High Court Finds No Duty Owed To Investors By Barrister Advising Scheme Promoter – Litigation, Mediation & Arbitration

Judgment was handed down by Zacaroli J today in McClean
& Others v Thornhill [2022] EWHC 457 (Ch).

The decision will be of interest to professional liability
insurers, legal practitioners, and litigation funders, particularly
those involved in tax-related professional negligence claims.

The investors in a series of film finance tax schemes sued the
tax QC who had prepared Opinions for the promoter of the schemes,
which were then shared with all prospective investors. The
Claimants asserted that the tax QC assumed a third-party duty to
them. The Court disagreed, finding the QC owed no such duty, and
that even if he had, the views he expressed in the Opinions were
not unreasonable.

The Court accepted that the Claimants had a credible starting
point for an assumption of responsibility, because Mr Thornhill QC
consented, unequivocally and in writing, to his opinions being
shared with prospective investors. However, on proper analysis
there was no assumption of responsibility: the prospective
investors had been recommended to take (and all warranted that they
had taken) their own advice; and in addition, they could only have
gained access to the schemes through an IFA, and it was reasonable
to expect that the IFAs would either have given or procured the
necessary advice.

The judgment is striking for the Judge’s tax analysis
undertaken for the purposes of determining the breach issues. In
Zacaroli J, the parties were fortunate to have a Judge who also
sits in the Upper Tribunal (Tax and Chancery Chamber). He eschewed
the Claimants’ invitation to infer that Mr Thornhill QC’s
advice must have been wrong from the fact that the Claimants felt
obliged to settle with HMRC in 2017; and instead, re-immersed
himself in the contemporaneous 2002 – 2004 common law jurisprudence
(and HMRC’s approach to film finance tax schemes); that being
the context in which these schemes were conceived by Scotts and Mr
Thornhill QC advised. It is trite that that must be the Court’s
role in assessing the reasonableness of advice given nearly 20
years earlier, but it is reassuring for defendant professionals to
see that task faithfully carried out in practice.

Herbert Smith Freehills Partner Will Glassey (whilst a partner
at his previous firm Mayer Brown) acted for the successful
Defendant Andrew Thornhill QC. His full case note can be accessed
here.

Counsel instructed on behalf of Mr Thornhill QC were from Brick
Court Chambers, led by Tom Adam QC. Mr Adam QC’s junior at
trial was Max Schaefer. The Brick Court team also included Daniel
Piccinin and Chintan Chandrachud, and further specialist tax input
was also provided by Conrad McDonnell of Gray’s Inn Tax
Chambers.

For any inquiries about issues concerning lawyers’
professional negligence in the UK, please contact Will Glassey,
Paul Lewis, David Reston or Antonia Pegden, or your usual Herbert
Smith Freehills contact.

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