can be said that the defendant had dishonestly or fraudulently assisted in that breach of trust. The wrong upon which the accessorial liability is based is the third party’s association with the trustee’s breach of trust.

While this principle can be traced back to Barnes v Addy [1874] 9 Ch App 244, the judgment in Royal Brunei Airlines v Tan [1995] is the first to have given significant attention to what must be shown when determining whether the assistance provided by the third party defendant was dishonest.

The Privy Council – led by Lord Nicholls – held that dishonesty, in the context of accessory liability, means ‘simply not acting as an honest person would in the circumstances’. This was stated to be an ‘objective standard’, though it also contained ‘a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time’.

Nonetheless, Lord Hoffmann was careful to distinguish this test from that of R v Ghosh [1982]: he observed that the element of subjectivity was not equal to the objective standard, such that it did not mean that ‘individuals are free to set their own standards of honesty’ and thus escape liability by simply not seeing what was wrong with their own behaviour.

Lord Nicholls’ test could therefore be described as follows: what would an honest person – with the defendant’s knowledge, experience, and reason for acting – have done in the circumstances? If the third party defendant fails to attain the standard which would be expected by an honest person placed in those circumstances, they are deemed to have been dishonest.

The Combined Test: Twinsectra Ltd v Yardley

Despite the approach in Royal Brunei Airlines v Tan [1995] seeming fairly straightforward, a majority of the House of Lords in Twinsectra Ltd v Yardley [2002] added complications to the matter. In finding the third party defendant accessorily liable, the House agreed with the Privy Council’s decision in Royal Brunei Airlines v Tan [1995] that the test should be one of dishonesty; however, they – somewhat inexplicably – took a different view as to what dishonesty actually entails.

The Majority

Lord Hutton, leading the majority, set out three possible standards for dishonesty that the courts could adopt:

  1. A purely subjective standard: the defendant must transgress his own standard of dishonesty, even if that standard is contrary to that of reasonable and honest people.
  2. A purely objective standard: the defendant’s conduct must be dishonest by the ordinary standards of reasonable and honest people, even if he does not realise this.
  3. A “combined test”, imported from R v Ghosh [1982]: the defendant’s conduct must be dishonest by the ordinary standards of reasonable and honest people and he himself must have realised that by those standards his conduct was dishonest.

Even by just considering these options, it was clear that Lord Hutton had misinterpreted what Lord Nicholls’ proposal in Royal Brunei Airlines v Tan [1995] actually was: while Lord Nicholls had advocated an objective test with subjective elements, Lord Hutton appeared to be putting forward a combined test that considers objectivity and subjectivity equally. When considering Lord Nicholls’ statement that honesty is a ‘description of a type of conduct assessed in the light of what a person actually knew at the time’, Lord Hutton mistakenly interpreted this to mean that the third party defendant must have themselves known that what they were doing was dishonest.

This was not Lord Nicholls’ intent: his test required consideration of the third party defendant’s knowledge in order to allow an evaluation of whether the reasonable person, in the defendant’s shoes, would have known that they were being dishonest. Whether the defendant was actually aware of their own dishonesty is simply immaterial. As a result, Lord Hutton’s decision to adopt the “combined test” imported from R v Ghosh [1982] was flatly erroneous.

Lord Hutton’s decision was all the more frustrating because he had rejected the purely subjective standard of dishonesty on the grounds that no defendant should be able to:

[E]scape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.

However, by adopting the combined approach, Lord Hutton opened the door for his own criticism to occur – he granted defendants the tools to do exactly what the majority of the House was trying to avoid. Thus, under the “combined test”, a defendant need only claim they had not believed themselves dishonest to could escape liability.

Lord Millett’s Dissent

While the majority judgment in Twinsectra Ltd v Yardley [2002] had authoritative status, attention must be given to Lord Millett’s dissenting speech. Here, Lord Millet – widely considered an expert in this area of the law – correctly identified the meaning of Lord Nicholls’ objective test, finding that it should not be necessary for the third party defendant to appreciate that they was acting dishonestly.

In addition, Lord Millett recognised that Lord Nicholls’ test did not ‘employ the concept of dishonesty as it is understood in criminal cases’, nor should he have. After all, as Lord Millet pointed out:

[C]ivil liability is usually predicated on the defendant’s conduct rather than his state of mind; it results from his negligent or unreasonable behaviour or, where this is not sufficient, from intentional wrongdoing.

Obiter Rejection of Twinsectra: Subsequent Case Law

The judgment in Twinsectra Ltd v Yardley [2002] was widely criticised by practitioners and academics for appearing to raise the threshold of dishonesty to a higher standard than what was laid down in Royal Brunei Airlines v Tan [1995]. Indeed, such was the disapproval with the decision that criticism was certainly not limited to commentators outside the courts: in fact, the three crucial cases that would later consider this area of law all rejected the view of the majority in Twinsectra Ltd v Yardley [2002] in favour of a combination of the approaches advocated by Lord Nicholls and Lord Millett.

