‘The modern city is a place for banking and prostitution and little else’, wrote the American architect Frank Lloyd Wright. Cynics in 2009 might perhaps link the two even more closely, given the current banking crisis and the alleged irresponsibility of bankers, coupled with the complexity of financial products at the root of the problems and the lack of transparency as to the nature and quality of assets underlying them. Lawyers acting for bruised clients, while perhaps encouraged by surging levels of work, might feel daunted by the obstacles they face in cutting their way through seemingly impenetrable relationships and multiple duties arising between counterparties to complex financial products, often hedged around with extensive, all-embracing exclusion clauses. The thrust of this article is to highlight a recent legal development in the under-used tort of unlawful means conspiracy, which might provide an easier route through some of the difficulties in this field (and others) than more conventional claims in contract or negligence.
Two types of conspiracy
The economic torts have had a patchy history. In theory, they usefully provide a possible cause of action where a claimant and a defendant have no relationship capable of grounding a conventional claim in contract, negligence or other breach of duty. But having originated in the 19th century or earlier, they developed in a notoriously incoherent and inconsistent manner: ‘ramshackle’, in the words of one commentator. As a result, they became a legal backwater. Reform, not to say radical overhaul, was badly needed. One important reforming step was the House of Lords decision inOBG Ltd & ors v Allen & ors [2007] – the entertaining case about the surreptitious photographs taken of the wedding of Michael Douglas and Catherine Zeta-Jones – but that judgment did not deal with the tort of conspiracy.
The tort of conspiracy has long been recognised to have two forms, ‘conspiracy to injure’ and ‘unlawful means conspiracy’. Both forms require a combination or agreement to injure, coupled with overt acts done in execution of the combination that cause the loss complained of; plus an intent to injure the claimant; plus actual damage. However, a key feature of ‘conspiracy to injure’, also called ‘predominant purpose conspiracy’, is that the predominant purpose of the conspirators must be to injure the target of the conspiracy, regardless of the means used to do so. Since this anomalous form of conspiracy in effect requires malice (as opposed to mainly self-interest), and malice occurs rarely in business, it has had relatively little application in the commercial field, hence it is not the focus of this article.
The second form of the tort, unlawful means conspiracy, arises where two or more parties agree to use unlawful means to injure the claimant, as a result of which the claimant suffers damage. Since the required intention to injure need not be a predominant intention, but instead could be subordinate to the conspirators’ own self-interest, the requirement of intention provides no real control mechanism or restriction on the ambit of this tort. Instead, the key restriction on its ambit was the concept of ‘unlawful means’; only if there was an independent actionable tort against at least one of the underlying conspirators was the requirement of ‘unlawful means’ satisfied. So, for instance, a crime or regulatory offence giving rise to no right to compensation would not suffice as ‘unlawful means’ for the tort of unlawful means conspiracy; nor would a breach of statutory duty where the statute (properly construed) does not create any civil liability. One rationale, amongst others, for construing ‘unlawful means’ so as to require actionability was that it satisfied the need for a tight control mechanism to confine the tort within reasonable boundaries. However, in practice this also meant that the tort of unlawful means conspiracy added relatively little to the underlying ‘actionable’ tort, or indeed to a claim that the conspirators were joint tortfeasors. As a result, the tort of unlawful means conspiracy was relatively little used.
Recent developments in the tort of unlawful means conspiracy
The requirement of actionability in unlawful means conspiracy was not only well established but also reflected in the concept of ‘unlawful means’ in other economic torts; for instance, the House of Lords in OBG confirmed that the principle of actionability applied to the different tort of causing loss by unlawful means. But there remained an argument that actionability ought not to be a requirement of the tort of unlawful means conspiracy, and that instead some other control mechanism should be found. This argument came up for consideration by the House of Lords in two recent cases: Total Network SL (a company incorporated in Spain) v HM Revenue and Customs (suing as Commissioners of Customs and Excise) [2008] and Mbasogo & anor v Logo Ltd & ors [2006] (the case about the notorious Equatorial Guinean coup widely reported for the alleged involvement of Simon Mann and Sir Mark Thatcher).
In Total Network the House of Lords decided that actionability was not after all required for an unlawful means conspiracy, but instead proposed a different control mechanism for the tort. In doing so, it went against a substantial body of legal authority and academic writing, and one consequence of its decision is that the phrase ‘unlawful means’ now has two diametrically opposite meanings in two of the economic torts. (Since the hearing of Mbasogo was delayed until after the Total Network judgment had been given, and eventually the appellants abandoned the appeal, the House of Lords did not in the end further consider the issue in the Mbasogo appeal – much to the personal regret of the author of this article, who was instructed by the respondents to argue the issue in the Lords.)
