Judgments - 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)

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24.  The Court of Appeal took a different view, at a later stage in its judgment, of the possibility that the Commissioners might have an independent actionable claim of damages at common law against Alldech: paras 83-85. The Commissioners had a statutory method for clawing back tax wrongly paid or credited to a trader under sections 73(2) and 77 VATA 1994. So the common law claim would be met by the defence that the only remedy was one provided by the statute. In that respect the statutory provisions could be said to provide a comprehensive regime for collecting tax which had been wrongly paid or credited. The Commissioners have issued an assessment under section 73(2) against Alldech to recover the amount of VAT with which they were wrongly credited.

25.  At first sight the argument that Total is entitled to invoke the Bill of Rights to avoid liability for its part in the alleged conspiracy seems to fly in the face of common sense. But, as Mr Flint pointed out, the protection of the Bill of Rights is available to everyone. Fraudsters and cheats are as much entitled to be protected against the levying of taxes without the authority of Parliament as anyone else. At the heart of his argument however there lie more fundamental questions about the nature of the Commissioners’ claim and their interest, if any, to seek to recover tax wrongly paid or credited as damages against a person upon whom no liability to pay that amount can be imposed under the statute.

26.  The claim that is made in this case is presented as a claim for damages. As presented it is, as the Court of Appeal said, a claim for the loss caused by a perfectly proper, well recognised tort. I agree with my noble and learned friend Lord Neuberger of Abbotsbury (para 172) that such a claim is simply not within the territory of article 4 of the Bill of Rights. But I do not think that the claim in this case is truly of that character. The function of an action of damages is to provide a remedy for interests that are recognised by the law as entitled to protection. Obvious examples are protection against injury to the person, to reputation and to privacy. Economic interests are entitled to protection too, such as a person’s business or his property. As Hazel Carty, An Analysis of the Economic Torts (2001), p 3, puts it, the economic torts are to be seen as protecting against the infliction of economic harm. Tony Weir, A Casebook on Tort (10th ed, 2004), p 17, makes the same point. Compensation, he says, is the principal function of tort law. The very concept of compensation entails the notion or harm or damage, since only harm or damage can be compensated.

27.  It is not difficult to think of situations where the Commissioners could properly bring a claim of damages for loss sustained with regard to some interest that falls within the law’s protection, such as damage to their buildings or their equipment. In Inland Revenue Commissioners v Hambrook [1956] 2 QB 641 the Revenue’s claim for loss resulting from its being deprived of the services of a taxing officer due to a vehicle accident was dismissed. But this was because an action for that kind of loss did not lie where its relationship was with an established civil servant. In this case it is said that an action lies for loss sustained as a result of an unlawful means conspiracy. But can the amount sued for be said to be a loss sustained by the Commissioners for which they can sue in damages?

28.  The Commissioners’ duties and responsibilities are set out comprehensively in the statute. Para 1(1) of Schedule 11 VATA 1994, as originally enacted, stated that VAT was to be under the care and management of the Commissioners. Section 1(1) VATA 1994 states that references in the Act to VAT are references to value added tax charged in accordance with the provisions of the Act. Para 5(1) of Schedule 11 states that VAT due from any person shall be recoverable as a debt due to the Crown. The Commissioners are not authorised by the statute to carry on a business for profit. They have no commercial interests that need to be protected by the tort of conspiracy: see Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, 189B-C per Lord Diplock. Their only function is to gather in and account to the Crown for VAT charged in accordance with the provisions of the Act. My noble and learned friend Lord Walker of Gestingthorpe, very properly, draws attention to the fact that the point that the Commissioners have no commercial interests needing to be protected by the tort of conspiracy was not raised by Mr Flint in his written and oral submissions (para 40). But in my respectful opinion it follows inevitably from his analysis of the statute.

