| Conspiracy — Value added tax — Carousel fraud — Spanish defendant selling zero-rated goods to UK company — UK company selling goods on and claiming input tax on acquisition of goods — UK company ceasing to trade before sale back of goods to defendant — Whether Commissioners having valid claim against defendant for damages for tort of conspiracy — Value Added Tax Act 1994, s 73
Revenue and Customs Commissioners v Total Network SL [2007] EWCA Civ 39
CA: Ward, Chadwick and Gage LJJ: 31 January 2007
The Revenue had no cause of action in the tort of unlawful conspiracy against dishonest traders operating “carousel” transactions that annually defrauded taxpayers of vast amounts of VAT.
The Court of Appeal so held in a reserved judgment allowing an appeal by the defendant, Total Network SL, from the decision of Hodge J (sub nom Customs and Excise Commissioners v Total Network SL [2005] EWHC 1 (QB) [2005 STC 637), on a preliminary issue decided on assumed facts, that had upheld the Revenue and Customs Commissioners’ claim that they had a valid cause of action against the defendant. The Commissioners were granted permission to appeal to the House of Lords.
“Carousel” or “missing trader inter-community” frauds involves a VAT-registered trader in one EC member state (A) selling taxable goods to a VAT-registered trader in the UK (B). The sale is zero-rated in A’s member state. B should declare purchase and pay acquisition tax in UK but does not do so. B sells on to C, a UK-registered trader, and charges VAT. C re-sells the goods back to A without liability for VAT, it being a zero-rated sale out of the UK. B fails to account to Revenue and Customs for VAT paid by C and ceases trading, becoming a “missing trader”. C becomes entitled to reclaim the VAT it paid to B thus resulting in a loss to the taxpayer of the VAT involved.
S 73 of the Value Added Tax 1994 provides the Commissioners with the means for recovery of monies wrongly paid by way of raising an assessment.
WARD LJ, giving the judgment of the court, said that the claim concerned a series of alleged carousel frauds. The judge held that the Commissioners had a cause of action against the defendant, a company incorporated in Spain, “in conspiracy, where the unlawful means alleged is a common law offence of cheating the public revenue”. It was sufficient, he held, to show that the defendant was a party to a conspiracy, the intention of which was to cheat the Commissioners by a series of transactions having no purpose other than to defraud. On the appeal, two issues remained for decision: (1) was it a necessary ingredient of an unlawful means conspiracy for the unlawful means to be actionable at the suit of the Commissioners against at least one of the conspirators? (2) Was the court bound by the decision of the Court of Appeal in Powell v Boldaz [1998] Lloyds Rep Med 116 that an unlawful act actionable at the suit of the claimant was a necessary ingredient of unlawful means conspiracy? On the first issue the defendant argued, relying on Lord Diplock’s speech in Lonhro v Shell Petroleum Co Ltd (No 2) [1982] AC 173, that the Commissioners were in reality seeking to enforce statutory rights under the 1994 Act which gave rise to no private rights. It found further support for its proposition that the unlawful means had to be actionable in Lord Bridge of Harwich’s speech in Lonhro plc v Fayed [1992] 1 AC 448. But, save for the Boldaz decision, there seemed no reason why, on the assumed facts of the case, the Commissioners ought not to be able to rely on the tort of conspiracy by unlawful means. Conspiracy to cheat the Commissioners provided there was an intention to injure them should be sufficient: see dicta of Viscount Cave in Sorrell v Smith [1925] AC 700L. Nothing in the two Lonhro cases prevented that decision. Such a holding would not extend the tort of conspiracy in any unjustifiable way. A conspiracy to cheat with an intention to injure should be actionable without more by a person against whom it was aimed. But their remained the judgments of the Court of Appeal in the Boldaz case [1998] Lloyds Rep Med 116. Stuart-Smith LJ said, at p 126 “the unlawful act relied upon must be actionable at the suit of the plaintiff. It is not sufficient that it amounts to a crime or breach of contract with a third party”. It could not be said that the considered decision displayed a manifest slip or error and, contrary to the Commissioners’ argument, had to be a decision that was binding. If the decision on the first issue was correct then the state of affairs could only be corrected by the House of Lords.
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