In David McClean and Others v Andrew Thornhill QC [2022] EWHC 457 (Ch), a leading QC did not owe a duty of care to participators who lost £40m in a failed film tax avoidance scheme upon which he had provided counsel's opinion. The investors had been advised that they must consult their own tax advisers

The three tax-avoidance schemes in question were entered into in 2003 and 2004 before the Disclosure of Tax Avoidance schemes (DOTAS) regulations were introduced.

  • Mr Thornhill provided various opinions on the schemes during 2003. These were available to potential investors if they requested sight of them.
  • The schemes were promoted to investors via Information Memoranda (IM) which explained the tax consequences of the schemes, based on Mr Thornhill's opinions.
  • At no time did Mr Thornhill directly engage with any of the claimants.
  • The schemes failed with HMRC refusing to allow the tax reliefs claimed. The claimants settled with HMRC and then sought to claim £40m from Mr Thornhill on the grounds of negligence, i.e. he was in breach of a duty of care owed to them in providing the opinions and in endorsing the IMs.

The High Court dismissed the claims:

  • Mr Thornhill owed no duty of care to the claimant investors. The IM clearly advised that:
    • Potential investors must consult their own tax advisers on the tax aspects of the schemes.
    • No investor could subscribe to the schemes without first warranting that they had relied only on the advice of, or had only consulted with, their own professional advisers.
  • The claimants were not Mr Thornhill’s clients. His client was the scheme promoter, Scots.
    • As a result, the claimants could not reasonably rely on Mr Thornhill's advice without making their own independent inquiry and Mr Thornhill could not reasonably foresee that they would rely on his opinion without taking independent advice.
    • Even if Mr Thornhill did owe the claimants a duty of care he had not breached that duty.
    • If a duty was owed it did not extend to advising the claimants on the risks to them of acting on the advice.
    • If that was wrong and he did have a duty to warn them, he did not breach that duty.
      • If it was reasonable to reach the view that the tax benefits of the scheme would be achieved, it would not be negligent to express a clear and firmly held view to that effect.
      • A reasonable risk warning would not have required identification of each possible argument against the conclusion reached. The opinions did address possible opposing arguments.
      • The claimants had failed to show that had the level of warning they claimed was required been given, they would not have participated in the scheme.

This is not the first time that tax scheme participators have sought redress against an adviser in the courts when the scheme has failed. In Barker v Baxendale Walker Solicitors (a firm) & Ors [2017] EWCA Civ 2056, the Court of Appeal found that solicitors advising on an EBT structure were negligent in not warning their clients that the scheme could fail. In contrast in Hossein Mehjoo v Harben Barker [2014] EWCA Civ 358, the Court of Appeal held that an accountant was not negligent for failing to advise his client to use a tax planning scheme. Given the amounts involved it may be that this particular case is not yet over.

Useful guides on this topic

Topical tips: Avoiding negligence claims
An accusation of negligence can be extremely stressful for a firm and its advisers. The best strategy is to manage risks in this area, but to manage risks you need to identify them.

DOTAS: Disclosure of Tax Avoidance Schemes
What are the Disclosure of tax avoidance schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

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David McClean and Others v Andrew Thornhill QC [2022] EWHC 457 (Ch) 

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