29.  The sum that is claimed as damages in this action is the amount of the VAT that the Commissioners say was wrongly paid to Alldech in response to its claim for a refund or credit of input tax. It is the same amount as is recoverable as a debt due to the Crown from Alldech by means of an assessment made under section 73(2). It is not recoverable from Total under VATA 1994 because the statute makes no provision for the recovery of VAT from someone who is not a taxable person within the meaning of section 3. There is, it may be said, a gap in the statute. But this does not mean that the Commissioners have suffered a loss for which they can sue in damages. All that can be said is that payment was made to Alldech which ought not to have been made. It is an amount that can be recovered as a debt due to the Crown from Alldech. It does not change its character as a debt due to the Crown because, when it is sought to be recovered from someone else, it is described as damages. It is an inescapable fact that the sums claimed as damages will become VAT for the purposes of the statute if and when they are paid to the Commissioners because they have no power under the statute to deal with those sums in any other way. But the Commissioners have no power to recover such a debt from strangers to the Act such as Total. In form the claim is one for damages, outside the scope of article 4 of the Bill of Rights. But in substance it is a claim for the recovery of VAT from a person who is under no liability to pay that tax under the statute. No provision for this is made in the Sixth Directive. Total do not need to invoke the protection of article 4. The issue is resolved by the terms of the statute. The statutory code precludes the claim.

30.  As the Court of Appeal noted when it was considering, and then rejecting, the possibility of an independent actionable claim in damages at common law against Alldech, the statutory provisions can properly be said to provide a comprehensive regime for collecting VAT which has been wrongly paid or credited to a taxable person. Various aspects of that regime sit uneasily with the idea that there is an independent common law remedy. For example, time limits are built into the provisions for the making of assessments under section 73(2) VATA 1994 that are different from those that apply to a common law remedy: see section 77. And exclusive jurisdiction for the determination of all appeals arising from the Commissioners’ exercise of their powers under the Act is given by section 82 to a tribunal constituted under Schedule 12. As Lord Nicholls of Birkenhead said in Autologic plc v Inland Revenue Commissioners [2006] 1 AC 118, para 13, the taxpayer must use the remedies provided by the tax legislation. It would seem odd for the court to have the exclusive jurisdiction to determine disputes about the amount of VAT claimed as damages from a non-taxable person such as Total, when a tribunal has exclusive jurisdiction to determine disputes as to exactly the same amount of VAT at the instance of a taxpayer who, under the tort on which the Commissioners rely, is jointly and several liable.

31.  These additional points reinforce the fundamental point that the regime for the administration and collection of VAT which is set out in VATA 1994 is indeed comprehensive and does not admit the use by the Commissioners of means for collecting VAT which are not provided for by the statute. The steps which Parliament has taken to address the problem of carousel fraud by conferring additional statutory powers on the Commissioners, authorised where necessary by a derogation from the Sixth Directive, are entirely consistent with this view. The taking of these powers would not have been necessary if common law remedies were available. The fact that Parliament has followed this route is, of course, due to its long tradition of insisting that power to raise money for the public revenue may be exercised only with statutory authority. In my opinion the Commissioners’ attempt to resort to the common law for this purpose, which is without precedent, is contrary to principle.

32.  I do not think, with the greatest of respect, that it is an answer to say, as Lord Walker does, that the Commissioners regularly seek and obtain remedies against defaulting taxpayers which are not conferred on them expressly by statute or that the courts must be astute to deal with progressive techniques of tax avoidance when they are construing the taxing statutes. These points do not meet the fundamental objection that the purpose of this action is to recover VAT from a person who is not, for any of the purposes of VATA 1994, a taxpayer. Nor is it met by the example of cash representing collected taxes which was stolen from a vehicle belonging to the Commissioners while in transit. I agree that the Commissioners would have a civil remedy to reclaim the money if it could be traced to the robbers’ bank account. But it would be recovered as a debt due by them to the Commissioners, not from a third party as damages. If the claim is properly to be seen as one for damages, the amount due would need to be assessed, as my noble and learned friend Lord Scott of Foscote points out. But the fact that techniques are available for the assessment of damages does not answer the question whether the Commissioners are in a position to make such a claim.

33.  For these reasons I consider that the Court of Appeal was wrong to hold that this ground of appeal was wholly devoid of merit. I would hold, in agreement with Lord Neuberger, that the Commissioners’ claim is precluded by the statute and ought to have been struck out on this ground.

