Customs & Excise v Total Network SL

An unlawful-means conspiracy is not confined to cases involving injury to trade or business. Fraud, including cheating the public revenue, is capable of constituting unlawful means. A civil conspiracy claim may proceed where it seeks recovery of money fraudulently obtained, rather than imposing VAT liability or circumventing the statutory VAT recovery scheme. The statutory scheme does not exclude a tortious claim against a foreign company outside the UK VAT regime where the alleged transactions had no genuine economic purpose and the payments were induced by fraud.

The Commissioners of Customs and Excise alleged that a Spanish company participated in thirteen carousel frauds involving mobile telephones. The pleaded transactions were assumed, for the preliminary issue, to have been entered into solely to cheat the Commissioners and to have caused losses exceeding £1.9 million.

The defendant argued that the Commissioners had no cause of action in conspiracy. It contended that the claim circumvented the statutory VAT scheme, that cheating the revenue could not constitute unlawful means, and that conspiracy required harm to trade or business. The central question was whether the pleaded facts disclosed a cause of action in unlawful-means conspiracy.

1. Preliminary issue. On the assumed facts, the Commissioners had a cause of action in conspiracy against the defendant. The claim could therefore proceed, subject to the clarification of the pleadings noted below.
2. The statutory VAT scheme did not exclude the claim. The Commissioners sought recovery of payments induced by an alleged fraudulent scheme, not payment of VAT by the defendant or recovery of VAT from a person subject to the UK VAT regime. The defendant was a Spanish company and was not a taxable person under the Value Added Tax Act 1994. The alleged transactions had no genuine economic purpose. Following the reasoning in Bond House Systems Ltd v Commissioners for Customs and Excise, they were not economic activities for VAT purposes and the sums paid were not properly VAT.
3. The alleged conduct was capable of amounting to unlawful means. Fraud is unlawful of itself for the purposes of unlawful-means conspiracy. The common-law offence of cheating the revenue was therefore capable of supplying the unlawful means, even though cheating the revenue did not itself provide an independent civil cause of action.
4. The authorities did not establish that criminal prohibitions could never support civil proceedings. Whether a statutory provision creates or excludes a private remedy depends on the statute and its surrounding circumstances. The alleged fraud also supported an independent cause of action against at least some conspirators, through fraudulent misrepresentation, mistake of fact or payments beyond the Commissioners’ powers.
5. The tort was not restricted to economic injury or interference with trade or business. Kuwait Oil Tankers Co. SA v Al Bader and others confirmed that no such limitation applied to unlawful-means conspiracy.
6. The pleadings required further consideration because references to sums paid “plus VAT” were said to be mistaken and the alleged misrepresentations and falsity needed clarification. The court nevertheless held that the claim disclosed a legally arguable cause of action.