The High Court has dismissed a £40m negligence claim against a leading tax barrister over advice he provided on three film financing schemes.
Mr Justice Zacaroli held that Andrew Thornhill QC did not owe a duty of care to the investors in the schemes, and even if he did, he would not have breached that duty.
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, 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.
Zacaroli J 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.
“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.”
The claimants said they relied on Mr Thornhill’s status as the leading tax QC in the country, submitting that it would therefore be pointless going to anyone else for advice.
The judge said Mr Thornhill was undoubtedly one of the leading tax QCs in the country at the time he advised, but was not held out as the leading tax expert.
“Nevertheless, I accept that he would have appreciated that, given his status as one of the leading tax QCs, his advice was likely to carry more weight,” he said.
“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.
“Even if he had been the ‘top’ barrister, it is a nonsense to suggest that because he was the best, there would be no point in a potential investor getting their own advice.
“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.”
Further, the fact that Mr Thornhill’s advice was given in unequivocal terms had “no relevance” to the reasonableness of potential investors not seeking their own advice.
The judge went on that, even if there had been a duty of care, Mr Thornhill’s approach on the key issue – the correct approach to determining whether an entity was trading on the basis of the authorities in 2002-2004 – was one that “a reasonably competent QC could have taken”.
The alternative case was that Mr Thornhill 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 relief was available would be failed.
Zacaroli J rejected this too, finding that “the nature and content of an appropriate warning by an adviser to their client is fact specific” and Mr Thornhill could not have known the individual circumstances of each investor.
The advice he gave to his actual client, Scotts, was tailored to them as sophisticated investors who knew the risks of such 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”.
Zacaroli J also held that the claims in respect of the first scheme were time-barred.