In a long running Professional Negligence claim against a leading tax silk, the High Court has dismissed a £40m professional negligence claim against a barrister over tax advice he provided to investors in relation to three film financing schemes.
The tax scheme was marketed to potential investors on the basis that the investors would be participate in a Limited Liability Partnership and were entitled to tax relief against their income or capital gains for trading losses that the LLPs were anticipated to make.
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The Case – David McClean & Others v Andrew Thornhill QC [2022] EWHC 457 (Ch)
Andrew Thornhill QC (“Mr Thornhill”) was and is a leading and experienced barrister specialising in tax. He was engaged to provide advice on the tax consequences of the tax schemes to the LLPs. Mr Thornhill QC provided various opinions in relation to the tax scheme which were circulated to other investors. HMRC subsequently refused the tax relief and benefits claimed by the investors into the scheme.
However, Mr Thornhill was not engaged to advise any of the claimants, and none of the claimants was his client. Yet, it was argued that the claimants in this case relied on Mr Thornhill QC’s advice on the tax schemes to enter into them and subsequently argued that he owed them a duty of case in respect of the advice he gave on the scheme.
Decision
Mr Justice Zacaroli held that Mr Thornhill QC did not owe a duty of care to the claimant investors in the tax schemes, and even if he did, he would not have breached that duty.
Zacaroli J found that “in no sense” was any investor a client of Mr Thornhill QC, while they could not reasonably rely on his advice without making their own independent enquiries – concluding that there was no duty of care owed to them.
The following was key to the judges reasoning to this decision:
- “Critical to this conclusion are the facts that the IM clearly advised potential investors to consult their own tax advisers on the tax aspects of the scheme and that no investor could subscribe to the LLP without warranting that he or she had relied only on the advice of or had only consulted with their own professional advisers.”
- “It does not follow, however, that he should have reasonably foreseen that investors would rely on his opinion without consulting their own tax adviser as they were recommended to do, and as they warranted they had done, in the IM and subscription agreement.”
- “There were plenty of advisers (barristers, solicitors and financial advisers) who specialised in tax schemes such as [these], and who could have provided investors with their own independent advice.”
- “Any such adviser would additionally have the benefit of Mr Thornhill’s opinion – not so they could rely on his advice, but so that they had the benefit of seeing what he had advised when they came to give their own advice.”
The claimant investor’s alternative claim was that Mr Thornhill QC had breached a duty of care in failing to give a specific warning that there was a significant risk that at least one of the three statutory tests to determine whether the tax relief benefits were available would have failed.
The Court however rejected this, finding that “the nature and content of an appropriate warning by an adviser to their client is fact specific” and Mr Thornhill QC could not have known the individual circumstances of each investor into the scheme.
The advice he gave to his actual client, Scotts, was tailored to them as sophisticated investors who knew the risks of such tax schemes.
The judge went on to find that, were he wrong, and a duty to include a risk warning was owed and breached, “none of the sample claimants has established that the loss suffered by them was caused by any breach of duty by Mr Thornhill QC”.
Comments
This case is a reminder to ensure that when pursing a Professional Negligence claim you are clear as to whether the professional owed you a duty of case. It is usually fairly simple to establish an express duty of case but it is more difficult to satisfy the Court that there was an implied retainer or engagement letter by way of conduct.
In this case, even if there was a duty of care, the claimant investors were not able to satisfy the Court that there was a breach and more so that they had suffered loss. It further illustrates the importance of analysing the counter-factual of any professional negligence claim i.e. you have to answer the question of, what would have been the outcome had the claimant investors been properly advised, the Court found that the investors would have suffered the loss in any event.
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