BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

United Kingdom House of Lords Decisions


You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Total Network SL v Revenue and Customs [2008] UKHL 19 (12 March 2008)
URL: http://www.bailii.org/uk/cases/UKHL/2008/19.html
Cite as: [2008] 2 All ER 413, [2008] UKHL 19, [2008] 2 WLR 711

[New search] [Help]


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)

HOUSE OF LORDS

SESSION 2007-08

[2008] UKHL 19

on appeal from: [2007] EWCA Civ 39

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

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)

Appellate Committee

Lord Hope of Craighead

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Lord Mance

Lord Neuberger of Abbotsbury

Counsel

Appellants:

John Martin QC

Philip Coppel

(Instructed by Solicitor Her Majesty's Revenue and Customs)

Respondents:

Charles Flint QC

Tom Weisselberg

(Instructed by Byrne and Partners)

Hearing date:

26 & 27 NOVEMBER 2007

ON

WEDNESDAY 12 MARCH 2008

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

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)

[2008] UKHL 19

LORD HOPE OF CRAIGHEAD

My Lords,

  1. The issue in this case is whether the Commissioners can maintain a civil claim for damages under the tort of unlawful means conspiracy against a participant in a missing trader intra-community, or carousel, fraud. Two questions need to be considered. The first is whether it is open to the Commissioners to maintain a cause of action in damages at common law as a means of recovering VAT from a person who has not been made accountable or otherwise liable for that tax by Parliament. The second is whether, if so, it is an essential requirement of the tort of unlawful means conspiracy that the conduct which is said to amount to the unlawful means should give rise to a separate action in tort against at least one of the conspirators.
  2. On the second issue the Court of Appeal considered itself bound by prior Court of Appeal authority to hold that the unlawful means had to be independently actionable: [2007] EWCA Civ 39, paras 78-79. Its decision to strike out the Commissioner's claim for this reason is the subject of the appeal to this House by the Commissioners. The Court of Appeal decided the first issue in favour of the Commissioners: paras 31-32. Total Network SA ("Total") has cross-appealed on the first issue.
  3. The facts

  4. Total is a company incorporated in Spain which has a bank account in the United Kingdom. The Commissioners claim that Total is liable to them in damages at common law for conspiracy in sums equivalent to amounts of VAT which the Commissioners say they have lost as a result of thirteen carousel frauds which were participated in by Total. There are alleged to have been thirteen such conspiracies over five months from May to October 2002.
  5. In its simplest form a carousel fraud begins with the sale of taxable goods by a trader registered for VAT in one member state, A, to a VAT-registered trader in another member state, B. Under article 28c(A)(a) of European Council Directive 77/388/EEC of 17 May 1977 (OJ L 145, 13 June 1977) on the harmonisation of the laws of the member states relating to turnover taxes (the Sixth Directive), the supply of goods to a trader in another member state is exempted from VAT. In the words of section 30 of the Value Added Tax Act 1994 ("VATA 1994"), it is zero-rated. B then sells the goods to another VAT-registered trader, C, in its own member state, charging and receiving VAT on the consideration. It fails to account for that VAT to the taxing authorities and disappears. It becomes a missing trader. But before doing so it provides a tax invoice to C, which claims and receives the VAT that it has paid to B as input tax. C, the middleman or broker, then sells the goods to a registered trader in another member state. In the simplest form, this is A. This sale is zero-rated, so there is no output tax to set off against the input tax which C has received. B's disappearance has resulted in a profit to the conspirators which is equivalent to the amount of the input tax received by C. It is the circularity of the transaction that gives rise to the description of the fraud as a carousel.
  6. The fraud is the product of a dishonest application of the system of value added tax. C has a claim for input tax arising from its transaction with the missing trader, B, which it is entitled to recover under article 17(2)(d) of the Sixth Directive. Its sale to A is zero-rated in its own member state. So it is not required to account to the taxing authorities for any output tax on that sale. The result of the fraud is that the missing trader, B, has received the VAT from C. But it has not accounted for that VAT as output tax to the taxing authorities. They must nevertheless pay the VAT, or give credit for it, to C when it is claimed as input tax. The goods are no more than a token to give the transaction the semblance of reality. A has no genuine business motive in buying back what it has sold. Typically the goods are high volume articles such as computer chips or mobile telephones.
  7. As the Court of Appeal observed in para 3 of its judgment, this type of fraud is not confined to the United Kingdom. It is common in other countries within the EU. It has been described as a sophisticated attack on the VAT system. It was estimated to have cost in excess of £1bn in the year 2004/2005 to the United Kingdom by way of lost revenue. The Commissioners refer in their written case to estimates that show that this figure was exceeded substantially in the succeeding financial years. There is no doubt that this is a pernicious stratagem, and that member states are justified in making use of every means at their disposal within the scope of the Sixth Directive to eradicate it.
  8. It is sufficient for the purposes of this case to summarise the details of the first of the thirteen conspiracies alleged in the Statement of Claim. It has been treated as representative of all of them. On or about 15 October 2002 Total sold 3,780 Nokia mobile phones to Redlaw Ltd, a company incorporated in England and Wales, for £1,672,224.75. On the same day Redlaw sold the mobile phones to Lockparts Ltd for £1,423,170 plus £249,054.75 as VAT, amounting in total to £1,672,224.75. On the same day Lockparts sold them to GAK Ltd, for £1,428,840 plus £250,047 as VAT, amounting in total to £1,678,887. Both Redlaw and Lockparts thereafter ceased to trade and did not pay the VAT due on these transactions. On the same day GAK sold the mobile telephones to The Accessory People plc, for £1,436,400 plus £251,370 as VAT, amounting in total to £1,687,770. On the same day The Accessory People sold them to Alldech Ltd, the broker, for £1,447,740 plus £253,345.50 as VAT, amounting in total to £1,701,094.50. In due course GAK and The Accessory People paid VAT on the transactions which they had entered into. Finally, on the same day Alldech sold the mobile telephones to Total for £1,508,220. That sale, being a sale out of the United Kingdom, was zero-rated. Alldech claimed and was paid a refund of input tax from the Commissioners which included the sum of £253,345.50 of VAT which it had paid to The Accessory People.
  9. Reduced to its essentials, the position is that Redlaw, the first missing trader, was liable to pay VAT of £249,054.75 on its taxable supply which it failed to pay to the Commissioners. The intermediaries in the chain, other than Lockparts, did properly account for and pay VAT on the supplies. Alldech, the broker, did actually pay VAT of £253,345.50 on the supply it received from The Accessory People. Alldech then claimed and received a VAT credit for £253,345 in respect of the zero-rated supply out of the United Kingdom to Total. If Redlaw, the first missing trader, had paid the VAT due from it of £249,054.75 the result would have been that substantially all the VAT due on these transactions would have been paid or accounted for. The difference between the amounts paid and due at each end of the chain is accounted for by the fact that VAT of £992.25 due by Lockparts, the second missing trader, was not paid to the Commissioners.
  10. The total number of mobile phones involved in the thirteen conspiracies was 30,704. They were sold by Total to the various missing traders for a total of £12,299,117.40 and re-purchased by Total from the various brokers for a total of £11,663,423. The total amount of VAT due but unpaid on the sales by the missing traders is £1,921,331.12. The total amount of the VAT refund claimed by the brokers and allowed by the Commissioners is £1,958,714.95. That is the sum claimed in this action.
  11. The cause of action relied on by the Commissioners is the tort known as unlawful means conspiracy. The unlawful means on which they rely in their re-re-amended Particulars of Claim are (a) the commission by Redlaw and/or Alldech of the common law offence of cheating the revenue and (b) the making by Alldech of a fraudulent misrepresentation that the transactions had a genuine economic purpose and that VAT was chargeable and/or recoverable on them by the submission to the Commissioners of a VAT return in the relevant form claiming that it was entitled to a VAT credit. The claim relating to four of the alleged conspiracies was issued on 2 July 2003. On the same day Fulford J granted a freezing injunction against Total, the amount of which was increased on several subsequent occasions as other alleged conspiracies were added to the claim. On 10 January 2005 Hodge J held that the Commissioners had a cause of action in conspiracy where the unlawful means alleged was the common law offence of cheating the public revenue. On 31 January 2007 the Court of Appeal allowed Total's appeal against that order. The Commissioners were granted permission to appeal to this House and Total were granted permission to cross-appeal. The freezing injunction was continued pending the determination of the appeal and the cross-appeal.
  12. The statutory scheme