However, while rejection of the judgment in Twinsectra Ltd v Yardley [2002] appeared to be the judicial consensus, this still triggered uncertainty, because none of the subsequent cases were of the same level authority of the House of Lords. In this way, the significance of the Supreme Court’s obiter endorsement in Ivey v Genting Casinos [2017] of the Royal Brunei Airlines v Tan [1995] standard of dishonesty might suggest that the approach from Twinsectra Ltd v Yardley [2002] and R v Ghosh [1982] has, informally at least, been finally rejected.

Barlow Clowes v Eurotrust

The Privy Council in Barlow Clowes v Eurotrust International [2005] was the first court to consider the state of the law following Twinsectra Ltd v Yardley [2002]. In the sole judgment, Lord Hoffmann made it clear that, although a dishonest state of mind is a subjective mental state, ‘the standard by which the law determines whether it is dishonest is objective’. Therefore, ‘if by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards’.

While this seemed a promising step towards returning the law to the position in Royal Brunei Airlines v Tan [1995], the decision was actually based on another misunderstanding: Lord Hoffmann made the rather confusing assertion that the:

[P]rinciples of liability for dishonest assistance which had been laid down in the Twinsectra Ltd v Yardley [2002] case [were] no different from the principles stated in Royal Brunei Airlines v Tan [1995].

This conclusion was reached through interpreting Lord Hutton’s requirement of ‘consciousness that one is transgressing ordinary standards of honest behaviour’ to only require ‘consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour’. In other words, provided the defendant was aware of the existence of the element that the objective person would deem made the action dishonest, it was not necessary for the defendant to recognise that this element in fact made the action dishonest: they only needed to know it existed.

The objective of the Privy Council in Barlow Clowes v Eurotrust International [2005] was to “clarify” the law after the judgment in Twinsectra Ltd v Yardley [2002]. Arguably, however, they failed; while the majority judgment in Twinsectra Ltd v Yardley [2002] was controversial, it could hardly be criticised as ‘ambiguous’ – it undeniably involved the 'clear imposition of a requirement for consciousness of wrongdoing'.

Abou-Rahmah v Abacha

The second judgment to note is that of the Court of Appeal in Abou-Rahmah v Abacha [2007], particularly the leading opinion of Arden LJ. She recognised that, as Barlow Clowes v Eurotrust International [2005] was a Privy Council decision and Twinsectra Ltd v Yardley [2002] was a decision originating from the House of Lords, the judgment in Barlow Clowes v Eurotrust International [2005] could only be followed by the Court of Appeal in Abou-Rahmah v Abacha [2007]where the circumstances were ‘quite exceptional’ and the court was satisfied that ‘in practice the result [of an appeal to the House of Lords] would be a foregone conclusion’.

Arden LJ deemed that this was such a case: Barlow Clowes v Eurotrust International [2005] had not departed from Twinsectra Ltd v Yardley [2002] but had instead given ‘guidance as to the proper interpretation to be placed on it as a matter of law’. She therefore endorsed the objective approach taken in Barlow Clowes v Eurotrust International [2005], asserting that there was ‘no overriding reason why … the law should take account of the defendant’s views as to the morality of his actions’.

The other members of the Court of Appeal in Abou-Rahmah v Abacha [2007] were much less willing to contribute their opinions on the matter. Rix LJ expressed that while requisite knowledge and objective dishonesty were certainly required elements of accessory liability, subjective dishonesty could ‘possibly’ also be a required element. Beyond this, however, Rix LJ simply stated that he ‘did not need to enter into that controversy for the purposes of the appeal’. Likewise, Pill LJ stated that the ‘implications are in my view best considered in a case in which a real issue arises on its impact’.

The judgment in Abou-Rahmah v Abacha [2007] represents a success for rationality – it was the first example of a court recognising that Twinsectra Ltd v Yardley [2002] produced a separate and, arguably, inferior approach to that taken in Royal Brunei Airlines v Tan [1995] and Barlow Clowes v Eurotrust International [2005]. Though the matter of whether the Court of Appeal could reject the House of Lords’ authority is controversial, the judgment has been endorsed by subsequent courts, suggesting a successful return from the combined test to the objective test.

Starglade Properties v Roland Nash

The final case to consider on this matter is the judgment of the Court of Appeal in Starglade Properties v Roland Nash [2010]. Here, Sir Anthony Morritt interpreted Lord Nicholls’ need for regard to ‘personal attributes of the third party such as his experience and intelligence, and the reason why he acted as he did’ as undeniably providing a ‘single standard of honesty objectively determined by the court’.

