Revenue And Customs v Sunico A/S & Ors

Unlawful means conspiracy may be established where a defendant knowingly combines with others to injure the claimant through criminal conduct. The unlawful means need not be independently actionable by the claimant. Knowledge of fraud alone is insufficient, but deliberate participation in a combination whose common objective is to cause harm may establish the necessary intention. Blind-eye knowledge may suffice where the defendant deliberately avoids confirmation of the fraud while acting in concert with the conspirators.

Where a party with material knowledge elects not to give evidence, adverse inferences may strengthen an otherwise weak prima facie case and may tip the balance of probabilities. In a complex fraud claim, causation and loss are determined issue by issue on the civil standard.

HMRC claimed damages for unlawful means conspiracy arising from alleged missing trader intra-Community VAT fraud involving mobile phones. The claim concerned 719 transaction chains, but liability was tried on 26 representative Sample Chains selected at a case management conference.

The principal issues were whether Sunico and the other defendants participated in a fraudulent conspiracy, whether the Sample Chains had been accurately reconstructed, and whether HMRC had suffered loss. The court also considered the consequences of the Harwanis’ decision not to give evidence, the reliability of deal logs and Hawk documentation, and the proof of export and VAT repayment.

1. Disposition. HMRC established liability in relation to 23 of the 26 Sample Chains. Chains 10, 12 and 16 failed for want of sufficient proof of a relevant link or loss. The remaining defendants were found jointly and severally liable in relation to the successful chains.
2. Unlawful means conspiracy. The court applied the principles in Kuwait Oil Tanker Co v Al Bader [2000] 2 All ER (Comm) 271. The ingredients were unlawful means, loss or damage, and a combination or agreement to injure the claimant, although injury need not be the predominant purpose. An express agreement was unnecessary. A tacit combination could suffice where the parties were sufficiently aware of the surrounding circumstances and shared the same object.
3. The criminal conduct forming the MTIC fraud constituted sufficient unlawful means. Following Total Network SL v HMRC [2008] 2 WLR 711, the statutory VAT regime did not exclude an ordinary civil claim against a non-taxable overseas participant where no parallel statutory remedy was available.
4. Knowledge of fraud, without more, was insufficient. Liability depended on the defendant’s proximity to the combination and the extent to which it shared the fraudsters’ common objective. Blind-eye knowledge could suffice where the defendant deliberately avoided confirmation of the facts while acting in concert with the conspirators.
5. Adverse inferences. Applying Wisniewski v Central Manchester Health Authority [1998] PIQR 324 and Benham Limited v Kythira Investments Ltd [2003] EWCA Civ 1794, HMRC first had to establish some evidence giving rise to a case to answer. The evidence could be minimal. Once that threshold was met, the Harwanis’ failure to testify could strengthen HMRC’s case and tip the balance of probabilities.
6. The documentary evidence, payment patterns, lack of due diligence and record-keeping, unusual credit arrangements, and the defendants’ failure to explain those matters established a prima facie case. Adverse inferences then justified the conclusion that Sunico participated in the conspiracy. The same reasoning supported findings against Mangharam and the corporate holding defendants. The Commission Agreement and the unexplained absence of PT Naina and the seventh defendant also supported adverse inferences against them.
7. Reconstruction and loss. Deal logs were not inherently unreliable merely because they were maintained by participants in the fraud. They could be relied upon where consistent with other evidence. The Hawk documentation required caution but was corroborated in material respects. Causation and loss were assessed separately for each chain on the balance of probabilities. Where export sales exceeded domestic sales and were sufficient to cover the relevant claim, export and repayment could be inferred. That inference was unavailable for Chain 16.