  13. Value added tax is a creature of statute. More precisely, it is the product of a series of EC Directives, of which the Sixth Directive was the most recent. (The Sixth Directive was repealed and replaced by Council Directive 2006/112/EC of 28 November 2006. But it was still in force at the time when the transactions that gave rise to this case were entered into). They provided for the harmonisation of this form of sales tax throughout all the member states of the EU: see Part I of the Finance Act 1972, which brought the then Directives into force in the UK following its accession to the EEC. It is a Community tax. There is no common law to which reference can be made. So it is important, to set the issues into their proper context, to identify the provisions of the statute that apply to the transactions that were involved in the alleged fraud. They are to be found in the Value Added Tax Act 1994, as amended. It is important also to identify the extent of the remedial steps that are available under the Act to the Commissioners. There are, as Mr Flint QC for Total explained, three aspects of the statutory scheme that need to be considered. These are (a) the application of VATA 1994 to transactions of the type complained of in this action; (b) whether VATA 1994 creates an exclusive regime for the enforcement of liabilities arising out of the failure to account for or pay VAT; and (c) the nature of the duties and rights of the Commissioners.
  14. Section 1(1) VATA 1994 provides that VAT shall be charged, in accordance with the provisions of the Act, on the supply of goods or services in the United Kingdom and on the acquisition in the United Kingdom from another member State of any goods. Section 1(2) provides that VAT on the supply of goods or services is a liability of the person making the supply and that, subject to provisions about accounting and payment, it becomes due at the time of the supply. That section must be read with sections 4(1) and 10(1) which make it clear that VAT is charged on the events referred to in section 1 only when the person who makes the supply or acquisition is a taxable person. Section 3(1) provides that a person is a taxable person while he is, or is required to be, registered under the Act. Total is not, and does not require to be, registered as it is a Spanish company carrying on business outside the United Kingdom. On the other hand Redlaw, the first missing trader, was registered under the Act, as was the broker, Alldech.
  15. Section 7 VATA 1994 deals with the place of supply. It applies for determining whether, for the purposes of the Act, goods or services are supplied in the United Kingdom. Section 13 deals with the place of acquisition. It applies for determining whether, for the purposes of the Act, goods acquired from another member State are acquired in the United Kingdom. Section 25(1) provides that a taxable person shall account for and pay VAT in respect of supplies made by him and in respect of the acquisition by him of goods from another member State. This is to be done by reference to prescribed accounting periods. Section 25(2) provides that he is entitled at the end of each accounting period to credit for so much of his input tax as is allowable under section 26 and then to deduct that amount from any output tax that is due from him. So Redlaw was liable under section 25(1) VATA 1994 to pay the output tax due on the supplies of the mobile telephones that it made in the United Kingdom, and Alldech was entitled under the same subsection to recover the VAT that it paid on their supply to it as input tax allowable under section 26.
  16. Part IV VATA 1994, which is headed "Administration, Collection and Enforcement", is introduced by section 58, which provides that Schedule 11 shall have effect with respect to the administration, collection and enforcement of VAT. Para 1(1) of Schedule 11, as originally enacted, provided that VAT was to be under the care and management of the Commissioners. Para 5(1) provides that VAT due from any person shall be recoverable as a debt due to the Crown. These provisions must now be read together with the Commissioners for Revenue and Customs Act 2005, which provides for the appointment of the Commissioners to exercise the functions previously vested in the Commissioners of Customs and Excise and for the transfer to them of the ancillary powers that were conferred on the former Commissioners by the Customs and Excise Management Act 1979.
  17. Various provisions are included within Part IV to enable the Commissioners to collect and to enforce the payment of VAT. Section 60 enables a civil penalty to be recovered in cases of dishonest evasion of VAT or the making of false input tax or repayment claims. Section 61 extends liability to a civil penalty to the director or managing officer where the person liable under section 60 is a body corporate. Section 72 makes it an offence for a person to be knowingly concerned in, or in the taking of steps with a view to, the fraudulent evasion of VAT by him or by any other person. This provision supplements other common law offences with which the offender may be charged, including conspiracy to cheat the revenue. All persons knowingly concerned in the fraudulent evasion who are subject to the criminal jurisdiction of the relevant part of the United Kingdom are within its reach. Section 73 enables the Commissioners to assess the amount of VAT due where there has been a failure for whatever reason to make any returns required by the Act. The making of assessments under this provision is subject to the time limits set out in section 73(6). They may not be made after the later of two years after the end of the prescribed accounting period or one year after the evidence of the facts came to the knowledge of the Commissioners. Section 76 enables the Commissioners to assess amounts due by way of penalty, interest or surcharge. Section 77 prescribes a long-stop time limit, normally six years in the section as originally enacted and now three as substituted by section 47(10) of the Finance Act 1997, on the making of assessments, including assessments for penalties, interest or surcharge, under section 76.
  18. Two further provisions, added to VATA 1994 by amendment to address the problem of intra-community fraud, are also relevant to an understanding of the scheme of VATA 1994. First, section 77A was added by section 18(1) and (4) of the Finance Act 2003 with effect from 10 April 2003. It enables the Commissioners, where a taxable supply of goods to which the section applies has been made to a taxable person, and at the time of supply that person knew or had reasonable grounds to suspect that some or all of the VAT payable in respect of that supply would go unpaid, to serve a notice on the taxable person making him jointly and severally liable with the person who is liable to the Commissioners for that amount. Section 77A(1) provides that the section applies to telephones and equipment made or adapted for use in connection with telephones, computers and equipment made or adapted for use in connection with computers and various other equipment of a similar nature which it specifies.
  19. Secondly, section 55A was added by section 19(1) of the Finance Act 2006, together with section 26AB which provides for the adjustment of accounts to give effect to it. It introduced a system known as reverse charge accounting which had been permitted by a derogation from article 21(1)(a) of the Sixth Directive that had been requested by the UK government under article 27(1) to combat missing trader intra-community fraud. Its core is to be found in section 55A(3) by which the purchaser rather than the seller is liable to account for and pay the VAT on the supply. It applies to goods of a description specified in an order made by the Treasury. In June 2007 reverse charge accounting was implemented in respect of mobile phones and computer chips.
  20. Neither of these additional measures to combat fraud has the effect of enabling the Commissioners to obtain a statutory remedy against persons in another member state whom it believes to have been involved in intra-community fraud who are not registered for VAT in the UK. No provision for this is made in the Sixth Directive. There is no statutory remedy against Total. Redlaw and Alldech on the other hand are within the reach of the statute. Redlaw's failure to pay was a breach of section 25(1) VATA 1994. Alldech can be assessed under section 73(2) for an amount as being VAT due from it to the Commissioners which is equivalent to the amount of the VAT that it recovered as input tax, on the ground that the Commissioners would have been entitled to withhold payment of the VAT if the purpose of the transaction had been disclosed to them.
  21. Mention should also be made of the provision which VATA 1994 makes for appeals. Section 82(1) provides that a reference to a tribunal is a reference to a tribunal constituted in accordance with Schedule 12. Section 83 provides that an appeal shall lie to a tribunal with respect to the various matters listed in that section which, as amended, include the amount of any input tax that may be credited to any person, any liability to a penalty or a surcharge under sections 59 to 69, any assessment made under section 73 and any liability arising by virtue of section 77A.
  22. Overall the impression that is conveyed by VATA 1994 as amended is of a comprehensive scheme for the administration, collection and enforcement of VAT by the Commissioners under the powers that are given to them by the statute. This is consistent with the propositions which I set out in para 11: VAT is a creature of statute, the limits of which are set by the Sixth Directive which requires member states to comply strictly with the harmonised rules that it lays down. It is designed to apply throughout the EU. So there is no common law to which reference can be made to fill any gaps in the scheme as to the persons from whom the Commissioners may collect amounts due to it as VAT. This is the background to the first issue, which is whether the Commissioners can maintain a cause of action in damages at common law as a means of recovering VAT that ought not to have been paid or credited from a person who has not been made accountable or otherwise liable for that tax by Parliament.
  23. The first issue: the exclusive regime issue

  24. Total submits that it is a fundamental constitutional principle that no money shall be levied for or to the use of the Crown except by grant of Parliament, and that this in substance is what the Commissioners are seeking to do in this case without Parliamentary authority. Although their claim is presented as one for the award of damages, what they are really seeking to do is to recover by indirect means sums due as tax. Their action was ultra vires of the statute, from which alone they derive their powers. It was also contrary to article 4 of the Bill of Rights 1688, which declares:
  25. "That levying money for or to the use of the Crown, by pretence of prerogative, without Grant of Parliament for longer time, or in other manner than the same is or shall be granted, is illegal."

    The Commissioners had no power under VATA 1994 to raise an assessment on Total for the tax that had been not been paid on the transactions. Nor was there any power under the Act to commence civil proceedings by action to recover unpaid tax from Total as a debt, as Total was not a taxable person. The absence of any such power was to be contrasted with the powers to recover unpaid tax that were now available to the Commissioners in terms of sections 55A and 77A of the Act, as amended.

  26. The Court of Appeal did not, of course, question the fundamental constitutional principle. Ample support for it is to be found in the authorities. In Gosling v Veley (1850) 12 QB 328, 407, Wilde CJ said:
  27. "The rule of law that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except upon clear and distinct legal authority, established by those who seek to impose the burden, has been so often the subject of legal decision that it may be deemed a legal axiom, and requires no authority to be cited in support of it."

    In Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884 the Food Controller under the Defence of the Realm Acts sought to impose a charge as a condition of the grant of a licence to purchase milk in certain areas for which no authority had been given by Parliament. It was held that he had no power to do so. Atkin LJ referred at p 886 to the Bill of Rights and to what he described as the elaborate custom of Parliament by which money for the service of the Crown is only granted at the request of the Crown made by a responsible Minister and assented to by the House of Commons. He went on to draw this conclusion:

    "In these circumstances, if an officer of the executive seeks to justify a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue), he must show, in clear terms, that Parliament has authorised the particular charge."

    In the House of Lords, where the decision was affirmed, Lord Buckmaster said that the imposition could only be properly described as a tax, which could not be levied except by direct statutory means: (1922) 38 TLR 781.

