David McClean & Ors. v Andrew Thornhill KC

A professional adviser to the seller in an arm’s-length investment transaction does not ordinarily assume responsibility to prospective investors merely because the adviser’s positive opinion is named in, or available through, a marketing document. The relevant questions are whether reliance without independent inquiry was objectively reasonable and whether reliance was reasonably foreseeable. Those questions are distinct, and the need for independent advice may be decisive. Where the documents identify the adviser as acting for the seller, advise investors to obtain their own tax advice, require reliance on their own advisers, and contain substantial risk warnings, no duty arises. The adviser remains the seller’s adviser unless the adviser steps outside that role and becomes a neutral or joint expert. The absence of an express disclaimer is relevant but not decisive.

The appellants were investors in film-finance limited liability partnerships promoted by Scotts Atlantic Management Limited. Andrew Thornhill KC, a specialist tax barrister, advised Scotts on the schemes, approved the tax sections of the information memoranda, and consented to his opinions being made available to prospective investors.

The investors alleged negligent advice and negligent approval of statements concerning the availability of tax relief. Following a trial of sample claims, Zacaroli J dismissed the claims in [2022] EWHC 457 (Ch). The investors appealed on duty of care, breach, causation and reliance. The central issues were whether Mr Thornhill assumed responsibility to non-client investors and, if so, whether his advice and the scheme documents were negligent.

Appeal dismissed. Simler LJ gave the leading judgment. Carr LJ agreed with the result and added brief observations; the Chancellor agreed with both judgments.

1. Duty of care. The assumption-of-responsibility analysis in [2018] UKSC 13 requires separate consideration of whether reliance was reasonable and whether reliance was reasonably foreseeable. Independent inquiry is highly relevant and may be determinative, particularly where the claimant is on the opposite side of an arm’s-length transaction from the professional adviser.
2. Context and documents. The schemes were unregulated investments directed at sophisticated investors who were required to use authorised intermediaries and obtain independent advice. The information memoranda stated Scotts’ understanding of the tax position, rather than guaranteeing that the tax benefits would be obtained. The memoranda, subscription agreements and checklists consistently required investors to obtain and rely on their own tax advice. Objectively, investors could not reasonably rely on Mr Thornhill’s advice without independent inquiry, and he could not reasonably foresee that they would do so.
3. Role of the adviser. Mr Thornhill remained Scotts’ adviser. He did not become a neutral or independent expert merely by consenting to his advice being shown to investors or by approving the memoranda. The exception recognised where a solicitor steps outside the ordinary professional role did not apply.
4. UCTA 1977. The issue did not arise because no duty existed. The provisional view was that the warranties delineated the primary obligations rather than excluding liability. Even if Unfair Contract Terms Act 1977 applied, the finding that they were reasonable could not be impugned as plainly and obviously wrong.
5. Breach and causation. The court nevertheless considered the alternative issues. On the authorities available in 2002–2004, a reasonably competent tax silk could adopt the Ensign Tankers approach and conclude that the LLPs were trading commercially with a view to profit. However, if a duty had existed, unequivocal advice that there was no doubt the statutory tests were met should have been accompanied by specific risk warnings. The investors did not establish that competent advice would have disclosed a significant risk of a successful challenge, so the generic causation case also failed.

• Court of Appeal (Civil Division): dismissed the investors’ appeal and upheld the dismissal of the claims.
• Business & Property Courts of England and Wales: Zacaroli J dismissed the sample claims in [2022] EWHC 457 (Ch) ; the remaining claims had been stayed pending determination of common issues.