In the month which has elapsed since the handing down of the Supreme Court’s judgment in Ivey v Genting Casinos UK Ltd t/a Crockfords [2017] UKSC 67, there has been no shortage of comment on the decision’s far-reaching implications for dishonesty offences in the criminal law. Though this aspect of the decision is clearly of great significance, it is important not to overlook that Ivey was a civil matter which turned on the enforceability of a contract.  A consideration of the civil claim in Ivey highlights an important point in respect of the proper approach to the implication of contractual terms.

The Decision in Ivey

Without dwelling upon the facts (a brief summary of which can be found here), Ivey concerned a gaming contract between Mr Ivey, a professional gambler, and Crockfords.  Mr Ivey utilised a strategy known as ‘edge sorting’ to significantly improve his odds in the game of Punto Banco, a variation of Baccarat.  When Crockfords, citing Mr Ivey’s use of ‘edge sorting’, refused to pay Mr Ivey his winnings – which amounted to some £7.7m – Mr Ivey initiated proceedings for the recovery of the winnings in reliance on the gaming contract.

Crockfords resisted the claim on several bases, including, relevantly, that Mr Ivey’s conduct amounted to ‘cheating’ within Gambling Act 2005, s 42, and as such the contract was unenforceable by Mr Ivey by reason of illegality. Crockfords also made the closely related argument that Mr Ivey had breached an implied term which prohibited cheating.  Mr Ivey accepted throughout the proceedings that the gaming contract was subject to an implied term not to cheat, but the parties were in dispute as to the content of that term, just as they were at odds as to the proper construction of s 42.  In particular, the parties were at odds as to whether establishing ‘cheating’ in this context required proof of ‘dishonesty’.

The Supreme Court disposed of the appeal in Crockfords’ favour, finding that Mr Ivey had breached the implied term not to cheat.  The Court found that ‘cheating’ did not require proof of ‘dishonesty’, and as such it was not necessary to consider the meaning and application of that concept in this setting. Even so, the Court went on, in obiter, to declare that the well-known test in R v Ghosh [1982] EWCA Crim 2 should no longer represent the law. This development clearly has significant ramifications, and has been the subject of the bulk of attention to date.  Yet it is also worth examining carefully the way in which the parties dealt with the alleged implied term.

The Implication of Contractual Terms

As is well-known, the law on implied terms can be divided into several broad categories.  Some terms are implied as a matter of law in all contracts which belong to particular types or classes (an example of which is the obligation of mutual trust and confidence in employment relationships, recognised in Malik v Bank of Credit and Commerce International SA [1997] UKHL 23). In other situations a term can be implied by reference to custom and usage. Finally, and most importantly for present purposes, a term can be implied on the facts of a particular contract, by reference to the parties’ presumed intention.

The proper test for the implication of a term in fact has been the subject of some considerable controversy in recent years. Much of the difficulty stemmed from the advice of the Privy Council in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, in which the Board, in an advice delivered by Lord Hoffmann, appeared to depart from the traditional strict tests for implication of terms in fact.  Despite a period of uncertainty, the Supreme Court clarified the law in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72, confirming that the traditional strict tests still represent the law. Though it has been subject to a number of caveats and qualifications in later cases, the law is nonetheless still best encapsulated by the following passage in the advice of the Privy Council delivered by Lord Simon in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] UKPC 13:

[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

The approach is, as can be seen, a strict one, which requires that a term be ‘necessary’ rather than merely reasonable or desirable.

The Implied Term in Ivey

As noted above, the parties were not in dispute in Ivey as to the existence of an implied term which prohibited cheating.  Accordingly, it was not necessary to discuss in detail the nature of the implied term or to determine whether it satisfied the relevant tests.  Yet there is good reason to doubt whether an implied term which prohibits cheating can really be said to have been ‘necessary’ in the relevant sense if – as was ultimately decided – ‘cheating’ is to be given the same meaning which it has for the purposes of the offence under s 42.

The difficulty, put simply, is as follows: if, as Crockfords contended, ‘cheating’ would have rendered the contract unenforceable by reason of illegality, how could it also be ‘necessary’ to imply a term which provides for the same substantive result?  Though difficult to answer, the point was not canvassed in the Supreme Court.  It was, however, adverted to in the Court of Appeal, where Sharp LJ said:

I can quite see why there was no issue below that it was the unexpressed intention of the parties that Mr. Ivey (or the respondent for that matter) should not cheat. It is an obvious part of the bargain between the parties to any gaming contract, that neither side should cheat, and a gaming contract in which either side could do would, self-evidently, lack any efficacy. But more particularly here it was a relevant part of the context that this was a gaming contract made in relation to an activity permitted only under the highly regulated circumstances specified by the Gambling Act 2005, an Act which specifically criminalises cheating. True it is that the commission of the offence would make the contract unenforceable by the cheating party on the grounds of illegality, regardless of any implied term (the respondent’s third ground of defence). But subject only to matters concerning the standard of proof, I do not think that “cheating” for the purposes of the implied term between these parties can sensibly be looked at or defined differently from “cheating” contrary to section 42.

It is true, of course, that a rejection of the implied term in this case would not have led to a different outcome – Crockfords would instead simply have fallen back upon the argument in respect of illegality.  It is equally true that the way in which the argument as to the implied term was dealt with was affected by the concessions made by Mr Ivey.  Yet it is nonetheless important to note that the acceptance of the implied term in Ivey is difficult to support.  Though academic debates on the nature of implied terms have been especially energetic in recent years, there should be no doubt that the statutory context in which a contract operates, along with the operation and effect of substantive rules of contract law, must be taken into account when determining whether a term ought to be implied.  Insofar as the decision in Ivey implicitly undermines that understanding, it ought to be treated with caution.