  28. Having recognised the principle, the Court of Appeal said in para 31 of its judgment that the crucial issue was to determine the nature of the claim in conspiracy:
  29. "Assuming for the purpose of this argument that a claim in conspiracy does lie, then this is a claim for damages for a perfectly proper, well-recognised tort, the tort of conspiring together to defraud the claimant. That the measure of damages suffered by such a claimant may be measured by reference to the amount by which the Exchequer's income is depleted does not in our view alter the essential character of the claim as one for damages, not as a levy of money for the use of the Crown without grant of Parliament."

    Having distinguished the nature of the claim in the Wilts United Dairies case, the court summed up its conclusion with these words:

    "Properly characterised this claim by the Commissioners is not a direct claim for VAT. It is a claim brought on a wholly different basis. It is a claim against conspirators to recover loss occasioned by fraud. It would make a mockery of the law to suggest that a fraudster can escape with impunity by piously claiming the benefit of the Bill of Rights designed for the innocent down-trodden citizen, not the scheming international fraudster."
  30. 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.
  31. 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.
  32. 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.
  33. 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?
  34. 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.
  35. 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.
  36. 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.
  37. 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.
  38. 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.
  39. 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.
  40. The second issue: unlawful means conspiracy

  41. 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.
  42. 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.
  43. 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:
  44. "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."
  45. 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:
  46. "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."
  47. 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.
  48. 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:
  49. "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.

  50. 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.
  51. 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):
  52. "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.

  53. 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.
  54. 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.
  55. 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.
  56. I would hold that the decision of the Court of Appeal in Powell v Boladz [1998] Lloyd's Rep Med 116 was erroneous and that it should be overruled. I would also hold, in agreement with all your Lordships' that criminal conduct at common law or by statute can constitute unlawful means in unlawful means conspiracy. Had it been open to the Commissioners to maintain a civil claim of damages the tort of unlawful means would have been available to them, even though the unlawful means relied upon were not in themselves actionable
  57. Conclusion

  58. For these reasons I would allow the appeal by the Commissioners. But I would also allow the cross-appeal by Total. For reasons that are different from those given by the Court of Appeal, I would affirm that part of the Court of Appeal's order by which the Commissioners' claim was struck out.
  59. LORD SCOTT OF FOSCOTE

    My Lords,

  60. I have had the great advantage of reading in advance the opinions prepared by all my noble and learned friends. The relevant facts are fully set out in the opinion of Lord Hope of Craighead and I gratefully adopt his exposition. The close, and to my mind completely convincing, analysis of the legal principles applicable to the two issues that arise on this appeal (see para.1 of Lord Hope's opinion) contained in the opinion of Lord Walker of Gestingthorpe probably say all that needs to be said. In view, however, of the importance of the two issues I propose to express in my own words why I have reached the same conclusions.
  61. It is important to keep in mind that the two issues arise from a preliminary issue directed to be tried by a Consent Order made on 9 July 2004. The preliminary issue asked this question:
  62. "Does the Claimant [i.e. the Commissioners] have, as a matter of law, a cause of action in conspiracy against the Defendant [i.e. Total] as pleaded in the Consolidated and Amended Particulars of Claim?"

    The question directs attention to the facts as pleaded by the Commissioners. These facts must, for the purposes of the preliminary issue, be assumed to be true. Whether they will, or which of them will, be proved to be true, only time will tell.

  63. There are some aspects of the pleaded facts that I wish to emphasise for they bear upon each of the two issues that arise. Paragraph 6 of the Agreed Statement of Facts and Issues, signed by leading and junior counsel for both parties, described the litigation, of which this appeal is the latest, but almost certainly not the last, stage as arising out of "a series of carousel, or missing trader intra-community, frauds". An alternative, and equally apt, description of each carousel, as pleaded by the Commissioners in this case, would be "charade". "Charade" is the name given to a game played frequently at birthday and Christmas parties but has also the colloquial meaning of an "absurd pretence" (see The Concise Oxford Dictionary 9th Ed.). The description of a "carousel fraud" taken from the decision of the VAT Tribunal in Bond v Commissioners of Customs & Excise, quoted by Ward LJ in paragraph 2 of his judgment in the present case, refers to the fraud as consisting of a series of sales of taxable goods, of which sales the initial one is zero rated, under the next one the initial buyer sells the goods and receives VAT from its buyer but then disappears without accounting to the Revenue for the VAT it has received, and the third sale made by the buyer from the "missing trader", is a zero rated sale of the goods back to the original vendor. This seller, who has paid VAT to the "missing trader", then claims back from the Revenue as input tax the amount of the VAT paid to the missing trader. The invoices are all in order so the Revenue accepts the claim for repayment of the input tax but because the "missing trader" has not accounted to the Revenue for the VAT it had apparently received, the Revenue is out-of-pocket by the amount it has had to pay to the vendor under the third sale. This description of a "carousel fraud" assumes valid sales of goods at each step.
  64. A charade, however, a pretence and in the present case a fraudulent pretence, is something else. Diplock LJ (as he then was) in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802 described as a "sham"
  65. "…acts done or documents executed by the parties to the 'sham' which are intended to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create."

    A "sale", at its simplest, is the exchange of property for money and it is, I suggest, plain that a contract of sale of goods requires, if the contract is to justify that description, an intention that there should be the payment of a price in exchange for the transfer of property in the goods (see s.2(1) and (3), Sale of Goods Act 1979). Consider these requirements against the facts of the "First Conspiracy" set out in paragraph 5 of the Commissioners' Consolidated Particulars of Claim and taken to be typical of each of the other twelve pleaded conspiracies.

  66. Paragraph 5 pleads that Total
  67. "... carried out and otherwise participated in a series of transactions in a chain of supply that had no economic purpose other than to cheat and/or defraud [the Commissioners] of revenue …".

    The transactions, as pleaded, related to 3,780 Nokia mobile telephones and consisted of the following events, all taking place on 15 October 2002.

      (1) Total sold the telephones to Redlaw Ltd for £1,672,224 under a zero rated transaction.

      (2) On the same day Redlaw sold the telephones to Lockparts Ltd for £1,423,170 plus VAT of £249,054, a total of £1,672,224. If this is taken to be a genuine sale it would have been a sale at an immediate loss of £249,054, the amount of the VAT for which Redlaw was accountable to the Revenue. But it was plainly never intended that Redlaw should pay £249,054 to the Revenue and Redlaw did not do so. Redlaw simply disappeared and became the "missing trader".

      (3) On the same day Lockparts sold the telephones to GAK Ltd for £1,428,840 plus VAT of £250,047, a total of £1,678,887. The VAT payable by Lockparts on its purchase from Redlaw was £249,054. Lockparts was therefore accountable to the Revenue for the balance, £993. But Lockparts, too, became a "disappeared" trader and the £993 remains unaccounted for. Leaving aside the £993 VAT balance, Lockparts made an instant paper profit of £6,550 odd on its transaction with GAK.

      (4) On the same day GAK, pursuant to written instructions given on that day by Lockparts, paid £1,672,224 into Total's UK bank account, thereby purporting to discharge the sum owing by Redlaw to Total and owing to Redlaw by Lockparts. That left £6,663 still owing by GAK to Lockparts.

      (5) On the same day GAK sold the telephones to The Accessory People for £1,436,400 plus VAT of £251,370, a total of £1,687,770. GAK had paid, or purported to have paid, £250,047 VAT on its transaction with Lockparts and so was accountable, and did account, to the Revenue for the balance, £1323. GAK had made an instant paper profit of over £6200 on its transaction with Lockparts.

      (6) On the same day The Accessory People sold the telephones to Alldech Ltd for £1,447,740 plus VAT of £253,345. The Accessory People were liable to pay £251,370 VAT under their transaction with GAK and so were liable to account, and did account, to the Revenue for the balance, £1975. The Accessory People had made an instant paper profit of over £9375.

      (7) Finally, on the same busy day, Alldech sold the telephones back to Total for £1,508,220 under a zero rated transaction. So Total made an instant paper profit of £164,004 (i.e. £1,672,224 less £1,508,220).

    Alldech later claimed, and obtained, from the Commissioners the repayment as input tax of the £253,345 VAT that it had paid to The Accessory People. Alldech had made, therefore, an instant profit of £60,480. This profit, and Total's £164,004 profit, The Accessory People's profit of £9375, GAK's profit of £6200 odd and Lockpart's profit of £6,660 odd (if the £6,663 was ever paid by GAK to Lockparts) were funded by the £253,345 input tax repayment made by the Commissioners to Alldech (less, of course, the £1323 and £1975 for which GAK and The Accessory People accounted to the Revenue).