The second issue: unlawful means conspiracy

34.  The Court of Appeal said in para 67 of its judgment that it could see no reason, on the assumed facts of this case, why the Commissioners ought not to be able to rely on the tort of conspiracy by unlawful means. If it had been open to it to do so, it would have held that the allegation of conspiracy to cheat the Commissioners, provided there was an intention, albeit not a predominant intention, to injure them, was sufficient. But it felt itself prevented from doing so by the decision of the Court of Appeal in Powell v Boladz [1998] Lloyd’s Rep Med 116 in which Stuart-Smith LJ said, in a judgment with which the two other members of the court agreed, that the unlawful act relied upon must be actionable at the suit of the plaintiff and that it was not sufficient that it amounted to a crime or a breach of contract with a third party.

35.  The authorities relied upon by Stuart-Smith LJ in support of that proposition were Clerk & Lindsell on Torts, 17th ed, para 23-80, Marrinan v Vibart [1963] 1 QB 234 and 528, Hargreaves v Bretherton [1959] 1 QB 45 and Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173 per Lord Diplock at p 186 and following. The discussion of the topic in Clerk & Lindsell, as can be seen from the 19th ed (2006), pp 1615-1620, is wide-ranging and does not come down firmly on either one side or the other. Mr Flint accepted in the Court of Appeal and in your Lordships’ House that neither Marrinan v Vibart nor Hargreaves v Bretherton supports the proposition for which they were cited. So the question is whether support for it is to be found in Lord Diplock’s speech in Lonrho v Shell and, if it can be found there, how what Lord Diplock said in that case stands up to examination in the light of the speech of Lord Bridge of Harwich in Lonrho plc v Fayed [1992] 1 AC 448.

36.  The background to Lord Diplock’s speech in Lonrho v Shell is to be found in the way the issue was dealt with in the Court of Appeal: The Times, 7 March 1981, [1981] Com LR 74. The judge, Parker J, had held that there was no claim in conspiracy because the acts, if done, were not done with intent to harm the plaintiff and were not in themselves actionable. Lord Denning MR made it clear at the outset of his discussion that the important point was that the agreement, if any, to which Shell was a party was not made with any intent to injure the pipeline companies. The point of law was whether the agreement to do an unlawful act was actionable by anyone who suffers damage even though there was no intention to injure him. He pointed out that the problem only arises where the unlawful act is one which does not itself give rise to a cause of action but it is sought to make it actionable by reason of an agreement by two or more to do it. His answer to it was that the tort was a conspiracy to injure. That intention may not be the predominant motive. It might be mixed with others. But it was sufficient if the conspiracy was aimed or directed at the plaintiff, it could reasonably be foreseen that it might injure him and it did in fact do so. Eveleigh LJ’s judgment was to the same effect. Fox LJ said:

“I agree with the judge, that where persons combine to do an unlawful act with the intention of injuring another person there is every reason why that person should have a cause of action if he suffers damage. The position is otherwise if, there being no cause of action in respect of the act if done by an individual, there was no intent by the combiners to injure the complainant. To give such a cause of action gives undue weight to the mere fact of the combination. An intention to injure is, it seems to me, a necessary element in the tort.”

37.  In the House of Lords counsel for the appellants made it clear in his speech that his cause of action based on conspiracy assumed that no breach of contract, no private rights arising out of breach of the sanctions orders and no allegations of intent to injure. All that was alleged was actual knowledge that the acts done could cause damage to Lonrho: [1982] AC 173, 180C-D. Having held that there was no independent cause of action against any of the alleged conspirators, Lord Diplock proceeded at p 188C nevertheless to consider the conspiracy claim. In the discussion which followed he said that the civil tort of conspiracy to injure the plaintiff’s commercial interests, where that was the predominant purpose of the agreement and of the acts done in execution of it, was too well established to be discarded: p 189 B-C. Turning to actions for damages for conspiracy where the damage-causing acts, although neither done for the purpose of injuring the plaintiff nor actionable at his suit if they had been done by one person only, he said that the House had an unfettered choice whether to confine the civil action of conspiracy to a narrow field or to extend it beyond the narrow limits which were all that common sense and the application of the legal logic of the decided cases required: p 189F. He concluded these remarks with this passage at p 189G:

“My Lords, my choice is unhesitatingly the same as that of Parker J and all three members of the Court of Appeal. I am against extending the scope of the civil tort of conspiracy beyond acts done in execution of an agreement entered into by two or more persons for the purpose not of protecting their own interests but of injuring the interests of the plaintiff.”

