Total Network SL (a company incorporated in Spain) (Original Respondents and Cross-appellants) v Her Majesty's Revenue and Customs (suing as Commissioners of Customs and Excise) (Original Appellants and Cross-respondents)

Criminal conduct may constitute the unlawful means in an unlawful means conspiracy even though it is not independently actionable by the claimant. The crime must be instrumental in intentionally inflicting the claimed harm; incidental criminality is insufficient.

A comprehensive statutory tax regime displaces an otherwise available common law remedy only where the two are inconsistent in relation to the particular defendant. The Value Added Tax Act 1994 did not exclude a damages claim against a non-taxable conspirator for loss caused by fraud. Such damages are compensation, rather than an unauthorised tax levy, and must reflect recoveries available under the statutory scheme.

The Commissioners alleged that Total Network SL, a Spanish company outside the United Kingdom VAT registration system, participated in 13 missing-trader or carousel frauds. The alleged conspiracies used circular transactions in mobile telephones to cause VAT to remain unpaid and to induce the Commissioners to pay input-tax credits. The Commissioners claimed damages for unlawful means conspiracy.

Hodge J held on a preliminary issue that the pleaded conspiracy was legally actionable. The Court of Appeal allowed Total's appeal and struck out the claim: [2007] EWCA Civ 39. Although it rejected Total's argument that the statutory VAT scheme excluded the claim, it considered itself bound by Powell v Boladz [1998] Lloyd's Rep Med 116 to require independently actionable unlawful means.

The central questions were whether criminal conduct could constitute unlawful means without being independently actionable, and whether the Value Added Tax Act 1994 or article 4 of the Bill of Rights 1688 precluded the common law claim.

1. Disposition. The Commissioners' appeal was allowed unanimously on the unlawful means issue. By a majority comprising Lord Scott, Lord Walker and Lord Mance, Total's cross-appeal was dismissed. The order of Hodge J determining that the pleaded cause of action existed was restored.

2. Unlawful means conspiracy. Lord Hope, Lord Scott, Lord Walker, Lord Mance and Lord Neuberger agreed that independently actionable conduct is not an essential ingredient of unlawful means conspiracy. Criminal conduct at common law or under statute can constitute unlawful means where it is instrumental in intentionally inflicting harm on the claimant. The claimant must establish a combination, relevant unlawful means, an intention to cause the harm, and resulting loss. The intention to injure need not be the conspirators' predominant purpose. The crime must do more than occur incidentally within the factual history.

   The alleged offence of cheating the public revenue was directed at the Commissioners and existed to protect them from the very loss intended. The rule in Powell v Boladz [1998] Lloyd's Rep Med 116, requiring the unlawful act to be independently actionable, was erroneous and was overruled.

3. The statutory scheme. Lord Mance, agreeing in the result with Lord Scott and Lord Walker, held that a statutory regime supersedes ordinary common law remedies only where inconsistency is positively established in relation to the particular defendant. The Value Added Tax Act 1994 supplied direct remedies against taxable persons, including recovery of an improperly paid VAT credit from the recipient. It supplied no equivalent compensatory remedy against Total or another non-taxable conspirator.

   A damages claim against such a conspirator did not duplicate or defeat the statutory machinery. Statutory assessments and recoveries remained relevant to mitigation and quantum, because the Commissioners could recover only their ultimate loss.

4. Bill of Rights. All members of the House rejected the contention that the claim contravened article 4 of the Bill of Rights 1688. A genuine claim for compensatory damages founded on an established tort is not the levying of taxation without parliamentary authority.

5. Dissent on the cross-appeal. Lord Hope and Lord Neuberger would have held that the Value Added Tax Act 1994 was a comprehensive code which precluded recovery, whether the alleged loss was unpaid output tax or an improperly paid input-tax credit. They would therefore have allowed Total's cross-appeal and maintained the strike-out on that different ground.

1. House of Lords: In Total Network SL v Revenue and Customs [2008] UKHL 19, the Commissioners' appeal on unlawful means conspiracy was allowed unanimously. Total's cross-appeal was dismissed by a 3–2 majority. Hodge J's determination of the preliminary issue was restored.
2. Court of Appeal: In [2007] EWCA Civ 39, Total's appeal was allowed and the claim struck out. The court held that the statutory VAT scheme did not preclude the claim, but considered itself bound to require independently actionable unlawful means.
3. High Court: On 10 January 2005, Hodge J 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.