  68. What are your Lordships to make of these transactions that had "no economic purpose other than to cheat and/or defraud [the Commissioners] of revenue" and, as pleaded in paragraph 4 of the Consolidated Particulars of Claim, were entered into "…with intent to cheat [the Commissioners] of revenue and/or to defraud the Revenue …"? The telephones, if they existed, did not physically move from the place or custody in which they were in the morning of 15 October 2002, when the carousel began, to anywhere else or anyone else's custody by midnight. At best, if they existed, they started and ended with Total. If it is to be said that property in these telephones, if they existed, left Total, passed down the chain of companies and ended back with Total, at what point during 15 October 2002 did this process begin? We know that no money was ever paid to or by Redlaw and it does not appear that any authority was ever given by Redlaw for the payment made by GAK to Total. But these questions are, perhaps, pointless for it seems clear that the telephones, as objects of an intended sale, were irrelevant. The passing of property in the telephones was not the purpose of the transactions. The purpose was the creation of book entries enabling a claim for repayment of input tax to be made.
  69. Article 2 of the First Council Directive, 67/227/EEC of 11 April 1967 says that
  70. "… The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption …" (emphasis added)

    and article 2(1) of the Sixth Directive says that

    "… a supply of goods and services effected for consideration by a taxable person acting as such is subject to VAT".

    Article 4(1) of the Sixth Directive defines "taxable person" as

    "… any person who independently carries out in any place any economic activity …"

    and "economic activities" are defined in article 4(2) as comprising

    "… all activities of producers, traders and persons supplying services …"

    On what basis could it be suggested that the carousel of 15 October 2002, on the basis of the facts as pleaded, involved the participants in trading in goods or supplying services? The several transactions were plainly orchestrated and pre-ordained. None of the participants wanted mobile telephones. All that they wanted was to obtain a money profit at no risk and without doing anything that could remotely be described as trading or supplying goods in a commercial transaction.

  71. On the Commissioners' pleaded case Alldech was a fraudulent conspirator, not an innocent trader caught up in somebody else's fraudulent scheme. The pleaded case does not allege that GAK or The Accessory People were conspirators. It is difficult to believe that they did not know or suspect the fraudulent purpose of a scheme under which they were to sign up to buy goods they had never seen and immediately to sell on the goods for an enhanced price. And if they did not know of the fraudulent purpose it is difficult to believe that their lack of knowledge was not attributable to a decision not to enquire, a convenient adoption of a Nelsonian blind eye. Be that as it may, Alldech, on the pleaded case, was a participating conspirator with knowledge of all the pleaded features of the conspiracy and neither expected nor intended to become the owner of mobile telephones. That was not the purpose of the carousel. In my opinion, there was, on 15 October 2002 when the several transactions were entered into, no supply or intention to supply mobile telephones, no change of the property rights in any mobile telephones and no transaction that could claim the description of a contract of sale or a contract for the supply of telephones. This was a fraudulent scheme designed to extract by deception money from the Revenue. If the pleaded facts had been known to the Revenue at the time that Alldech's input tax repayment claim was made, the Revenue would not have paid and would not have been liable to pay.
  72. The ECJ's judgment in Optigen Ltd v Customs & Excise [2006] Ch.218 is no authority to the contrary. The ECJ emphasise in their judgment that the terms "supply of goods" and "taxable person acting as such" in the Sixth Directive require an objective assessment to be made (see para.44 of the judgment). In paragraph 46 of the judgment the ECJ said this:
  73. "An obligation on the tax authorities to take account, in order to determine whether a given transaction constituted a supply by a taxable person acting as such and an economic activity, of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain … of which that taxable person had no knowledge and no means of knowledge, would a fortiori be contrary to [the objectives of the Sixth Directive]."

    And in paragraph 51 the ECJ repeated that whether a supply of goods had been made by a taxable person acting as such was to be objectively ascertained

    "… regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge" (emphasis added).

    It follows from this that if a trader becomes innocently involved in a fraudulent and/or sham chain of supply, the innocent trader does not necessarily cease to be a person liable to pay output VAT and eligible to claim input VAT. If objectively assessed without regard to the fraud, there would appear to have been a supply of goods by or to the innocent trader, the innocent trader does not by reason of the fraud fall outside the VAT loop. None of this, in my opinion, assists Total in the present case. Alldech was not an innocent trader. GAK and The Accessory People may have been. If Alldech was not an innocent trader but a conspirator in the fraud there is no need to disregard the intentions of the conspirators, the fraudsters, in assessing the true nature of the transactions into which they entered. In my opinion, on the facts as pleaded, neither Total when it entered into its transaction with Redlaw, nor Alldech when it entered into its transaction with The Accessory People, nor Total and Alldech when they entered into the final transaction with one another, were intending to buy or sell, as the case may be, mobile telephones. They were intending to produce pieces of paper invoices, in order to pretend to the Revenue that genuine commercial transactions had taken place and thereby to deceive the Commissioners into paying-up on a spurious input tax repayment claim. The issue is whether in these circumstances the Commissioners have a civil action in tort to recover from Total, as damages for the tort, the loss suffered by the Commissioners by the success of the fraudulent scheme.

    The tort of conspiracy

  74. The pleaded tort is a conspiracy to cheat and/or defraud the Commissioners by unlawful means. The issue is whether this tort requires that the unlawful means relied on include some civil wrong actionable by the claimant against at least one of the conspirators. On this issue I can add nothing of value to the conclusion and reasoning of my noble and learned friends. The Court of Appeal felt bound to follow the earlier Court of Appeal decision in Powell v Boladz [1998] Lloyd's Rep. Med.116 in which Stuart-Smith LJ, with whose judgment the other two members of the Court agreed, had said at 126 that
  75. "… the unlawful act relied on 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".

    My Lords, in agreement with my noble and learned friends and for the reasons they have given I too would hold that criminal conduct can constitute unlawful means for the purposes of a tortious conspiracy to injure by unlawful means (see para.95 of Lord Walker's opinion). It must, in my opinion, be kept in mind that the whole of this branch of the law of tort is the result of a step by step development by judges of the action on the case. We were taught at Law School that the action on the case was the means whereby our judicial forbears allowed tortious remedies in damages where harm had been caused in circumstances where the conduct of the authors of the harm had been sufficiently reprehensible to require the conclusion that they ought to be held responsible for the harm. The law whereby harm caused by negligence can be remedied by an action in tort for damages results from a development of the action on the case. The law enabling an action for tortious damages to be brought where two or more persons have joined together with the predominant intention of injuring another person and have successfully carried out their intention is another, and for present purposes highly relevant, example of a judicial development of the action on the case. This is the so-called "lawful means" conspiracy which is tortious notwithstanding that the means employed to cause the harm are themselves neither criminal nor tortious. The essential ingredient of this type of action is the combination of people all intent on causing harm to the victim, not on the type of means employed for doing so. As it was put by Viscount Simon in Crofter Hand Woven Harris Tweed Co.Ltd v Veitch [1942] AC 435 at 445

    "If that predominant purpose is to damage another person and damage results, that is tortious conspiracy. If the predominant purpose is the lawful protection or promotion of any lawful interest of the combiners (no illegal means being employed), it is not a tortious conspiracy, even though it causes damage to another person."

    Where, however, unlawful means are employed by the conspirators to achieve their object and their object involves causing harm to the victim, the intent to cause that harm does not have to be the predominant purpose of the conspiracy. This difference between the torts of lawful means conspiracy and unlawful means conspiracy is sometimes described as anomalous. In my opinion it is not. The difference reflects and demonstrates the essential flexibility of the action on the case. It is not all conduct foreseeably likely to cause, and that does cause, economic harm to another that is tortious. Nor should it be. The circumstances must be such as to make the conduct sufficiently reprehensible to justify imposing on those who have brought about the harm liability in damages for having done so. Bearing that in mind, the proposition that a combination of two or more people to carry out a scheme that is criminal in its nature and is intended to cause economic harm to some person does not, when carried out with that result, constitute a tort actionable by that person is, in my opinion, unacceptable. Such a proposition is not only inconsistent with the jurisprudence of tortious conspiracy, as Lord Walker has demonstrated and explained, but is inconsistent also with the historic role of the action on the case.

  76. In my opinion, any coherent law of tortious liability for conspiracy must hold Total liable in tort if the facts of the conspiracies pleaded in this case can be proved.
  77. The second issue

  78. The second issue is whether the Commissioners can bring a private law action to recover the loss they have been caused by the fraudulent conspiracy. It is said that the damages claim is, in substance, a claim to recover the tax that Redlaw has failed to pay. The action constitutes, it is said, an attempt to make Total liable to pay the tax, an attempt that is barred by article 4 of the Bill of Rights (see para.21 of Lord Hope's opinion). It is said, alternatively, that the statutory VAT scheme establishes exclusive remedies for the recovery of tax or for dealing with false input tax repayment claims and that these remedies cannot be supplemented by a tortious action for damages. Lord Hope, in paragraph 15 of his opinion, has listed the various statutory remedies available under the statutory VAT scheme.
  79. My Lords, there is, in my opinion, nothing whatever in the Bill of Rights point. It is true that Total are not taxable under the statutory VAT scheme in respect of any of the pleaded transactions, but the claim against Total is not a claim for tax. It is a claim for damages, for loss, caused by the fraudulent conspiracy. The Consolidated Particulars of Claim claim from Total damages (for the first conspiracy) of "not less than £253,345.50". That was the sum paid by the Revenue to Alldech in response to Alldech's claim for repayment of the VAT Alldech had paid as input tax to The Accessory People. It was not the amount of the VAT in respect of which Redlaw, the missing trader, should have accounted to the Revenue. The claim for a sum in damages not less than the sum paid by the Revenue to Alldech is, however, capable of leading to a misunderstanding. The sum recoverable by the Commissioners as damages may well be less than £253,345. A tortious damages claim must bring into account benefits, as well as losses, that have accrued to the victim from the wrongful conduct. So the Commissioners must give credit for the £1323 and £1975 for which GAK and The Accessory People accounted to the Revenue and must give credit, also, for the value of any statutory right of the Commissioners under the VAT scheme to recover the £253,345 from Alldech (see s.73(2) of the Value Added Tax Act 1994). But this would all be part of the assessment of the quantum of damages recoverable by the Commissioners from Total if the Commissioners succeed in establishing the tort. It is not the levying of tax.
  80. As for the point that the statutory VAT scheme prescribes exclusive remedies for the Commissioners, I can, for my part, see no reason why the statutory scheme should be thought to provide protection against tort claims for those who by fraudulent schemes succeed in extracting money from the Commissioners. If the Commissioners have a statutory remedy against Alldech to recover the £235,345 and if Alldech are good for the money, then the economic damage caused by the conspiracy will, presumably, be nil. But if Alldech is not good for the money, or if there is no statutory remedy available in a case such as this, I can see no reason why the Commissioners, the victims of a fraudulent conspiracy, should be barred from recovering damages against the principal conspirator, Total. An intention that that should be so cannot, in my opinion, be attributed to the legislature in enacting the VAT scheme.
  81. Conclusion