38.  I agree with the Court of Appeal, para 57, that the real point decided in that case was that to establish the tort the plaintiff had to prove that the defendant’s purpose in the conspiracy was to injure the plaintiff. It is difficult to find in what Lord Diplock said a clear and unequivocal statement that where there is such an intention, and the plaintiff suffers the intended damage, the unlawful acts that were used by the conspirators to bring this about must themselves be actionable. When account is taken of the absence of any indication of disapproval of the judgments in the Court of Appeal, which were to the contrary, the argument that Lord Diplock intended to confine the unlawful means conspiracy to cases where the unlawful acts were themselves actionable becomes even more tenuous. But the previous cases to which he had referred were concerned with lawful means conspiracy, where there is no liability unless the predominant motive of the conspirators was to injure the plaintiff. This gave rise to doubt in subsequent cases as to whether a predominant motive to injure the plaintiff was also an essential element in unlawful means conspiracy.

39.  In Lonrho plc v Fayed [1992] 1 AC 448, Lord Bridge of Harwich quoted Lord Diplock’s speech in Lonrho v Shell without disapproval. At p 463F he said that the tort of conspiracy where no unlawful means were used is regarded as an anomaly, for the reasons that had been explained by Lord Diplock. But at p 464D-E he observed that there were many cases where dicta had indicated that the predominant purpose requirement did not apply where the means used to effect the conspirators’ purpose were unlawful. At pp 465G-466A he said:

“Where conspirators act with the predominant purpose of injuring the plaintiff and in fact inflict damage on him, but do nothing which would have been actionable if done by an individual acting alone, it is in the fact of their concerted action for that illegitimate purpose that the law, however anomalous it may now seem, finds a sufficient ground to condemn their action as illegal and tortious. But when conspirators intentionally injure the plaintiff and use unlawful means to do so, it is no defence for them to show that their primary purpose was to further or protect their own interests; it is sufficient to make their action tortious that the means used were unlawful.”

No mention is made in this passage of a requirement that the unlawful means must be independently actionable.

40.  A clear indication in these speeches that the unlawful means need not be independently actionable is not easily found. Statements to that effect can be seen in the judgments of the Court of Appeal in Lonrho v Shell, and the assumptions to which counsel for the appellants referred in his speech in the House of Lords are a further pointer to the conclusion that ought to be drawn. The Court of Appeal concluded in this case that an allegation of conspiracy to cheat was sufficient, provided there was an intention to injure the claimant, albeit not a predominant intention: para 67. I respectfully agree. But I think that it has to be acknowledged that textual analysis of this kind is an incomplete answer to the problem. The question then is whether the general principles on which the tort is based support the proposition that the unlawful means must be independently actionable.

41.  When Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 was in the Court of Session Lord Justice Clerk Aitchison said (1940 SC 141, 155-156):

“When the end of a combination is not a crime or a tort in the accepted sense, and the means are not in the accepted sense criminal or tortious - cases which give rise to no difficulty - the question always is - What is the real purpose of the combination? If it is to injure, without reference to anyone’s lawful gain, or the enjoyment of one’s rights, or the furtherance of one’s legitimate interests, then what is done may become a wrongful act and be actionable. If, on the other hand, the real purpose of the combination is to further the lawful interests of the parties to it- these not necessarily being identical interests - no wrong is committed even when the means, employed not being in themselves illegal, are calculated, and even intended, to injure the persons against whom they are directed.”

