Investors who incurred losses in film finance schemes have failed in their Court of Appeal claim alleging negligent advice from a leading tax lawyer. Andrew Thornhill KC, a tax specialist, was found not to have a duty of care towards third-party investors. Thornhill provided guidance to Scotts Atlantic Management Limited regarding the establishment of three limited liability partnerships and the associated tax implications but not to the ultimate investors.
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Background – Film Finance Tax Schemes
These film finance schemes were categorized as unregulated collective investment schemes, not intended for direct promotion to the general public. They were specifically targeted at high net worth individuals who possessed their own professional advisors, as outlined in the judgment. Thornhill agreed to be recognized as a tax advisor to Scotts and permitted prospective investors to request copies of his opinions. However, investors were advised to seek independent advice.
Following an investigation, the HM Revenue and Customs (HMRC) reached a settlement with the investors in 2017. Subsequently, the investors sued Thornhill, asserting that he owed them a duty of care. However, their claims were dismissed by the High Court.
David McClean and others v Thornhill KC
In the appeal case of David McClean and others v Thornhill KC, Lady Justice Simler emphasized that although there are exceptions, lawyers generally do not owe a duty of care to a third party. She explained that a duty of care may arise in exceptional circumstances when a legal advisor provides representations on which the other party relies. However, the existence of such a duty depends on assuming responsibility.
Simler LJ further noted that competent tax advice would have acknowledged the individual nature of each case and the potential risks of challenge by the HMRC in relation to the three statutory tests. She argued that reasonably competent tax advice should have identified these risks. She disagreed with the previous judgment, stating that had Thornhill owed a duty of care to the appellants, it would have been breached in this regard.
Lady Justice Simler ultimately dismissed the appeal, upholding the previous judgment. She concluded that considering the terms of the information memorandum, subscription agreement, and checklist, as well as the factual circumstances and context, it was unreasonable for investors to solely rely on Thornhill’s advice and opinions without conducting independent inquiries. Furthermore, she determined that Thornhill could not have reasonably foreseen such reliance.
Lady Justice Carr, who concurred with the dismissal of the appeal, added that a specialist professional who voluntarily provides unequivocally positive advice that can be shared with a third party exposes themselves to the risk of a claim, as they would be perceived as assuming responsibility and owing a duty of care to that third party.
Download the judgement here
Can I bring proceedings against my former tax advisor?
You should seek legal advice to bring a claim for professional negligence against your previous tax advisor. The new solicitor will assess the merits of the case and advise the client on the likelihood of success. If you believe that your tax advisor has been negligent, you can make a claim for compensation. To do so, you must show that the tax advisor breached their duty of care, and this breach caused you to suffer harm or financial loss.
The client must also demonstrate that the harm suffered was a direct result of the tax advisor’s negligence. It is essential to seek legal advice promptly if you believe that your tax advisor has been negligent to protect your interests and seek appropriate remedies.
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