  82. In agreement, therefore, with all my noble and learned friends on the tort of conspiracy point and with Lord Walker and Lord Mance on all other points, I would allow the Commissioners' appeal, dismiss Total's cross-appeal, restore paragraph 1 of the order of Hodge J made on 10 January 2005, and set aside paragraph 1 of the order of the Court of Appeal made on 31 January 2007.
  83. LORD WALKER OF GESTINGTHORPE

    My Lords,

    The two issues

  84. This appeal on a preliminary point of law raises two issues, each of which is important. The first is whether the appellants, the Commissioners of HM Revenue and Customs ("the Commissioners") are entitled to resort to a private law remedy—an action for damages for the tort of conspiracy—in order to recoup value added tax (VAT), which would otherwise be irrecoverable. The second issue is whether (on the facts which the House is required to assume for the purposes of the preliminary issue) the requirements of the common law tort of conspiracy can be established.
  85. Although they are distinct the two issues touch at a single point. That is whether (if, contrary to the Commissioners' primary case, a claimant alleging an "unlawful means" conspiracy must establish that the unlawful means consisted of or included the commission of a civil wrong actionable at the suit of the claimant) the Commissioners would have been able to bring a private law claim for fraudulent misrepresentation against a company called Alldech Limited ("Alldech"), which was (on the assumed facts) a participant in a fraudulent conspiracy with the respondent Total Network SL ("Total").
  86. I have set out the two issues in what seems to be their logical order. But the Commissioners' appeal (on the second issue) was opened before Total's cross-appeal (on the first issue) and I will follow the same course. I gratefully adopt the exposition of the facts and the legislation set out in the opinion of my noble and learned friend Lord Hope of Craighead.
  87. The tort of conspiracy: background

  88. The essential dispute between the parties, on the Commissioners' appeal, is whether the Court of Appeal was right in holding that, in order to establish the tort of "unlawful means" conspiracy, the claimant must show that the unlawful means constituted or included a civil wrong which had been committed by at least one of the conspirators, and was actionable at the suit of the claimant himself. The Court of Appeal made clear that it would not have reached that conclusion had it not felt bound to follow the decision of the Court of Appeal in Powell v Boladz [1998] Lloyd's Rep Med 116.
  89. That decision referred (on the material point) to only three authorities, only one being a decision of this House, that is Lonrho Ltd v Shell Petroleum Co Ltd (No. 2) [1982] AC 173 ("Lonrho v Shell"). It might therefore appear to be a short point. But your Lordships have had the advantage of full argument and full citation of authority. Mr Flint QC for Total (echoing Lord Diplock in Lonrho v Shell at p189) urged the House not to extend the scope of an already anomalous tort. Against that Mr Martin QC for the Commissioners argued that on Total's case the tort would be reduced to no more than a barren iteration of joint tortfeasance. In these circumstances it is necessary, I think, to go back to some of what Lord Diplock (in Lonrho v Shell at p188) called the tort's "chequered history" between the first-instance decision of Lord Coleridge CJ in Mogul Steamship Co. Ltd v McGregor, Gow & Co. (1888) 21 QBD 544 ("Mogul") and Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 ("Crofter"). The decision of this House in Crofter can, I think, be seen as the final emergence of the tort of conspiracy in its modern form. But it is necessary to go back further to see why the tort is generally regarded as anomalous, and why the notion of "predominant purpose" or "real and predominant purpose" was defined in Crofter (especially in the speeches of Viscount Simon LC and Lord Wright at pp 445-447 and pp 477-478 respectively) as a necessary ingredient of an "unlawful object" (or "lawful means") conspiracy.
  90. In looking at the older cases I have the advantage of traversing some of the same ground as has recently been covered by Lord Hoffmann in his opinion in OBG Ltd v Allan and associated appeals [2007] 2 WLR 920 ("OBG"), paras 6 to 21 and paras 45 to 64. In the latter group of paragraphs Lord Hoffmann concluded (with the concurrence of the majority) that a wrong actionable in private law is a necessary ingredient of the tort of intentionally causing harm by unlawful means (which I shall for brevity call "the intentional harm tort"). That may be thought to add a further layer of anomaly to the tort of conspiracy, if the Commissioners are right on the first issue. That there is an anomaly, or at least something calling for explanation, was recognised as long ago as 1889, when Bowen LJ said in Mogul in the Court of Appeal (1889) 23 QBD 598, 616:
  91. "Of the general proposition, that certain kinds of conduct not criminal in any one individual may become criminal if done by combination among several, there can be no doubt."

    He proceeded to state what he saw as sound reasons for the distinction, but some other distinguished judges have been more sceptical.

  92. In Mogul the plaintiffs complained that the defendants (an association of shipowners) had conspired to obtain a monopoly of the China tea trade, mainly by offering a discount on the freight charged to those who confined their shipments to the defendants' vessels. The claim failed at first instance before Lord Coleridge CJ sitting without a jury (1888) 21 QBD 544, before the Court of Appeal (Bowen and Fry LJJ, Lord Esher MR dissenting) (1889) 23 QBD 598 and in this House [1892] AC 25. The distinction between the two varieties of the tort was seen in terms of combination for an unlawful object, or combination to cause harm by unlawful means. The real difficulty (exemplified in the difference of opinion in the Court of Appeal) was in identifying what was unlawful, either as an object or as a means to an end, in the laissez-faire Victorian world of trade competition.
  93. Lord Coleridge CJ described the two categories of the tort 21 QBD 544, 550:
  94. "And in this case it is clear that if the object were unlawful, or if the object were lawful but the means employed to effect it were unlawful, and if there were a combination either to effect the unlawful object or to use the unlawful means, then the combination was unlawful, then those who formed it were misdemeanants and a person injured by their misdemeanour has an action in respect of his injury."

    He was almost but not quite persuaded (pp 553-554) that there was a "wrongful and malicious combination to ruin a man in his trade". He concluded that:

    "I cannot see that these defendants have in fact passed the line which separates the reasonable and legitimate selfishness of traders from wrong and malice."

    Here Lord Coleridge CJ was identifying the problem of mixed motives - the trader who wants to damage his competitor's business because that will make his own business more profitable - which runs through the development of the law of economic torts, including conspiracy. This point was recently made by Lord Hoffmann (in the context of causing loss by unlawful means) in OBG [2007] 2 WLR 920 paras 134-135, quoting Lord Sumner in Sorrell v Smith [1925] AC 700, 742:

