The House of Lords held that the Revenue and Customs Commissioners were entitled to recover damages for conspiracy in the form of a carousel fraud in order to recoup VAT which would otherwise be irrecoverable. Moreover, criminal conduct could constitute unlawful means and be actionable as conspiracy whether or not it would be separately actionable if committed by an individual.

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 successfully to the Court of Appeal which 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 ([2007] BTC 5,150). Customs appealed to the House of Lords. The taxpayer cross-appealed.

Issues

Whether Customs could maintain a cause of action in damages at common law as a means of recovering VAT from a person which had not been made accountable or otherwise liable for that tax by Parliament (‘the exclusive regime issue’); and, if so, whether it was an essential requirement of the tort of unlawful means conspiracy that the conduct said to amount to the unlawful means should give rise to a separate action in tort against at least one of the conspirators (‘the unlawful means conspiracy issue’).

Decision

The House of Lords (Lords Hope of Craighead, Scott of Foscote, Walker of Gestingthorpe, Mance, and Neuberger of Abbotsbury), allowed Customs’ appeal and dismissed the taxpayer's cross-appeal (Lords Hope and Neuberger dissenting on the exclusive regime issue).

Exclusive regime

Although VATA 1994 provided a comprehensive and exhaustive statutory code for the administration and collection of VAT, the commissioners’ statutory powers were not derived solely therefrom. They are also derived from the Commissioners for Revenue and Customs Act 2005, which laid down the commissioners’ statutory functions in connection with VAT (s. 5(1)(b) and (2)(b)). The commissioners had ancillary powers (s. 9) and specific power to conduct civil proceedings (s. 25). They regularly presented bankruptcy petitions and winding-up petitions against defaulting taxpayers of all sorts. In a winding-up they could, if necessary, proceed against a receiver for misfeasance in order to recover tax rather than to levy it. They appeared to have no express statutory power to seek those remedies, but they were undoubtedly available (IR Commrs v Goldblatt (1971) 47 TC 483 considered).

The commissioners did not now handle large sums of cash, since there were safer means for the transfer of money. But if an official vehicle carrying cash belonging to the commissioners (cash representing collected taxes) were hijacked and the cash stolen, the commissioners would undoubtedly have a civil remedy to reclaim it, if the robbers were apprehended and the proceeds of the robbery traced to a bank account. The present case was essentially the same (Ramsay v IR Commrs [1982] AC 300 considered). Per Lord Hope (dissenting): VAT was a creature of statute, the limits of which were set by the sixth directive which required member states to comply strictly with the harmonised rules that it laid down. It was designed to apply throughout the EU. So there was no common law to which reference could be made to fill any gaps in the scheme as to the persons from whom the commissioners might collect amounts due to it as VAT.

Unlawful means

Not every criminal act committed in order to injure could or should give rise to tortious liability to the person injured, even where the element of conspiracy was present. Caution was nonetheless necessary about the scope of the tort of conspiracy by unlawful means.

There was a general assumption that criminal conduct engaged in by conspirators as a means of inflicting harm on the claimant was actionable as the tort of conspiracy, whether or not that conduct, on the part of a single individual, would be actionable as some other tort. To hold otherwise would deprive the tort of conspiracy of any real content, since the conspirators would be joint tortfeasors in any event. However, criminal conduct (at common law or by statute) could constitute unlawful means, provided that it was the means of intentionally inflicting harm and not merely incidental to it (OBG Ltd v Allan [2007] 2 WLR 920 considered).

The sort of considerations relevant to determining whether a breach of statutory duty was actionable in a civil suit might well overlap, or even occasionally coincide with, the issue of unlawful means in the tort of conspiracy. But the range of possible breaches of statutory duty, and the range of possible conspiracies, were both so wide and varied that it would be unwise to attempt to lay down any general rule. What was important was that in the phrase ‘unlawful means’ each word had an important role. It was not enough that there was an element of unlawfulness somewhere in the story (Allen v Flood [1898] AC 1; Crofter Hand Woven Harris Tweed Co Ltdv Veitch [1942] AC 435; Sorrell v Smith [1925] AC 700; Lonrho Ltd v Shell Petroleum Co Ltd (No. 2) [1982] AC 173 considered).

The intentional harm tort and the ‘unlawful means’ variety of conspiracy shared the ingredients of the intentional infliction of harm on the claimant. But that variety of conspiracy was not simply the intentional harm tort committed by joint tortfeasors. The gist of the intentional harm tort (apart from exceptional ‘two party’ cases) was striking at the claimant through a third party, and doing so by interfering with his freedom of economic activity. The gist of conspiracy was damage intentionally inflicted by persons who combined for that purpose and the claimant need not be a trader who was injured in his trade, though that was the most common case. As the economic torts had developed, ‘unlawful means’ had a wider meaning in the tort of conspiracy than in the intentional harm tort (Lonrho v Fayed [1992] 1 AC 448 considered).

Any suggestion that the unlawful means conspiracy was a form of secondary liability, and must therefore have an actionable wrong as an essential ingredient, was a circular argument which assumed what it set out to prove. The decision of the Court of Appeal in Powell v Boldaz [1998] Ll Rep Med 116 was erroneous and should be overruled.

House of Lords.
Judgment delivered 12 March 2008.