julio 07 Dishonesty in complex fraud claims

2020
Authors Alistair Graham Chris Roberts

The Court of Appeal has confirmed that the new test for dishonesty that is now applied in
civil cases in England and Wales applies equally in criminal cases. Whilst this was generally
understood to be the case following the Supreme Court’s decision in a civil case, the
decision in Barton & Booth v R1 (“Barton”) has helpfully confirmed the position in a
criminal context.

Previously the prosecution had to prove both that the accused’s actions were dishonest
according the standards of reasonable and honest people – the objective element – and
that, if the accused was dishonest to those standards, that they realised their actions were
dishonest according to those standards – the subjective element. Now, there is no
subjective element.  No longer will a defendant be able to argue their innocence because
they did not realise their actions were dishonest. This clarification has implications for
criminal cases of serious fraud, where successful prosecutions of individuals have been thin
on the ground.

Background – Ghosh and Ivey

For 35 years the approach to dishonesty was governed by the 1982 Court of Appeal
decision in R v Ghosh.2 In that case the test for dishonesty was articulated as follows:

“a jury 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.”3

However in 2017 the Supreme Court considered this test again in the case of Ivey v
Genting Casinos Ltd t/a Crockfords4 (“Ivey”), a civil claim in which Mr Ivey was accused of
cheating at a version of baccarat called punto banco by using a technique called “edge
sorting” – a technique of which nobody at the casino was apparently aware. The casino
argued that there was an implied term in the contract between the casino and Mr Ivey that
neither party would cheat, and that “edge sorting” was cheating, thereby breaching the
implied term.
The Supreme Court had to consider whether cheating involves dishonesty; and whether
the test for dishonesty was as set out in Ghosh. If cheating did involve dishonesty, then if
the Ghosh test applied Mr Ivey would not be liable – as he genuinely did not realise that
his actions would have been considered dishonest.

The Supreme Court agreed with the first instance judge that Mr Ivey had been cheating5
which therefore breached the implied term in the gambling contract between the parties
that neither would cheat. The Court also found that cheating in gambling did not include
an element of dishonesty. Notwithstanding this, the Court took the opportunity to revisit
the test in Ghosh, and it held unanimously that “the second leg of the test propounded in
Ghosh does not correctly represent the law and that directions based upon it no longer
ought to be given.”6 The Court clarified that the test for dishonesty is:

“first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to
the facts.

When [this] 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.”7

To make it absolutely clear the Supreme Court explicitly stated “There is no requirement
that the defendant must appreciate that what he has done is, by those standards [i.e., the
standards of ordinary decent people], dishonest.”8

Ivey was a civil rather than criminal case. The Supreme Court was of the view that “there
can be no logical or principled basis for the meaning of dishonesty … to differ according
to whether it arises in a civil action or a criminal prosecution”.9

Barton and the test for dishonesty in criminal courts

Although Ivey was a civil case, following that judgment the criminal courts followed the
Supreme Court’s indication that “directions based upon [Ghosh] should no longer be
given”10 and instead began to apply the test of dishonesty as set out in Ivey. This was the
case at the first instance trial in Barton.

In Barton, Mr Barton had been found guilty of various crimes relating to the dishonest
“grooming” of wealthy and vulnerable (and childless) elderly residents of the care home he
operated; Ms Booth, the general manager of the care home, had been found guilty of
assisting him. Mr Barton was sentenced to a total of 21 years’ imprisonment for various
offences, and Ms Booth to a total period of 6 years’ imprisonment. The offending took
place over a period of almost twenty years with Mr Barton obtaining approximately £4.13
million from the offences for which he was convicted, as well as bringing a civil claim
against the estate of a former resident  of the care home for a further £10 million. The
judge at first instance stated in his sentencing remarks that “this case is one of the most
serious cases of abuse of trust that I suspect has ever come before the courts in this
country.”11

Mr Barton and Ms Booth were convicted of various offences; the principal ones, fraud and
conspiracy to defraud, required the element of dishonesty to be present. When directing
the jury, the judge at first instance had used the test for dishonesty set out in Ivey. The
convicted defendants appealed to the Court of Appeal that the judge at first instance
should have applied the test for dishonesty as set out in Ghosh, as  “the discussion [as to
dishonesty] in Ivey was strictly obiter”12 and therefore not binding such that the Court of
Appeal was bound to follow Ghosh; and that in any event the test set out in Ghosh was
the correct test and was to be preferred that set out in Ivey.13

The principal question facing the Court of Appeal was therefore whether it was obliged to
follow the decision of the Supreme Court in Ivey.

