Court Of Appeal Upholds Decision That No Duty Owed To Investors By Barrister Advising Scheme Promoter

• Published date: 11 May 2023
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Tax Authorities
• Law Firm: Herbert Smith Freehills
• Author: Mr Will Glassey and Henry Saunders

The Court of Appeal handed down judgment today in David McClean & Ors v Andrew Thornhill KC [2023] EWCA Civ 466, unanimously dismissing the appeal. Herbert Smith Freehills Partner Will Glassey and Associate Henry Saunders acted for the successful Defendant Andrew Thornhill KC.

BACKGROUND

The Claimants were investors in three film finance schemes which were promoted by Scotts Atlantic Management Limited ("Scotts") in 2002 - 2004. The schemes were intended to attract sideways loss relief, entitling investors to offset the schemes' losses against their personal income.

Each prospective investor was required to warrant that they had taken appropriate professional advice and "only relied on the advice of, or has only consulted with, [their] own professional advisers with regard to the tax, legal ... and other economic considerations" related to the investment.

The schemes could only be promoted to investors by IFAs, through the schemes' information memoranda (the "IMs"). The IMs said that Scotts' "understanding" was that the schemes would attract relief but that prospective investors should "consult their tax advisers."

Before issuing the IMs, Scotts obtained advice from Mr Thornhill KC on the tax consequences of the schemes. He advised that the schemes met the requirements for sideways loss relief; i.e. that the proposed activity would amount to trading commercially with a view to profit. Many years later (2016), in a very different tax environment, HMRC issued a closure notice in respect of the first scheme, which concluded that the requirements were not met. As a result, the Claimants settled their tax liabilities in respect of the three schemes with HMRC.

The Claimants alleged that Mr Thornhill KC, whilst being Scotts' adviser, assumed a duty of care to them: he endorsed the IMs; he consented to himself being identified as tax adviser to Scotts; and he consented to his opinions being provided to prospective investors (via their IFAs) upon request. They alleged that Mr Thornhill KC negligently advised that relief would materialise and failed to identify a significant risk of the schemes being successfully challenged. They said that had Mr Thornhill advised differently, they would not have invested.

On 8 March 2022 Zacaroli J handed down judgment dismissing the claim, finding that Mr Thornhill KC did not owe a duty to the investors (as opposed to his client, Scotts) and that his advice was not negligent in any event. Our summary of that decision can be found...