The Court of Appeal held that it was bound by the decision in Powell v Boldaz [1998] Ll Rep Med 116 to conclude that an unlawful act actionable at the suit of a claimant was a necessary ingredient of unlawful means conspiracy. Accordingly, in the circumstances, Customs were not entitled to bring an action alleging conspiracy to cheat the public revenue against the defendant Spanish company.

Facts

The defendant was a Spanish company which Customs alleged was part of a conspiracy to cheat the public revenue in the UK by a series of 13 alleged ‘carousel’ or ‘missing trader’ frauds in relation to the sale of mobile phones from Spain to the UK through a chain of transactions. They all involved what would have been a substantial drop in price between the first and second transactions had the importing company intended to pay VAT. Customs brought a claim against the defendant alleging conspiracy to cheat the public revenue. The defendant denied being party to any conspiracy to cheat or defraud Customs by unlawful means. It also denied that Customs’ allegations were capable of constituting a cause of action for the purposes of the tort of conspiracy.

The defendant also argued that the action was an attempt to circumvent the statutory scheme under the VAT legislation for recovering overpaid or wrongly paid VAT. Customs were purporting to rely on an action for civil conspiracy as an addition to their statutory powers of recovery of wrongly-paid VAT. Since the defendant was a Spanish company, it was not a taxable person for the purposes of the Value Added Tax Act 1994 and had no liability to the UK tax authorities in relation to any UK VAT.

The judge decided as a preliminary issue that Customs were not impermissibly circumventing the statutory scheme for the collection of taxes by making a claim in conspiracy, and that the facts relied on by Customs amounted to ‘unlawful means’ so as to found an unlawful means conspiracy ([2005] BTC 5,273). The taxpayer appealed to the Court of Appeal.

Issue

Whether the Court of Appeal was bound by the decision in Powell v Boldaz [1998] Lloyds Rep Med 116 to hold that an unlawful act actionable at the suit of the claimant against at least one conspirator was a necessary ingredient of unlawful means conspiracy; and if so whether Customs had such an action in this case.

Decision

The Court of Appeal (Ward, Chadwick and Gage L JJ) (allowing the appeal) said that, save for the decision in Powell v Boldaz, there was no reason why, on the assumed facts of this case, the Customs ought not to be able to rely on the tort of conspiracy by unlawful means. If it were open to the court to do so, it would have held that the allegation of conspiracy to cheat Customs provided there was an intention to injure them, albeit not a predominant intention, was sufficient.

Such a holding would not extend the scope of the tort of conspiracy in any unjustifiable way. To hold that a conspiracy to cheat with the intention to injure was actionable without more by a person against whom it was aimed, seemed appropriate and justified. As the assumed facts of this case demonstrated, to hold otherwise would mean that Customs would have no remedy against an entity which had benefited from the fraud and in respect of which the VAT legislation was unavailable.

However, in Powell v Boldaz, a clinical negligence case, the Court of Appeal had held that the unlawful act relied upon must be actionable at the suit of the plaintiff. It was not sufficient that it amounted to a crime or breach of contract with a third party. That decision did not display any manifest slip or error. It was a considered decision and the court was bound by it in the present case. Had it not been so bound, the court would have held that the allegation of conspiracy to cheat the public revenue, provided there was an intention to injure them, albeit not a predominant intention, was sufficient.

Customs had further argued that, even if they were unable to rely on the crime of cheat to establish an unlawful means conspiracy, they had an independent actionable claim based on alleged fraudulent misrepresentation against the UK company which had made repayment claims in many of the alleged conspiracies. However, there was a major obstacle in the way of Customs decision that they had an actionable claim for damages equivalent to the overpayment of VAT credit. VATA 1994, s. 73(2) and 77 provided a statutory method for Customs to claw back tax wrongly paid or credited to a trader. Together they provided a comprehensive remedy in respect of overpayment of credits and displaced any common law remedy. A common law claim would be met by the defence that the only remedy was one provided by the statute. In that respect the statutory provisions could properly be said to provide a comprehensive regime for collecting tax which had been wrongly paid or credited to a trader. Therefore Customs did not have an independent actionable remedy (Deutsche Morgan Grenfell Group plc v IR Commrs [2006] BTC 781 considered).

Court of Appeal (Civil Division).
Judgment delivered 31 January 2007.