    'When the whole object of the defendants' action is to capture the plaintiff's business, their gain must be his loss.'
  95. In the Court of Appeal in Mogul Lord Esher MR stated nine rules (23 QBD 598, 609-610). The first seven enunciated a doctrine of "fair trade competition" which, had they prevailed, would have set the development of the law on a very different course. They applied to all traders, whether or not they were acting in concert, and Lord Esher MR treated the defendants' combination as a sort of a fortiori footnote (at p.710). But the views of Bowen and Fry LJJ (which were approved unanimously by this House) insisted in much-quoted passages (at pp 614-618 and pp 626-628) that trade competition, however fierce, was not unlawful unless it involved fraud, misrepresentation, intimidation or molestation; that the defendants did not intend to injure their competitors further than was necessarily involved in the activity of competition; and that a combination of traders to engage in such activity did not amount to an unlawful conspiracy, although the doctrine of restraint of trade might make it unenforceable.
  96. Allen v Flood [1898] AC 1, the case about the demarcation dispute between the ironworkers and the woodworkers at a shipyard in Millwall, was regarded at the time as a case of the highest importance, and its importance is still recognised over a century later. It was first argued over four days before an appellate committee of seven, and then again over six days before a committee of nine (three Lords of Appeal in Ordinary and six other peers who held or had held high judicial office). On the second occasion eight judges attended to give the House the benefit of their opinions (the last time that ever occurred). The judges divided 6-2 in favour of the plaintiffs (the respondents in the appeal) but the House divided 6-3 in favour of Allen (one of the three original defendants, but by then the only appellant). The Lord Chancellor, Lord Halsbury, presided but was in the minority. The case is of enormous interest as a matter of legal and social history (see RFV Heuston, Legal Prosopography (1986) 102 LQR 90). But as regards conspiracy it is of limited importance since although conspiracy was an issue on the pleadings, at first instance (Kennedy J with a jury) the judge ruled that there was no evidence of conspiracy (or of intimidation, coercion or breach of contract). Allen, the London representative of the Boilermakers' Society, had simply been summoned to the shipyard, and (acting on his own initiative) told the management what would happen if Flood and Taylor (woodworkers who were known to have done ironwork at another yard) were not discharged (as they could be without a breach of contract, since they were employed by the day). The absence of a conspiracy was most strongly emphasised by Lord Macnaghten [1898] AC1, 153:
  97. "the decision of this case can have no bearing on any case which involves the element of oppressive combination. The vice of that form of terrorism commonly known by the name of 'boycotting,' and other forms of oppressive combination, seem to me to depend on considerations which are, I think, in the present case conspicuously absent."
  98. To my mind the main significance of Allen v Flood to the present appeal is in explaining the delicacy with which, about four years later, the House approached Quinn v Leathem [1901] AC 495. The Earl of Halsbury LC was again presiding, and the committee included several law lords who had sat in Allen v Flood. (Heuston's article does not advert to the curious fact that when this House gave judgment on 5 August 1901, there were according to the Law Reports six speeches, given by the Earl of Halsbury LC, Lord Macnaghten, Lord Shand, Lord Brampton, Lord Robertson and Lord Lindley. Lord Davey is recorded as having read the speeches of Lord Shand, Lord Robertson and Lord Lindley but not as having given any speech of his own. Mr G R Dymond of the House of Lords Library has kindly checked that the Lords' Journals confirm what is in the Law Reports.)
  99. Quinn was treasurer of a Belfast butchers' association. Leathem, who traded as a butcher, employed some non-union men, although when the union made difficulties he asked for them to be admitted to the union, and offered to pay their dues. The union put pressure on Munce, a wholesale customer of Leathem, to stop buying his meat. It also called out Dickie, one of Leathem's employees. The jury found for Leathem, holding that there had been a malicious conspiracy between Quinn and other officers of the union. The Irish Court of Appeal affirmed this. So, unanimously, did this House. The House's anxiety to explain why Allen v Flood was not in point makes it quite difficult to discern what Quinn v Leathem did decide. But it can, at any rate with hindsight, be recognised as a case of "unlawful object" (or "lawful means") conspiracy, since (on the facts found) the union did not have the justification of advancing its own interests, and was acting primarily for the purpose of punishing and injuring Leathem (see especially the speeches of Lord Macnaghten at p 511 and Lord Shand at p 515; Lord Lindley, however, at p 538 seems to have regarded it as a case of unlawful means). In Sorrell v Smith [1925] AC 700 most of the House saw Quinn v Leathem as a case of unlawful object, not unlawful means (see especially Viscount Cave LC at p 712, Lord Dunedin at pp 719 and 724, Lord Sumner at p 735 and Lord Buckmaster at p 744).
  100. In Crofter [1942] AC 435 the House, building on Sorrell v Smith, finally established the basic principles of the modern tort. There is a key passage in the speech of Viscount Simon LC at p 445:
  101. "The combiners may feel that they are killing two birds with one stone, and, even though their main purpose may be to protect their own legitimate interests notwithstanding that this involves damage to the plaintiffs, they may also find a further inducement to do what they are doing by feeling that it serves the plaintiffs right. The analysis of human impulses soon leads us into the quagmire of mixed motives, and even if we avoid the word 'motive', there may be more than a single 'purpose' or 'object.' It is enough to say that if there is more than one purpose actuating a combination, liability must depend on ascertaining the predominant purpose. If that predominant purpose is to damage another person and damage results, that is tortious conspiracy. If the predominant purpose is the lawful protection or promotion of any lawful interest of the combiners (no illegal means being employed), it is not a tortious conspiracy, even though it causes damage to another person."
  102. Another very important passage is in the speech of Lord Wright, at p 462, and it has been the subject of a good deal of discussion before your Lordships:
  103. "The rule may seem anomalous, so far as it holds that conduct by two may be actionable if it causes damage, whereas the same conduct done by one, causing the same damage, would give no redress. In effect the plaintiff's right is that he should not be damnified by a conspiracy to injure him, and it is in the fact of the conspiracy that the unlawfulness resides. It is a different matter if the conspiracy is to do acts in themselves wrongful, such as to deceive or defraud, to commit violence, or to conduct a strike or lock-out by means of conduct prohibited by the Conspiracy and Protection of Property Act, 1875, or which contravenes the Trade Disputes and Trade Unions Act 1927."
  104. My Lords, I would draw attention to three general features of the authorities down to, and including, Crofter. First, the debate is overwhelmingly about intention (or purpose, or object) culminating in the approval of "real and predominant purpose" (Viscount Simon LC in Crofter at p 446) as the essential ingredient of the "unlawful object" variety of the tort. Second, there is little or no discussion of whether unlawful means can include conduct which is a criminal offence but cannot found a civil cause of action. Most of the examples of unlawful means given in the speeches and judgments are expressed in general, fairly non-technical terms (fraud, misrepresentation, molestation, intimidation, obstruction). Lord Wright, in the passage just quoted from his speech in Crofter, includes some statutory offences, but he does not seem to have regarded it as a point calling for reasoned discussion. Third, there are frequent references (again, the quotation from Lord Wright in Crofter is an example) to the anomaly that the conduct of two or more persons may be actionable whereas the same conduct on the part of a single person would not be.
  105. This third point calls for a little more discussion. In Mogul, Bowen LJ (23 QBD 598, 616) gave two reasons for it:
  106. "The distinction is based on sound reason, for a combination may make oppressive or dangerous that which if it proceeded only from a single person would be otherwise, and the very fact of the combination may shew that the object is simply to do harm, and not to exercise one's own just rights."

    The first reason is not very satisfactory, since (as has very often been pointed out, for instance by Lord Sumner in Sorrell v Smith at p 741 and Lord Diplock in Lonrho v Shell at p189) it all depends on the particular facts. The second reason seems to me more principled, focusing as it does on the fact that the claimant's damage is caused by two or more persons acting in concert to carry out an unlawful plan. That is, I think, what was behind an observation of Lord Dunedin in Sorrell v Smith at p 725:

    "Now the moment that that is recognised, ie, that the essence of conspiracy on which civil action is founded is a criminal conspiracy, though of course unless actual damage has followed no civil action will lie, the moment that fact is recognised, you at once bring in the spirit of the criminal law, where motive or intention—the mens rea—is everything."

    That identifies what sets conspiracy apart from other torts, and emphasises the first point made above—the intense focus, in the tort of conspiracy, on intention. It is also worth noting that in some factual situations (such as that in the present appeal) the fraud disclosed by the assumed facts could not have been carried out otherwise than by a number of persons acting in concert.

  107. I suspect that the judges at the end of the 19th century also had a third reason, largely unarticulated but appearing in Lord Macnaghten's dictum about boycotts in Allen v Flood. That was the deep suspicion which the governing class had, in Georgian and Victorian England, of collective action in the political and economic spheres, as potential threats to the constitution and the framework of society. It is a theme from the Gordon Riots in 1780 to the Land League in Ireland a century later (see R v Parnell (1881) 14 Cox CC 508), with the conventions called by the corresponding societies in the 1790s, the Peterloo Massacre in 1819, the Tolpuddle Martyrs in 1834 and the Chartist Movement (1838-1848) and the rise of the trade unions in between.
  108. The tort of conspiracy: the modern cases

  109. The litigation in Lonrho v Shell [1982] AC 173 arose from sanctions imposed against Southern Rhodesia, after UDI, under the Southern Rhodesia Act 1965. Lonrho's claim was that Shell and its co-defendant BP had breached the sanctions and caused loss to Lonrho and its Portuguese co-owner of a pipeline from Beira in Mozambique to a refinery in what was then Southern Rhodesia. The matter came before the court as issues of law arising on assumed facts in the course of an arbitration. The relevant issue was numbered 5(b):
  110. "Whether the claimants have a cause of action for damage alleged to have been caused by such breaches [of the sanctions orders] by virtue only of the allegation that there was an agreement to effect them."

    That is a rather bald way of putting the issue: the essential point was whether it was fatal that there was no pleading of an intention to injure Lonrho and its co-plaintiff, as Lord Diplock explained at p188:

    "Question 5(b), to which I now turn, concerns conspiracy as a civil tort. Your Lordships are invited to answer it on the assumption that the purpose of Shell and BP in entering into the agreement to do the various things that it must be assumed they did in contravention of the sanctions Order, was to forward their own commercial interests; not to injure those of Lonrho. So the question of law to be determined is whether an intent by the defendants to injure the plaintiff is an essential element in the civil wrong of conspiracy, even where the acts agreed to be done by the conspirators amount to criminal offences under a penal statute."
  111. So the question was clearly understood as being one of intention, and the reference to "criminal offences under a penal statute" (introduced as it was by the words "even where") does not suggest that the criminal element was seen as a potential flaw in Lonrho's case. Lord Diplock then briefly discussed the classic authorities on the tort of conspiracy; I have already mentioned some of his observations. He stated (at p189) that none of the authorities
  112. "was directed to a case 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 alone, were nevertheless a contravention of some penal law."