The Court of Appeal stated that the “undoubted reality is that in Ivey the Supreme Court
altered the established common law approach to precedent in the criminal courts by
stating that the test for dishonesty they identified, albeit strictly contained in obiter dicta,
should be followed in preference to an otherwise binding authority of the Court of
Appeal.”14 Therefore following the approach adopted by the Court of Appeal in the 2006
judgment of R v James,15 the Court of Appeal held in this case it was bound to follow
what amounted to a direction from the Supreme Court even though it is strictly obiter.

The Court recognised that this was a departure from the usual rules of precedent, but
emphasised that this “limited” departure was confined to cases in which the judgment of
the relevant appellate court had been unanimous. As the Supreme Court’s decision – and
direction to lower courts – in Ivey had been unanimous, the Court of Appeal concluded
(also unanimously) that it was “bound to follow what amounts to a direction from the
Supreme Court even though it is strictly obiter.”16

The Court of  Appeal held that “the test for dishonesty in all criminal cases is that
established in Ivey”17 and that therefore the judge at first instance had directed the jury to
apply the correct test to determine if dishonesty was present (i.e., the test set out in Ivey).

The Court of Appeal also added a slight gloss to the first stage of the test in Ivey – i.e.,
ascertaining “the actual state of the individual’s knowledge or belief as to the facts”. The
Court of Appeal observed that when performing this first stage analysis, the finder of fact
will consider “[a]ll matters that lead an accused to act as he or she did”such that“the
subjective mental state”18 of the accused is determined as part of the fact-finding
exercise.
Therefore the first stage of the Ivey test for dishonesty will include a finding of fact as to
whether the accused believed what they did was honest or dishonest. But the facts will still
fall to be assessed according to the “(objective) standards of ordinary decent people” to
determine if the accused was dishonest.

Dishonesty in complex fraud

Successful prosecutions of individuals in cases of complex fraud have been thin on the
ground – the cases of the unsuccessful prosecutions of former senior executives at Tesco
and Barclays Bank being recent high-profile examples. Will the confirmation that the Ivey
test for dishonesty applies in criminal matters have an effect?

It is no doubt crucial that the accused will no longer be able to argue that they are not
liable because they genuinely believed that they were not dishonest. Whilst the accused’s
belief that they were honest in their actions is a fact that is still considered by a jury, the
jury will now determine whether the accused was dishonest according to the objective
standards of ordinary decent people. For example, the trader or senior executive at a
financial institution who in doing their job exposes another to a risk of loss yet genuinely
believes that their actions are honest – perhaps even in accordance with long held market
practice – could still be found to be dishonest and as such (all other elements being
satisfied) guilty of fraud (in this example, by abuse of position). Will jurors take that step? It
is for them to decide on the facts of the case.

As such, the most immediate effect of the judgment in Barton, confirming that the Ivey
test for dishonesty applies in criminal cases, is that it makes each case much more fact-
specific than was the case with the Ghosh test. Only time will tell whether this will result in
an increase in successful prosecutions of individuals in cases of complex fraud.

1 [2020] EWCA Crim 575.

2 [1982] QB 1053.

3 Ghosh at page 1064D.

4 [2017]UKSC 67.

5 Ivey at para 50.

6 Ivey at para 74.

7 Ivey at para 74.

8 Ivey at para 74.

9 Ivey at para 63.

10 Ivey at para 74.

11 Quoted in Barton at para 17.

12 Barton at para 94.

13 Barton at para 80.

14 Barton at para 102.

15 [2006] EWCA Crim 14.

16 Barton at para 104.

17 Barton at para 105.

18 Barton at para 108.