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Highland bull | accountingweb | Tax barrister Andrew Thornhill escapes negilence claim

Thornhill escapes tax mitigation negligence claim


While tax barrister Andrew Thornhill’s endorsement of tax mitigation schemes was considered too bullish, he was not found to owe a duty of care to the third-party investors.

16th May 2023
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The thorny issue of whether (and to what extent) a barrister owes a duty of care to third parties re-emerged when the case of Andrew Thornhill KC came before the Court of Appeal.

Thornhill, a senior tax barrister with a massive history of advising on tax mitigation schemes, had been the adviser to Scotts, the promoters of a suite of film partnership schemes in 2003–2004. His advice to Scotts, which he permitted the promoter to share with any investors who asked for it, was that the schemes would offer investors the desired tax benefits, crucially on the grounds that the partnerships were trading on a commercial basis with a view to a profit. This opinion was based on the case law current at the time, Ensign Tankers (Leasing) Ltd vs Stokes (1992).

By 2017, HMRC had developed a new, more aggressive policy towards film partnerships, and prevailed on investors in the three partnerships (known by the sadly prescient acronyms of SAD1, SAD2 and SAD3) to settle for losing the anticipated tax relief. A number of the disappointed investors sued Thornhill, alleging negligence.

Cameras roll

The High Court judge ruled that Thornhill owed no duty of care to the investors, as it was clear that he was the tax adviser to Scotts, and potential investors were both advised and required to seek their own individual tax advice. Furthermore, even if he had owed such a duty, his advice was not negligent; it was advice such as could have been expected from a “reasonably competent tax QC”.

The investors refused to accept defeat, and appealed to the Court of Appeal.

Going for a retake

The three judges were faced with four grounds of appeal. Was the High Court correct to find the following?

  1. Thornhill owed no duty of care to investors.
  2. A reasonably competent tax silk could have given the tax advice given by Thornhill.
  3. If Thornhill had included warnings of significant risk, the scheme would still have been promoted, and the investors would still have invested in the scheme.
  4. In deciding to invest in the scheme, the appellants were not relying on Thornhill’s advice and on the fact that he endorsed the scheme.

Is there a duty of care?

The rule is that a lawyer owes a duty of care to his client but generally not to the opposite party. 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”, but even then only where there is an “assumption of responsibility”. 

Referring to the decided case law, Lady Justice Simler pointed out that such an assumption of responsibility could only arise if:

  • it was “reasonable for the representee to have relied on the representation”, and 
  • if “the representor should reasonably have foreseen that it was likely he or she would do so”.

“When it comes to assessing the reasonableness of the reliance (looked at objectively), the question whether it was reasonable for the representee to act without making any independent check or inquiry is highly relevant, and in many cases, likely to be determinative.”

Investors were advised by Scotts to seek out independent advice, and had to sign a warranty that “they had relied on their own advice as to the tax analysis and benefits of the scheme.”

Taking all this into account, “it was objectively unreasonable for investors to rely on Mr Thornhill’s advice without making independent inquiry in relation to the likelihood of the scheme achieving the tax benefits; and Mr Thornhill could not reasonably have foreseen that they would do so.” No duty of care was owed by him to them.

Considering competence

Since there was no duty of care, this question of whether Thornhill was reasonably competent had been rendered moot. Nonetheless, Simler LJ chose (as had the High Court before her) to consider it.

She noted that the bullish manner in which Thornhill expressed his opinion (“in my view, there is no doubt that it is [trading]”) could be seen as undermining the risk warnings given in the investment memorandum. “These were of a general nature only and contained no detail as to the three statutory tests of trading, commercially or with a view to a profit. That meant there were no specific warnings given to investors as to the satisfaction of those tests.”

For that reason, she felt that, in order for Thornhill’s opinion to be characterised as fully non-negligent, it would need to have contained stronger caveats. The High Court was “wrong to conclude that had a duty of care been owed by Mr Thornhill to the appellants, it would not have been breached.” 

