DAVID McCLEAN and others v ANDREW THORNHILL QC

Whether a professional adviser assumed responsibility to non-clients for negligent advice depends objectively on all the circumstances, including the nature of the transaction, the adviser’s role, the documents supplied, warnings to obtain independent advice, and the availability of other advisers. Clear recommendations and warranties that investors obtain and rely on their own professional advice may mean that reliance without independent inquiry is unreasonable, even where the adviser’s opinion is made available and expressed confidently.

Where a tax adviser’s legal analysis was reasonably open on the authorities then available, giving a firm opinion was not negligent. A duty to give a specific risk warning may nevertheless arise in an appropriate case. Loss from entering a tax scheme accrues when the investment is made if the transaction is inherently less valuable than the promised tax treatment. The claims were dismissed or held unsustainable on those grounds.

The claimants invested in three film-distribution limited liability partnerships promoted as providing tax relief for trading losses. The defendant, a tax silk, advised the promoters and consented to his opinions being made available to prospective investors, but was not retained by the investors.

The claimants alleged that he owed them a duty of care, negligently advised that the LLPs would satisfy the statutory requirements of trading commercially and with a view to profit, and failed to warn of a significant risk that the tax benefits would be denied. They also advanced claims concerning reliance, causation and limitation.

The court determined whether a duty arose, whether the advice or warnings were negligent, when damage and knowledge arose for limitation purposes, and whether the claims were otherwise barred.

1. Duty. No duty of care was owed. Assumption of responsibility required an objective assessment of all the circumstances, including whether reliance was reasonable and whether the defendant should reasonably have foreseen reliance without independent inquiry. The investors were on the opposite side of the transaction from the defendant’s clients, were directed through independent financial advisers, were warned to obtain their own tax advice, and warranted that they had relied only on their own professional advisers. Those factors outweighed the matters pointing towards a duty. Investors who saw only the information memorandum could not establish that the defendant had communicated advice to them at all.
2. Breach. Had a duty existed, the advice that the LLPs were trading and would satisfy the relevant statutory requirements was not negligent. On the law in 2002–2004, a reasonably competent tax QC could adopt the approach in Ensign Tankers. The defendant was not required to anticipate every later method by which HMRC might challenge film schemes. A reasonably competent adviser could also conclude that the contractual structure permitted genuine commercial activity and a view to profit.
3. Warning. If a duty to warn had existed, it would have required a specific warning that the current law, HMRC’s approach, and future litigation might produce a different conclusion on the statutory tests. The general warnings in the information memorandum would have been insufficient. The court nevertheless held that no such duty was owed to these non-client investors.
4. Causation and limitation. The claimants did not establish that a warning would have prevented investment. The proposed argument that the schemes would not have been promoted depended on a different, impermissible gatekeeper duty. Damage accrued when each investment was made because the transaction did not, as a matter of law, provide the promised tax benefits. SAD1 claims were also barred by the 15-year long-stop in section 14B of the Limitation Act 1980; the section 14A analysis differed between claimants.
5. Disposition. The claims failed on duty, breach, causation and limitation grounds as set out in the judgment.