Total Network SL v Customs & Excise

An action for damages for conspiracy to defraud is not a levy of money for Crown purposes merely because the loss is measured by VAT not paid or wrongly refunded. In principle, unlawful-means conspiracy may be founded on criminal conduct directed to injure the claimant without proof that the conduct was independently actionable by the claimant. The Court of Appeal was nevertheless bound by Powell v Boldaz [1998] Lloyds Rep Med 116 and could not depart from it absent a proper case of per incuriam. A statutory recovery regime may displace common-law remedies. Sections 73(2) and 77 of the Value Added Tax Act 1994 provided the exclusive remedy for wrongly paid VAT credits, so the claim was struck out.

The Commissioners brought proceedings against Total Network SL arising from alleged carousel or missing-trader VAT frauds. On a preliminary issue, Mr Justice Hodge held that the Commissioners had a cause of action in conspiracy where the alleged unlawful means was the common-law offence of cheating the public revenue: [2005] EWHC 1 (QB). Total appealed, arguing that the statutory VAT scheme and Article 4 of the Bill of Rights barred the common-law claim, and that unlawful-means conspiracy required an independently actionable unlawful act. The Commissioners alternatively relied on fraudulent misrepresentation by Alldech, another participant. The appeal concerned the proper scope of unlawful-means conspiracy, the binding effect of earlier Court of Appeal authority, and the effect of the statutory VAT recovery provisions.

The court, giving a single judgment to which all three Lord Justices contributed, allowed the appeal and struck out the Commissioners’ claim.

1. Bill of Rights. The claim was for damages for the tort of conspiracy to defraud, not a direct demand for VAT or a levy of money for the Crown. The fact that the damages were measured by the depletion of the Exchequer did not alter the nature of the claim. Article 4 of the Bill of Rights Act 1688 therefore did not apply.
2. Unlawful-means conspiracy. The court stated that, if free from binding authority, it would hold that the offence of cheating could constitute unlawful means without an independently actionable wrong against the claimant, provided there was an intention to injure and actual damage. The intention to injure need not be predominant. This conclusion was supported by the reasoning discussed in Sorrell v Smith [1925] AC 700, Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435, Lonrho Plc v Fayed [1992] 1 AC 448 and Douglas v Hello! (No. 3) [2006] QB 125.
3. Binding precedent. The court held that Powell v Boldaz remained binding. The Court of Appeal may depart from its own decision only in the exceptional circumstances recognised by the per incuriam doctrine. A considered decision on a controversial issue, even if supported by authorities that were wrongly cited, did not display a manifest slip or error.
4. Alldech and statutory recovery. On the assumed facts, Alldech’s claim for input-tax credit involved a false representation that the goods were supplied in the course of its business. However, sections 73(2) and 77 of the Value Added Tax Act 1994 created a comprehensive regime for recovering wrongly paid or credited VAT. That regime displaced any common-law claim for damages, so the Commissioners had no independent actionable remedy against Alldech.

1. Court of Appeal (Civil Division) allowed Total Network SL’s appeal and ordered that the Commissioners’ claim be struck out.
2. High Court of Justice, Queen’s Bench Division Mr Justice Hodge held on a preliminary issue that the Commissioners had a cause of action in conspiracy: [2005] EWHC 1 (QB).