The High Court was right to dismiss a £40m negligence claim against a leading tax barrister over advice he provided on three film financing schemes, the Court of Appeal has ruled.
Giving the main ruling, Lady Justice Simler agreed that Andrew Thornhill KC did not owe a duty of care to the investors in the schemes.
The 110 claimants were investors who joined one or more of three limited liability partnerships (LLPs) formed to participate in film distribution.
The LLPs were marketed on the basis that investors would be entitled to tax relief against their income or capital gains for trading losses that the LLPs were anticipated to make.
Mr Thornhill provided advice on their tax consequences to Scotts Atlantic Management, which in turn promoted the schemes via an information memorandum (IM). These named him as Scotts and the LLPs’ tax adviser and potential investors could see the opinions if they asked.
The claimants argued that he owed them a duty of care in respect of the advice and that they relied on it in entering into the schemes; HM Revenue & Customs ultimately refused the tax reliefs claimed by the investors.
At first instance, Mr Justice Zacaroli found that “in no sense” was any investor a client of Mr Thornhill, while investors could not reasonably rely on his advice without making their own independent inquiries of the schemes, meaning there was no duty of care.
Simler LJ said that the fact the schemes were unregulated meant investors could not rely directly on the IM and could only apply to join them “through and with the benefit of their own IFA [independent financial adviser], who owed professional obligations of their own to each investor in relation to investing”.
Mr Thornhill gave consent to his tax advice to Scotts being provided to prospective investors knowing this, she went on.
“What is more, no investor could subscribe to the LLP without warranting that he or she had only relied on the advice of or had only consulted with his or her own professional adviser with regard to the tax and other considerations related to subscription to the LLP.”
The judge noted that Scotts and the investors were on the opposite sides of an arm’s length sale transaction.
“On the face of it, the principle of caveat emptor applied and meant that investors should make their own assessment of the risks of going into the transaction and an independent decision as to whether to invest in the scheme.
“The starting point accordingly was that it was presumptively inappropriate for investors to rely on anything said by Scotts’ adviser, and not the reverse.”
Further, while Mr Thornhill was described as the LLPs’ adviser, prospective investors were not members of them and so “could not reasonably have thought that he was their adviser in any relevant sense”.
There was “nothing to suggest” that Mr Thornhill stepped outside his role as adviser to Scotts and took on some independent expert role advising both sides.
These were “largely sophisticated investors” and, absent good reason to the contrary, would be expected to make their own assessment of the risks of the transaction and an independent decision as to whether to enter into it.
Though not necessary, the judge did look at whether Mr Thornhill would have been in breach of duty had one existed and, to a limited degree, disagreed with Zacaroli J that he would not have been because there should have been a risk warning.
In a concurring judgment, Lady Justice Carr observed that “a specialist professional who voluntarily provides unequivocally positive advice to their client” in circumstances like these “exposes themselves to the risk of a claim that they owed the third party a duty of care based on an assumption of responsibility”.
There were “multiple factors” here pointing in favour of the existence of a duty of care but the terms of the IM were critical in finding that there was not one.
“On a fair reading, potential investors were advised to consult their own tax advisers on the tax aspects of the scheme,” Carr LJ said.
“Further, to Mr Thornhill’s knowledge, no investor could subscribe to the LLP without warranting that they had relied only on the advice of or had only consulted with their own professional advisers.”
The Chancellor of the High Court, Sir Julian Flaux, agreed with both judgments.