Eminent tax barrister defeats claims brought by scheme investors

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Eminent tax barrister defeats claims brought by scheme investors

Published 25 March 2022

Eminent tax barrister defeats claims brought by scheme investors

Marketed tax avoidance schemes have been around for a long time, but it was only in the early 2010’s that there was a sea change in the approach taken by HMRC to challenge such schemes. The increased scrutiny means that investors nowadays may end up repaying most of the tax benefits (with interest) that the avoidance schemes were intended to realise. Investors have invariably sought to recover losses from the professional advisers involved in the schemes which, in turn, has had a huge impact on professional indemnity insurers for some time.

In the latest claim concerning tax schemes David McClean and Others v Andrew Thornhill QC [2022] EWHC 457, the High Court has held that an eminent barrister who provided advice in the early 2000’s to the scheme promoters did not owe a duty of care to the investors to whom his advice had been made available by the promoters. This decision will be welcomed by professionals (particularly barristers and solicitors) and their insurers.


The case involved some 110 claimants who had invested in tax schemes in 2003 and/or 2004.  The schemes were promoted to potential investors, via information memoranda, as tax-efficient investment vehicles formed for the purpose of participation in film distribution. The defendant was Andrew Thornhill QC. He was (and remains) an eminent and experienced barrister specialising in tax. He was engaged to provide advice on the tax consequences of the schemes to the promotors and (in some cases) the limited liability partnerships which the claimants joined. Mr Thornhill was not engaged to advise any of the claimants, and none of the claimants were clients. He consented, however, to being named as tax adviser to the promotors in the information memoranda and to his Opinions being made available to potential investors, if they requested them. 

Ultimately HMRC refused the tax reliefs claimed by the investors, which led to the investors entering into settlements with HMRC.

The claimants brought proceedings claiming that Mr Thornhill owed them a duty of care in respect of the advice he gave to the promotors and consented to being made available to potential investors, and that they relied on his advice in entering into the schemes. It was alleged Mr Thornhill had breached that duty by failing to exercise reasonable care and skill when he advised that the schemes would achieve the intended tax benefits. It was asserted that, absent negligence, the schemes would not have been promoted, or if they had, none of the claimants would have invested if the information memoranda had warned of the significant risk that the schemes would fail.

The case involved common issues and the trial involved ten sample claimants only.


In a lengthy and detailed judgment, Mr Justice Zacaroli found in favour of Mr Thornhill and concluded that he owed no duty of care to the claimants in respect of the advice he gave in relation to the schemes. An assumption of responsibility is the foundation of liability for negligent misrepresentation, and a representor is not to be held to have assumed responsibility towards the representee unless (i) it was reasonable for the representee to have relied on what the representor said and (ii) the representor should reasonably have foreseen that he would do so.

Applying those established legal principles to the facts, the claimants could not reasonably rely on Mr Thornhill’s advice without making their own independent inquiry, and Mr Thornhill could not reasonably foresee that they would do so. Critical to the judge’s conclusion were the facts that the information memoranda promoting the schemes clearly advised potential investors to consult their own tax advisers, and that the terms of the subscription agreement were such that no investor could subscribe to the schemes without warranting that they had relied only on the advice of, or had only consulted, with their own professional adviser.

The Judge went on to conclude that had Mr Thornhill owed a duty of care to the claimants, he would not have breached that duty in providing his opinion that the schemes would achieve the intended tax benefits. Further, Mr Thornhill owed no duty to warn the claimants of the risk that his advice may be wrong, but if he did, he would have breached it in failing to include a risk warning.

On reliance and causation, the Judge concluded that if a duty to include a risk warning was owed, and was breached, none of the sample claimants had established that the loss suffered by them was caused by any breach of duty by Mr Thornhill. The claimants were unable to claim on the basis that the schemes would not have been promoted at all if Mr Thornhill had given advice which they contend would have been competent, both as a matter of law and because the claimants had not established that there would have been no schemes as a matter of fact.

On limitation, the claimants’ causes of action accrued on the day they invested in the relevant scheme, such that the claims were time-barred subject to the possible application of section 14A of the Limitation Act 1980 (which extends the limitation period where facts relevant to the cause of action are not known at the date the cause of action accrues). For two schemes, section 14A was applicable in most cases, but the claims in respect of a third scheme were time-barred by reason of section 14B (which provides a long-stop date of 15 years from the date of the alleged negligent act or omission).


This decision will be welcomed by professionals and their insurers.  HMRC’s clampdown of marketed tax avoidance schemes in the early 2010’s inevitably coincided with the courts having to grapple with a significant number of claims against professionals involved in tax avoidance schemes. This latest decision in favour of the defendant barrister, together with the recent case of Knights v Townsend Harrison Ltd [2021] EWHC 2563 (24 September 2021) which was decided in favour of the defendant accountants (who introduced the claimant to an investment opportunity in tax avoidance schemes), demonstrates that professionals are not an easy target for disgruntled investors.


Parminder Badhan

Parminder Badhan

London - Walbrook

+44 (0) 20 7894 6186

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