He did not understand there to be any real dispute about the law, which was to be found in the cases from Allen v Flood [1898] AC 1 to Sorrell v Smith [1925] AC 700. The question was whether a purpose to injure was the real root of the acts that grew from it: Sorrell v Smith, per Lord Dunedin at p 717. If that was its purpose, he saw no reason to distinguish between means that were criminal and means that were tortious. As Lord Wright put it in the House of Lords, it is in the fact of the conspiracy that the unlawfulness resides: [1942] AC 435, p 462. That is the essence of the lawful means conspiracy. It is for the claimant to show that to harm his economic interests was the predominant purpose of the conspiracy. The situation that was contemplated in that case was one where the combination had more than one purpose, which Viscount Simon LC described at p 445 as “the quagmire of mixed motives". In a case of that kind the issue has to be resolved by ascertaining the predominant intention. If the predominant intention of the combination is to injure, what is done is actionable even though the means used were lawful. Harm caused by a conspiracy where the means used were unlawful would seem no less in need of a remedy.

42.  The means that are alleged in this case are the commission by Redlaw and/or Alldech of the common law offence of cheating the revenue and the making by Alldech of a fraudulent misrepresentation: see para 10. The second alternative can be ignored for the purposes of the argument. The conduct alleged was tortious, but on the evidence it may be the weaker alternative. So the Commissioners wish to have their argument tested on the first alternative. Their primary contention is that where the conspirators agree to engage in conduct against the claimant which amounts to a criminal offence, and the carrying out of that conduct results in loss or damage to the claimant, the conduct will supply the unlawful means for the purposes of an unlawful act conspiracy although it is not itself actionable. They do not offer to prove that harm to their economic interests was the predominant purpose of the conspiracy. But the case does not appear to be one of mixed motives where predominant purpose is a necessary ingredient. Their case is more straightforward. It is that the criminal offence was directed at the Commissioners for the purpose of persuading them to give Alldech a VAT credit to which it was not entitled. The unlawful means chosen by the conspirators were intended to secure that result which could not have been secured by either of them acting alone.

43.  In OBG Ltd v Allan [2007] 2 WLR 920, para 56 Lord Hoffmann said that the courts should be cautious in extending the tort of causing loss by unlawful means beyond the description given by Lord Watson in Allen v Flood [1898] AC 1, 96 and Lord Lindley in Quinn v Leathem [1901] AC 495, 535, which was designed only to enforce standards of civilised behaviour in economic competition between traders or between employers and labour. I entirely appreciate the point that he makes that caution is needed where the unlawful act is directed against a third party at whose instance it is not actionable because he suffers no loss. There the claimant’s cause of action is, as Hazel Carty, An Analysis of the Economic Torts (2001), p 274 puts it, parasitic on the unlawful means used by the defendant against another party. As to that situation I would prefer to reserve my opinion. But in this case there was no third party. The means used by the conspirators were directed at the claimants themselves. This is a case where the claimants were persuaded by the unlawful means to act to their own detriment which, in para 61 of OBG, Lord Hoffmann said raises altogether different issues. One has to ask why, in this situation, the law should not provide a remedy.

44.  The situation that is contemplated is that of loss caused by an unlawful act directed at the claimants themselves. The conspirators cannot, on the Commissioners’ primary contention, be sued as joint tortfeasors because there was no independent tort actionable by the Commissioners. This is a gap which needs to be filled. For reasons that I have already explained, I do not accept that the Commissioners suffered economic harm in this case. But assuming that they did, they suffered that harm as a result of a conspiracy which was entered into with an intention of injuring them by the means that were deliberately selected by the conspirators. If, as Lord Wright said in Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC 435, 462, it is in the fact of the conspiracy that the unlawfulness resides, why should that principle not apply here? As a subspecies of the tort of unlawful means conspiracy, the case is virtually indistinguishable from the tort of conspiracy to injure. The fact that the unlawful means were not in themselves actionable does not seem, in this context at least, to be significant. As Professor Joe Thomson put it in An island legacy - The delict of conspiracy, Comparative and Historical Essays in Scots Law, ed Carey Miller and Meyers (1992), p 148, the rationale of the tort is conspiracy to injure. These factors indicate that a conspiracy is tortious if an intention of the conspirators was to harm the claimant by using unlawful means to persuade him to act to his own detriment, even if those means were not in themselves tortious.

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