Causation and reliance

The question of causation and reliance was again moot but worthy of consideration. “Even if Mr Thornhill negligently overstated his advice, I am not persuaded that non-negligent advice would have warned that there was a significant risk of a successful challenge to this scheme.” While the investors suggested that a less robust endorsement might have put them off participating, they came nowhere close to demonstrating this.

Second opinion

Lady Justice Carr sounded the warning that “a specialist professional who voluntarily provides unequivocally positive advice to their client in the knowledge: 

  • that the advice would be made available to a third party without any express disclaimer of responsibility, and 
  • that the third party would be likely to ‘take comfort’ from that advice and (with their advisers) be assisted by it in deciding whether to enter into a financial transaction,

exposes themselves to the risk of a claim that they owed the third party a duty of care based on an assumption of responsibility.” 

Nonetheless, she agreed that on the facts of the present case that risk had not been triggered.

No duty of care

Andrew Thornhill KC has long had a reputation for bullish support of those schemes which he endorsed. Perhaps, in the view of the Court of Appeal, a little too bullish. 

That said, the fundamental point remained that he owed no duty of care to these investors, and so could not be said to have let them down when – some 13 years down the line – HMRC managed to overturn the settled law on which his advice rested.

Replies (8)

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By Justin Bryant
16th May 2023 13:24

This was a clear try-on claim against his PI policy (like Mehjoo). Well done to him and his legal team for successfully defending it (the claimants appear to have sacked their barrister who appeared lower down in place of another so-called star of the bar - but to no avail). See also:

Thanks (2)
Replying to Justin Bryant:
By Hugo Fair
16th May 2023 17:47

As an old KC (before he became a QC) once said to me, "Facts, m'boy, facts, facts, facts. They trump everything."

So justice was done here - but, more importantly, the facts were upheld!

Thanks (3)
Replying to Hugo Fair:
By Justin Bryant
17th May 2023 08:48

Well, that's not surprising as findings of fact (as opposed to mixed questions of fact & law) by a first stage lower court/tribunal are not usually overturned on appeal (Mehjoo was an interesting exception re a non sequitur by the High Court judge).

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By Marlinman
17th May 2023 10:06

A barrister I met on holiday told me counsels opinion on things like this aren't worth the paper they're written on because they can't be sued if it all goes [***] up. They were asked for their opinion which is what they gave.

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By listerramjet
17th May 2023 10:37

Does the term “bullish” have some special meaning in law? The KC certainly has an optimistic view of HMRC and it’s views on tax avoidance, but I don’t think this meets any lay view on “bullish”!

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Replying to listerramjet:
By johnjenkins
17th May 2023 11:19

"Bullish", is acceptable tax avoidance "aggressive" is not acceptable tax avoidance. So the difference must be that one has all parts kosher and the other doesn't. The only reason why "aggressive" tax avoidance isn't tax evasion is that all parts are legal.

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By John2ytu
18th May 2023 08:03

The appeal, which opened in the Rolls Building this week before the chancellor of the High Court, Sir Julian Flaux, Lady Justice Simler and Lady Justice Carr, heard the investors who joined the film finance investments argue against the High Court judge’s findings in relation to duty, breach and reliance and causation.

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By moneymanager
25th May 2023 00:29

"some 13 years down the line – HMRC managed to overturn the settled law on which his advice rested."

In other words, at the time of his opinion the law was interpreted as he claimed it to be, it was not a failing on his part, that of Scotts nor any of the advisers to the investors, it was the RETROCATIVE application of the changed law by HMRC that caused yhe problem; I remember that period very well and although I never used Scotts they were, as far as I can remember, very much a "plain vanilla" type firm, the really annoying thing is that Gordon Brown introducd the tax breaks, the film industry, the DCMS, the scheme designers and compliance firms, the investment advisers, ALL DID THEIR JOBS and the UK film industry boomed, the attack on the sector on a broad base was more like iracy than anything else as a sale & leaeback could not be exited but tax was still due on the profit stream even though no relief had been received, it was just nasty.

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