So what is the new control mechanism laid down for unlawful means conspiracy? In five separate Total Network judgments (which do not totally accord with each other), the Lords agreed that a new control mechanism of nexus or ‘instrumentality’ should be introduced. So Lord Walker concluded (and the others agreed) that:
‘... 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 the OBG case called “instrumentality”) of intentionally inflicting harm’.
It follows that now any form of illegality, whether criminal or civil, will suffice for unlawful means, provided that the instrumentality test is satisfied. So the VAT carousel fraud in Total Network would clearly satisfy the instrumentality test, because the criminality (the offence of ‘cheating’ HM Revenue & Customs) was the very means of inflicting harm on the Revenue and gaining benefit to the conspirators. Conversely, in the case of a pizza delivery driver who commits traffic offences (eg speeding or parking on double-yellow lines) in order to deliver pizzas more quickly and thereby to win more business, the instrumentality test probably would not be satisfied, because the traffic offences would not in themselves be the means of intentionally inflicting harm.
However, this new test of instrumentality is not necessarily easy to apply. Where do you draw the line? The extremes are probably recognisable, but what about the cases in between; which side of the boundary will they fall on, and how will the test work? For instance, is it the subjective intention of the defendants to use illegal means to cause harm that counts? Or does the test focus on the objective connection between the illegal means and the economic loss that is sustained?
Interestingly, none of the law lords in Total Network decided that all crimes would suffice. At least three of them (Lords Walker, Mance and Neuberger) adverted to the possibility that the criminal offence, to suffice as unlawful means for the purpose of unlawful means conspiracy, should have as its purpose the protection of the victim of the conspiracy or some other such nexus test. This illustrates the potential scope for at least one argument as to how to narrow down the instrumentality test.
Does this mean a new lease of life for unlawful means conspiracy?
Unless the ambits of the new test of instrumentality are set more narrowly than the law lords seem to have been suggesting, new avenues will open up for deploying unlawful means conspiracy in various areas, not least claims relating to banking and financial services. For instance, taking claims arising in relation to structured financial products, a conventional claim in contract might be difficult or unclear; you might have difficulty in identifying a contractual relationship between your client and the wrongdoer, or you might not be able to identify what precise action or omission by which person led to what consequence causing your client loss. Likewise, a conventional claim in negligence might be difficult. For example, you might have difficulty in establishing a sufficiently proximate relationship between the perceived wrongdoer and your client to give rise to a duty of care, and the scope of that duty might be difficult to discern given the multifarious contractual and other relationships in existence. However, a claim for unlawful means conspiracy may well provide a much easier way to cut through the jungle. Conspiracy (in the sense of a combination by two or more people to take certain steps) might be relatively easy to establish in these highly interlinked financial transactions, and the unlawful means could be satisfied by a relatively minor breach of regulations, provided that this was the means of inflicting the harm – at which point, issues of duty of care and exclusion clauses might fade into the relative background.
The new instrumentality test increases the likelihood that those who deliberately breach the criminal law in commercial activity will now be more vulnerable to being sued by competitors for unlawful means conspiracy, where there is some nexus between the illegal means and the loss caused.
Also, there is at least in theory the possibility (pre-dating Total Network) that in certain circumstances a conspiracy might be argued to arise where two or more directors conspire together and/or with the company of which they are a director to act in a certain way. In other words, in many business situations it may not be difficult to establish the ‘combination’ necessary to found a conspiracy, so the scope for deploying this newly widened conspiracy argument may potentially be quite wide.
Conclusion
The recent decision of the House of Lords in Total Network has dragged unlawful means conspiracy out of the dusty reaches of academia, and put it firmly back into the toolbox of innovative litigators. In a climate where litigators are increasingly testing the boundaries by turning to economic torts for a remedy where there is a loss but no other or easy cause of action, we are likely to see more of unlawful means conspiracy in future. In particular, those who deliberately breach criminal or regulatory laws in the financial services sector now do so at greater risk of being sued in unlawful means conspiracy by competitors, provided that there is the required nexus or instrumentality between the unlawful means they have used and the loss that has been caused.
By Michael McLaren QC, barrister, Fountain Court Chambers. E-mail: mm@fountaincourt.co.uk.