    He concluded that the House had an unfettered choice, and his unhesitating choice (agreeing with the courts below in their conclusion if not in their reasoning) was not to extend the scope of the tort, and to answer question 5(b) in the negative. The other members of the House agreed.

  113. My Lords, the reasoning in Lord Diplock's speech seems to me to be very compressed, especially in the passage from which I have just quoted. I am very conscious of the danger of trying to expound speeches and judgments (even of the most eminent judges) as if they were Acts of Parliament. It is a danger of which Slade LJ (delivering the judgment of the Court of Appeal in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391—"Metall") was conscious. Nevertheless he did subject the speech of Lord Diplock to "detailed textual analysis" (as Lord Bridge of Harwich put it in Lonrho plc v Fayed [1992] 1 AC 448, 468—"Lonrho v Fayed"). In analysing Lonrho v Shell, Slade LJ also quoted from and paid close attention to the reasoning of the arbitrators, Parker J and the Court of Appeal, although it is far from clear that Lord Diplock (whose speech on this issue runs to no more than one and a half pages) had the reasoning in the lower courts at the forefront of his mind.
  114. In Lonrho v Fayed this House unanimously disapproved of the views which the Court of Appeal in Metall had expressed about the effect of Lord Diplock's speech in Lonrho v Shell. In doing so the House also clarified the law, which had fallen into some confusion as a result of Lonrho v Shell as interpreted in Metall. In those circumstances it is unnecessary and inappropriate, I suggest, for your Lordships to revisit the exegesis of Lord Diplock's speech. It is sufficient to repeat that it was concerned solely with the issue of intention, and that Lord Diplock uncharacteristically failed to make a clear distinction between the requirement of predominant purpose under one variety of the tort of conspiracy and the lower requirement of intentional injury needed for the other variety.
  115. Clarity was restored by the speech of Lord Bridge in Lonrho v Fayed [1992] 1 AC 448, with which the rest of the House agreed. (Lord Templeman also stated, with the agreement of the majority, that the ambits and ingredients of the torts of conspiracy and unlawful interference might require further analysis and reconsideration.) The key passage in the speech of Lord Bridge is at p464, after a citation of Lord Diplock's reference to injury to the plaintiff being the predominant purpose of the conspiracy:
  116. "But this reasoning has no relevance to the second type of conspiracy which employs unlawful means. Of this type Lord Devlin said in his speech in Rookes v Barnard [1964] AC 1129, 1204, . . . 'In the latter type . . . the element of conspiracy is usually only of secondary importance since the unlawful means are actionable by themselves.'
    It is no doubt for the reason mentioned by Lord Devlin that there is no direct authority, unless it be Rookes v Barnard itself, establishing the negative proposition that the tort of conspiracy to injure by unlawful means may be established without proof that the intention to injure the plaintiff was the predominant purpose of the conspirators. But in the many cases where plaintiffs have asserted a conspiracy to injure, but have been unable to prove that any unlawful means were used, judgments in the Court of Appeal and speeches in your Lordships' House emphasising the requirement of a predominant purpose to injure have repeatedly included dicta indicating that this requirement does not apply where the means used to effect the conspirator's purpose are unlawful."
  117. Lord Bridge then gave some examples, including a passage from the speech of Lord Wright in Crofter, of which I have already quoted part. He also quoted from the judgments below in Lonrho v Shell before coming to Metall. Of that case he said (at p468):
  118. "My Lords, I am quite unable to accept that Lord Diplock or the other members of the Appellate Committee concurring with him, of whom I was one, intended the decision in Lonrho v Shell [1982] AC 173 to effect, sub silentio, such a significant change in the law as it had been previously understood. The House, as is clear from the parties' printed cases, which we have been shown, had never been invited to take such a step. Moreover, to do so would have been directly contrary to the view of Lord Denning MR expressed in the judgment which the House was affirming and inconsistent with the dicta in what Lord Diplock described, at p188, as 'Viscount Simon LC's now classic speech in [Crofter].' I would overrule the Metall case in this respect."
  119. I now come to Powell v Boladz [1998] Lloyd's Med Rep 116, which the Court of Appeal saw as compelling it to require civil actionability as an ingredient of unlawful means. It was a very unusual conspiracy claim, alleging falsification of hospital records. I need not go further into the complicated facts. Stuart-Smith LJ (with whom Morritt and Schiemann LJJ agreed) saw three answers to the claim for conspiracy. The second (at p126) is in point:
  120. "Secondly 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. (See Clerk & Lindsell on Torts, 17th ed. Para 23-80, Marrinan v Vibart [1963] 1 QB 234 & 528, Hargreaves v Bretherton [1959] 1 QB 45, Lonrho v Shell [1982] AC 173 per Lord Diplock at p186 etc). For this reason this form of unlawful act conspiracy adds little to the remedies available to a plaintiff."
  121. Mr Martin QC (for the Commissioners) described this passage as plainly wrong. Mr Flint QC (for Total) showed little enthusiasm for its reasoning. But to say that the reasoning in Powell v Boladz is unsound is only the first step towards identifying the correct principle. That question has been considered in a number of recent cases, which (to say the least) do not speak with one voice. The judgment of the Court of Appeal in this case, holding itself bound by Powell v Boladz, was handed down on 31 January 2007. That judgment referred to the unreported decision of Davis J in Mbasogo v Logo Ltd [2005] EWHC 2034 (QB) ("Mbasogo") but not to the fact that that case had by then gone to the Court of Appeal (Sir Anthony Clarke MR, Dyson and Moses LJJ) [2006] EWCA Civ 1370; [2007] 2 WLR 1062 which gave its reserved judgment on 23 October 2006. That division of the Court of Appeal declined to go far into the law on unlawful means conspiracy (since it held the claim unjusticiable on wider grounds) but the Court did (at para 104) express doubt as to whether it was bound by Powell v Boladz.
  122. Davis J's judgment in Mbasogo contains an admirable discussion of the "unlawful means" issue, with mention of all the recent cases. Because the judgment is unreported I will give a brief summary. Davis J pointed out that in an interlocutory appeal in Associated British Ports v Transport & General Workers' Union [1989] 1 WLR 939, Stuart-Smith LJ had (in agreement with Butler-Sloss LJ but contrary to the view of Neill LJ) taken the view, for the purposes of the intentional harm tort (p 966):
  123. "that at the very least it is strongly arguable that where the unlawful relied upon in this tort is a breach of statute, it is not necessary that it should be one that is actionable in tort at the suit of the plaintiff."

    That case was not referred to in Powell v Boladz (decided on 1 July 1997), nor in Credit Lyonnais Bank Nederland NV v Export Credit Guarantee Department [1998] 1 LLR 19, decided by the Court of Appeal (Stuart-Smith, Hobhouse and Thorpe LJJ) on 23 July 1997. At p 32 Stuart-Smith LJ recorded (using the same language and referring to the same authorities) counsel's concession that the unlawful act must be actionable at the suit of the plaintiff. That statement of the law was followed by Toulson J in Yukong Line Ltd of Korea v Rendsburg Investments Corp. of Liberia [1998] 1 WLR 294, 311-314. Toulson J's reasoning was based, it seems to me, on an over-elaborate textual analysis of Lord Diplock's speech in Lonrho v Shell, without regard to the authoritative explanation given by Lord Bridge in Lonrho v Fayed. I would make the same respectful criticism of the judgment of Laddie J in Michaels v Taylor Woodrow Developments Ltd [2001] Ch 493 (especially paras 30-34).

  124. In Surzur Overseas Ltd v Koros [1999] 2 LLR 611, the Court of Appeal refused to strike out a claim alleging an unlawful means conspiracy by deception of the Court (leading it to lift an order preventing the sale of three ships). Waller LJ (with whom Hirst and Aldous LJJ agreed) stated at p 617:
  125. "This aspect was not debated in any detail before Mr Justice Longmore at all and was raised very much at the last moment in argument [before] us. It would clearly be wrong to reach any final conclusion. What is clear, in my view, is that it is eminently arguable that in an unlawful means conspiracy the unlawful means do not have to be actionable at the suit of the plaintiff."

    Crime as unlawful means

  126. My Lords, faced with this confusion in the recent case-law, the House must, I suggest, go back to the general principles to be derived from the older cases in which the economic torts have been developed. It is however necessary to bear in mind that their development has been a long and difficult process, and may not yet be complete, as Lord Templeman observed (with the concurrence of the majority) in Lonrho v Fayed [1992] 1 AC 448, 471. A particular difficulty is that it has been generally assumed, throughout the 20th-century cases, that "unlawful means" should have the same meaning in the intentional harm tort and in the tort of conspiracy. A good deal of legal reasoning in the speeches and judgments (as to the ingredients of one or other of these torts) has been based on the assumption that the meaning must be the same in both. That assumption is however challenged, if the Commissioners are correct, by the speech of Lord Hoffmann in OBG (with which the majority concurred). I shall have to come back to that difficulty.
  127. In searching for general principle I start with a very simple, even naïve point. The man in the street, if asked what an unlawful act was, would probably answer 'a crime.' He might give as an example theft, obtaining money by false pretences, or assault occasioning actual bodily harm. He might or might not know that each of these was also a civil wrong (or tort) but it is unlikely that civil liability would be in the forefront of his mind.
  128. The reaction of a lawyer would be more informed but it would not, I suggest, be essentially different. In its ordinary legal meaning "unlawful" certainly covers crimes and torts (especially intentional torts). Beyond that its scope may sometimes extend to breach of contract, breach of fiduciary duty, and perhaps even matters which merely make a contract unenforceable, but the word's appropriateness becomes increasingly debatable and dependent on the legal context. In the very important criminal case of R v Clarence (1888) 22 QBD 23 (in which a question of law on sections 20 and 47 of the Offences against the Person Act 1861 was argued before a court of 13 judges, several of whom later gave their opinions to the House in Allen v Flood) Stephen J (at p 40) expressed the view that:
  129. "The word 'unlawfully' must here be construed to mean 'unlawfully' in the wide general sense in which the word is used with reference to acts which if done by conspirators are indictable, though not if they are done by individuals. This general sense may, I think, be said to be 'immoral and mischievous to the public'. I do not agree with the doctrine that the word 'unlawfully' is used here in this wide sense. The use of the word in relation to conspiracy appears to me to be exceptional."

