In David McLean & Ors v Andrew Thornhill KC [2023] EWCA Civ 466, the Court of Appeal held that the barrister advising promoters of a film partnership tax scheme owed no duty of care to investors who used the scheme. The investors should have taken their own independent tax advice. 

Mr Thornhill had advised on a sideways loss relief scheme which involved investing in film partnerships. HMRC successfully proved that scheme did not work: no loss relief was available as the partnerships were not trading.

  • Mr Thornhill was engaged by the scheme promoters, Scotts Atlantic Management Ltd (Scotts). He was involved in devising the scheme, setting up the Limited Liability Partnerships (LLPs) in which the investors invested and providing advice as to the tax consequences of the scheme.
  • He had no direct engagement with any of the appellants but agreed to be identified as Scotts’ adviser and to his opinion being made available to prospective investors in the scheme.
  • The schemes were promoted to investors via an Information Memoranda (IM) which explained the tax consequences of the schemes based on Mr Thornhill's opinions. It advised investors to take their own appropriate and independent advice and they were required to warrant that they had done so before they were allowed to invest in the scheme.
  • After the scheme failed, a group of investors mounted a negligence claim against Mr Thornhill claiming £40m and alleging that:
    • Mr Thornhill owed them a duty of care which he breached by negligently advising on the tax implications and asserting the available tax benefits for investors in the schemes.
    • If Mr Thornhill had acted competently, he would have declined to endorse the schemes and/or advised and warned of the significant risk that the schemes would be successfully challenged.
    • Had Mr Thornhill not endorsed the schemes they would not have been promoted at all and/or the appellants (who relied on Mr Thornhill's advice) would not have invested in any of them.
  • The High Court held that Mr Thornhill did not owe a duty of care to the investors.
    • They were not his clients and they had been clearly advised that they must consult their own tax advisers.
    • Even if he did owe them a duty of care it did not extend to advising the claimants on the risks to them of acting on the advice provided to Scotts.
    • The appellants had failed to show that had the level of warning they claimed was required been given, they would not have participated in the scheme.
  • Some of the investors appealed the High Court decision.

The Court of Appeal upheld this decision, dismissing the investors' appeal.

  • It was not reasonable for investors, in light of the terms of the IM and other documents provided and given the factual circumstances and context, to rely on Mr Thornhill's advice and opinions without independent inquiry and it was not reasonably foreseeable by Mr Thornhill that they would do so.
  • As a result, Mr Thornhill owed no duty of care to potential investors for the advice and opinions he gave in relation to the Scheme.

Editorial comment

The maxim 'Caveat emptor' (buyer beware) continues to be a sound one. However, one of the judges did feel the need to point out that:

“A specialist professional who voluntarily provides unequivocally positive advice to their client in the knowledge that the advice would be made available to a third party without any express disclaimer of responsibility; and that the third party would be likely to 'take comfort' from that advice and (with their advisers) be assisted by it in deciding whether to enter into a financial transaction, exposes themselves to the risk of a claim that they owed the third party a duty of care based on an assumption of responsibility.”

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 McLean & Ors v Andrew Thornhill KC [2023] EWCA Civ 466

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