However, Sir Anthony Morritt continued by finding that the test to be applied was the combined test from Twinsectra Ltd v Yardley [2002] ‘as explained by Lord Hutton in Twinsectra Ltd v Yardley [2002] and Lord Hoffmann in Barlow Clowes v Eurotrust International [2005]’. Therefore, the single standard of objective dishonesty was to be ‘applied to specific conduct of a specific individual possessing the knowledge and qualities he actually enjoyed’.

While at first glance this statement may seem to suggest a misunderstanding of the differences between Lord Hutton’s combined test and the objective test from Royal Brunei Airlines v Tan [1995] and Barlow Clowes v Eurotrust International [2005], there may be an explanation for this. A possible explanation is that Sir Anthony Morritt was recognising that while the House of Lords’ combined test was technically the leading authority, it had since been reformulated in Barlow Clowes v Eurotrust International [2005] to reflect the fact that the test should now be predominantly objective.

Sir Anthony Morritt also rejected the proposal from Nicholas Strauss QC – the judge at first instance – of a ‘sliding scale of honesty’, on the grounds that it was ‘irrelevant that there may be a body of opinion which regards the ordinary standard of honest behaviour as being too high’ as it is for the ‘court to determine what that standard is and to apply it to the facts of the case’. Therefore, the fact that some actions may be common in an industry does not mean that they do not amount to dishonesty in the eyes of the court.

In addition, Leveson LJ in Starglade Properties v Roland Nash [2010] was of the view that the definition of dishonesty should not differ markedly between criminal law and civil law, but asserted that the definition should be re-examined by the criminal division of the Court of Appeal. This suggests that he was not in favour of the combined test, but that the criminal law approach under R v Ghosh [1982] needed to change first in order for matters to improve.

The Current Situation: Application to Ivey v Genting Casinos

This line of authority culminated in the Supreme Court’s obiter conclusion in Ivey v Genting Casinos [2017], where Lord Hughes held that, ‘[a]fter some hesitation in Twinsectra Ltd v Yardley [2002]… the law is settled on the objective test’ set out by Lord Nicholls in Royal Brunei Airlines v Tan [1995]and Lord Hoffmann in Barlow Clowes v Eurotrust International [2005].

In asserting that this was the correct approach, the Supreme Court gave the following directions. Firstly, the fact-finding tribunal must ‘ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts’. In doing so, the reasonableness of the defendant’s belief is a matter of evidence only for whether he actually held the belief: ‘the question is whether [the belief] is genuinely held’, not whether it was reasonably held.

Secondly, once the defendant’s ‘state of mind as to knowledge or belief as to facts is established’, the fact-finder must apply the (objective) standards of ‘ordinary decent people’, with there being “no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest’.

In addition, the Supreme Court noted that, while past authority concerning accessory liability had been careful to confine their decisions to civil law, this need not be the case:

[T]here can be no logical or principled basis for the meaning of dishonesty (as distinct from the standards of proof by which it must be established) to differ according to whether it arises in a civil action or a criminal prosecution.

Therefore, the Supreme Court held that the test from Royal Brunei Airlines v Tan [1995] and Barlow Clowes v Eurotrust International [2005] ought to be applied in all instances of dishonesty found in both civil law and criminal law.

Conclusion

Until the Supreme Court’s judgment in Ivey v Genting Casinos [2017], the combined test from Twinsectra Ltd v Yardley [2002] arguably still represented the law: the doctrine of judicial precedent meant that the judgments of the Court of Appeal and Privy Council, though numerous, were not of sufficient status to overrule the House of Lords.

This appears to have now changed. While the comments by Lord Hughes in Ivey v Genting Casinos [2017] appear to have been obiter, as dishonesty was found to not be of immediate concern on the facts of the case, the unanimous endorsement by the other judges of the Supreme Court makes it likely that Lord Hughes’ comments will now be followed in all cases where dishonesty is alleged.

Indeed, on 8 November 2017, a professional discipline tribunal, in finding a teacher to have been dishonest, was satisfied that the second limb of the test from R v Ghosh [1982] was ‘no longer good law’. The High Court has also applied Ivey v Genting Casinos [2017] in General Medical Council v Krishnan [2017] and DPP v Patterson [2017], with Sir Brian Leveson – President of the Queen's Bench Division – in the latter case concluding that ‘it is difficult to imagine the Court of Appeal preferring R v Ghosh [1982] to Ivey v Genting Casinos [2017] in the future’.

Ultimately, the decision in Ivey v Genting Casinos [2017] to adopt the test from Royal Brunei Airlines v Tan [1995] and Barlow Clowes v Eurotrust International [2005] is a cause for celebration. Indeed, provided that future courts have their heads aligned with the principles of reason and logic, it seems that dawn may have finally broken after a long night of R v Ghosh [1982] and Twinsectra Ltd v Yardley [2002].

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Tagged: Contract Law, Courts, Criminal Law, Supreme Court, Trusts

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