    What was exceptional about it was its extension downwards in the scale of blameworthy conduct. The unlawfulness of criminal conduct was at the top end of the scale, and too obvious to call for mention.

  130. The enquiry how far downwards to go seems to me to be a feature common to all the leading cases in which the tort of unlawful means conspiracy has been developed. Until Lord Diplock's speech in Lonrho v Shell there was never a clear issue as to whether the alleged unlawful means must be actionable (as a separate tort) at the suit of the plaintiff. Lord Diplock himself acknowledged this [1982] AC 173, 189. His attention may have been drawn to the point by his earlier disapproval (at p187) of some wide observations made by Lord Denning MR in an interlocutory appeal in Ex parte Island Records Ltd [1978] Ch 122.
  131. In the long period during which this issue did not arise for decision there is, unsurprisingly, little discussion of it in the authorities. They concentrate on the issue of intention (which was also at the heart of question 5(b) in Lonrho v Shell). But all the statements of general principle in the classic cases seem to me to be consistent with the proposition that unlawful means, both in the intentional harm tort and in the tort of conspiracy, include both crimes and torts (whether or not they include conduct lower on the scale of blameworthiness) provided that they are indeed the means by which harm is intentionally inflicted on the claimant (rather than being merely incidental to it). I do not want to multiply citations but I would instance Lord Watson in Allen v Flood at p96 (emphasising "illegal means directed against that third party"); Viscount Cave LC in Sorrell v Smith at p 714 ("means which are in themselves unlawful, such as violence or the threat of violence or fraud"); Lord Wright in Crofter at p 462 (quoted in para 75 above, and instancing some statutory offences); Lord Devlin in Rookes v Barnard [1964] AC 1129, 1209 ("in some of the dicta [on conspiracies] the language suggests that the means must be criminal or tortious and in others that breach of contract would do; but in no case was the point in issue;" in the earlier much-discussed sentence at p 1204 I would not give much weight to the position that the word "usually" occupies in the sentence); and Lord Denning MR and Russell LJ in Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762, 783, 785 (though that decision is questionable: see (1968) 84 LQR 310).
  132. From these and other authorities I derive a general assumption, too obvious to need discussion, that criminal conduct engaged in by conspirators as a means of inflicting harm on the claimant is actionable as the tort of conspiracy, whether or not that conduct, on the part of a single individual, would be actionable as some other tort. To hold otherwise would, as has often been pointed out, deprive the tort of conspiracy of any real content, since the conspirators would be joint tortfeasors in any event (and there are cases discussing the notion of conspiracy "merging" into some other tort, but I need not go far into those: Surzur Overseas Ltd v Koros [1999] 2 LLR 611; Kuwait Oil Tanker Co. SAK v Al Bader [2000] 2 All ER (Comm) 271).
  133. In my opinion your Lordships should clarify the law by holding that criminal conduct (at common law or by statute) can constitute unlawful means, provided that it is indeed the means (what Lord Nicholls of Birkenhead in OBG at para 159 called "instrumentality") of intentionally inflicting harm. In Lonrho v Shell the sanctions order against Southern Rhodesia was part of the story, but it was not the instrument for the intentional infliction of harm. With great respect to Lord Hoffmann (in OBG at para 57) it is in my view what Shell and BP did not intend, rather than what Parliament did not intend, that is most relevant to that decision.
  134. Having said that I would accept that the sort of considerations relevant to determining whether a breach of statutory duty is actionable in a civil suit (Cutler v Wandsworth Stadium Ltd [1949] AC 398) may well overlap, or even occasionally coincide with, the issue of unlawful means in the tort of conspiracy. But the range of possible breaches of statutory duty, and the range of possible conspiracies, are both so wide and varied that it would be unwise to attempt to lay down any general rule. What is important, to my mind, is that in the phrase "unlawful means" each word has an important part to play. It is not enough that there is an element of unlawfulness somewhere in the story.
  135. OBG revisited

  136. I must now come back to OBG [2007] 2 WLR 920. It was a case about an invalid appointment of receivers in which the appellants sought to widen the scope of the tort of conversion. It was heard with Douglas v Hello! Ltd, which raised issues about breach of confidence, and Mainstream Properties Ltd v Young, a case which might have been run as a claim for dishonest assistance in breach of fiduciary duty. Despite these disparate issues the appeals were heard together because they all raised issues as to the intentional harm tort. In a passage of his opinion with which the majority concurred (paras 45-60) Lord Hoffmann observed in relation to the intentional harm tort (para 49):
  137. "In my opinion, and subject to one qualification, acts against a third party count as unlawful means only if they are actionable by that third party. The qualification is that they will also be unlawful means if the only reason why they are not actionable is because the third party has suffered no loss."

    Lord Nicholls of Birkenhead took a different view (paras 149-163).

  138. Lord Hoffmann stated at para 56:
  139. "Your Lordships were not referred to any authority in which the tort of causing loss by unlawful means has been extended beyond the description given by Lord Watson in Allen v Flood [1898] AC1, 96 and Lord Lindley in Quinn v Leathem [1901] AC 495, 535. Nor do I think it should be."

    He added at para 57 (on which I have already commented):

    "Likewise, as it seems to me, in a case like [Lonrho v Shell], it is not for the courts to create a cause of action out of a regulatory or criminal statute which Parliament did not intend to be actionable in private law."

    And at para 60:

    "I do not think that the width of the concept of 'unlawful means' can be counteracted by insisting upon a highly specific intention, which 'targets' the plaintiff. That, as it seems to me, places too much of a strain on the concept of intention."
  140. These passages (on which Mr Flint relied in his printed case and his oral submissions) prompted me to mention, near the beginning of this opinion, the risk of a new layer of anomaly being added to the tort of conspiracy (that is, that "unlawful means" would have a meaning for the purposes of a conspiracy claim different from its meaning for the purposes of a claim based on the intentional harm tort). But as Lord Hoffmann develops his reasoning in paras 51-58 of his opinion it becomes apparent that he is concerned, not only with the legal quality of the unlawful means (tort or crime?) but also with their effect in interfering with a third party's freedom of economic action. Cases like RCA Corporation v Pollard [1983] Ch 135 and Isaac Oren v Red Box Toy Factory [1999] FSR 785, show that a trader may suffer economic loss as the result of a civil wrong by a bootlegger actionable by the proprietor (or sometimes, an exclusive licensee) of intellectual property rights, without the trader having a remedy. The breach of the intellectual property rights is a statutory tort, but it is actionable only by those with a sufficient title to them. As I understand his opinion, Lord Hoffmann was concerned to limit the intentional harm tort to cases where the claimant has been "intentionally struck at through others" (in the words of Lord Lindley in Quinn v Leathem [1901] AC 495, 535, quoted by Lord Hoffmann at para 46). He made clear (para 61) that "two party intimidation" raises quite different issues. This point is developed in para 43 of the opinion of my noble and learned friend Lord Hope of Craighead, and in para 124 of the opinion of my noble and learned friend Lord Mance, and I respectfully agree with their observations.
  141. The intentional harm tort and the "unlawful means" variety of conspiracy share the ingredients of the intentional infliction of harm on the claimant. But that variety of conspiracy is not simply the intentional harm tort committed by joint tortfeasors. The gist of the intentional harm tort (apart from exceptional "two party" cases) is striking at the claimant through a third party, and doing so by interfering with his freedom of economic activity. The gist of conspiracy is damage intentionally inflicted by persons who combine for that purpose (Viscount Simon LC in Crofter at p 444) and the claimant need not be a trader who is injured in his trade, though that is the most common case. In my opinion your Lordships are driven to the conclusion that, as the economic torts have developed, "unlawful means" has a wider meaning in the tort of conspiracy than it has in the intentional harm tort.
  142. Some scholars have classified the tort of unlawful means conspiracy as a form of secondary liability (notably Hazel Carty, An Analysis of the Economic Torts (2001) p 22, agreeing with Philip Sales, The Tort of Conspiracy and Civil Secondary Liability [1990] CLJ 491). They would not apply this classification to a conspiracy to injure by lawful means. If an unlawful means conspiracy is indeed a form of secondary liability for a civil wrong then the need for the unlawful means to be actionable as a civil wrong wo