Tax silk did not owe duty of care to third party

Investors who lost money in film finance schemes have lost their appeal over what they claimed was negligent advice from a tax silk. Andrew Thornhill KC, described in the 54-page judgment as a ‘well-known specialist in tax’, was found not to owe a duty of care to third party investors after he advised Scotts Atlantic Management Limited on devising and setting up three limited liability partnerships and the tax consequences of the schemes.

The schemes were an ‘unregulated collective investment scheme’ and could not be promoted or marketed directly to the general public. It was directed at high net worth individuals with their own professional advisers, the judgment said. 

Thornhill consented to being identified as a tax adviser to Scotts and to a copy of his opinions being made available to prospective investors on request. Investors were told to seek their own independent advice.

After an investigation, HMRC entered a settlement with the investors in 2017. The investors sued Thornhill stating he owed a duty of care.The claims were dismissed in the High Court. 

On appeal in David McClean and ors v Thornhill KC, Lady Justice Simler said there are exceptions to the general rule that a lawyer owes a duty of care for whom he or she is acting but generally owes no duty of care to the opposite party. 

She added: ‘Most relevantly for present purposes, the existence of a duty of care might exceptionally arise where the legal adviser for one party makes representations to the other party on which that other party relies. However, even so the general principle that no duty of care is owed usually applies, and it is common ground that whether or not there is such a duty depends on the assumption of responsibility.’

Simler said ‘non-negligent advice would, at least, have acknowledged that no two cases are factually the same’ and ‘that the three statutory tests each engaged a risk of challenge by HMRC’.

She added: ‘Accordingly, notwithstanding the presence of [independent financial advisers] and the requirement for investors to take their own tax advice on the tax consequences of the scheme, I consider that reasonably competent tax advice should have identified the risks. To this extent only, in my judgment the judge was wrong to conclude that had a duty of care been owed by Mr Thornhill to the appellants, it would not have been breached.’

Dismissing the appeal, Simler said: ‘As the judge correctly held, it was not reasonable for investors, in light of the terms of the [information memorandum, IM], subscription agreement and checklist 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.'

Lady Justice Carr, who agreed the appeal should be dismissed, added that a specialist professional who ‘voluntarily provides unequivovally positive advice’ that can be shared with a third party ‘exposes themselves to the risk of a claim…they owed the third party a duty of care based on an assumption of responsibility’.

Sir Julian Flaux, chancellor of the High Court, agreed with both judgments.

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