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Court rejects investors’ claims against QC who advised promoters of failed tax-avoidance schemes


McLean and others v Thornhill [2022] EWHC 457 (Ch), one of The Lawyer’s top 20 cases of 2021, concerned a series of tax-avoidance schemes sold (via independent financial advisers, as unregulated collective investment schemes) to wealthy investors in the early 2000s.

The schemes eventually failed, and HMRC pursued investors for the tax they had underpaid, together with substantial interest.

The claimants were a group of wealthy individuals who, between them, had invested in excess of £100 million gross in the schemes, seeking to offset in the order of £40 million of tax liabilities. They brought claims in negligence against Andrew Thornhill QC, a distinguished tax barrister, who had acted as adviser to the promoters of the schemes. Although Mr Thornhill had not advised (or indeed interacted with) them, the claimants argued that he had owed him a duty of care because his advice had been referred to in the information memoranda and made available to potential investors on request.

Zacaroli J ordered a trial of ten sample claimants’ claims, to determine common issues that would bind all claimants, as well as issues specific to the sample. He heard the trial in late 2021, and handed down judgment on 8 March 2022. He rejected the claims at almost every level, holding that there was no duty, no breach and no causation of loss. Some of the claims also failed on limitation grounds.

On the common issue of duty:

  • Applying Hedley Byrne in the light of the Supreme Court’s decision in NRAM v Steel, the judge held that Mr Thornhill owed no duty to potential investors. The circumstances of the investments made it clear that it was not reasonable for investors to rely on Mr Thornhill rather than their own advisers, and that it was not reasonably foreseeable to him that they would do so.
  • Critically, the information memoranda had clearly advised potential investors to consult their own advisers on the tax aspects of the schemes, and no investor could subscribe without warranting that they had relied only on their own independent advisers. Additionally, the claimants could reasonably be expected to have ready access to skilled advice; they knew that Mr Thornhill was acting for the promoters that were selling the scheme, and positively disclaiming responsibility, to them; and the schemes could only be marketed to investors via independent financial advisers, which could be expected at least to explain the importance of the terms of the documents.
  • In response to an argument by the claimants that the terms of the relevant documents were negated by the application of the Unfair Contract Terms Act 1977, the judge held that (a) UCTA did not apply in the light of the development of the law on duties of care since Smith v Eric S Bush; and (b) the reasonableness test was satisfied in any event.
  • In any case, those claimants who had not even received copies of Mr Thornhill’s advice had no basis to allege they were owed a duty.

On the common issue of breach, the Judge carried out a detailed analysis of the relevant tax authorities and HMRC practice at the time of Mr Thornhill’s advice (and subsequently), as well as the contractual provisions underlying the scheme. He rejected the claimants’ contention that Mr Thornhill’s advice had been negligent. Had Mr Thornhill owed a duty to include a specific warning that his advice might be wrong, he would have breached it; but even if (contrary to the Judge’s primary conclusion) a duty was owed at all, it did not extend to advising the claimants on the risks to them of acting on his advice, so no such warning was required.

The claimants’ primary case on causation had been that but for Mr Thornhill’s alleged breach, the schemes would never have been promoted at all. A common issue arose as to whether that case was valid as a matter of law; the Judge held that it was not (since it relied on a duty being owed to the claimants to ensure that the advice to the promoter was correct). He further held that the claimants had in any event failed to prove as a matter of fact that, had Mr Thornhill given a risk warning sufficient to comply with his alleged duty in that respect (the “Relevant Risk Warning”), the schemes would not have been promoted in any event.

On the claimants’ alternative causation case, the Judge held that they had failed to establish that, had they been given the Relevant Risk Warning, they would not have invested. In reaching that conclusion, the Judge rejected the evidence about reliance of five of the ten claimants, all of whom had purported to recall seeing one or more of Mr Thornhill’s opinions before investing without documentary evidence of having done so. He also took account of the risk warnings that the claimants had in fact received at the time, and the independent advice that they had all been given.

On limitation, the Judge held that all the claims were time-barred unless saved by s.14A of the Limitation Act 1980. In doing so, he rejected an argument that the claimants’ causes of action had not arisen until their claims were rejected by HMRC (on the basis that they were only contingent until that point), and rejected arguments based on continuing duties. Considering the detailed facts of each sample claimant, the Judge held that only one of the ten claims was barred by s.14A. However, in a rare application of s14B of the Act, the Judge held that all the claims relating to the first scheme were barred under the 15 year long-stop date.

In light of his conclusions on the other issues, the Judge did not address questions of loss.

The judgment is here.

Tom Adam QC and Max Schaefer acted for Mr Thornhill, instructed by Will Glassey of Mayer Brown International LLP (and more recently of Herbert Smith Freehills LLP), with additional support from Chintan Chandrachud.  Daniel Piccinin acted for Mr Thornhill at earlier stages of the litigation.