Introduction

McClean & Ors v Thornhill ([2023] EWCA Civ 466) is a landmark case adjudicated by the England and Wales Court of Appeal (Civil Division). The case centers on the obligations of a tax adviser, Andrew Thornhill KC, in the context of failed film finance tax schemes marketed through limited liability partnerships (LLPs). The appellants, investors in these LLPs, claimed negligence against Thornhill for advising on the tax benefits associated with their investments. This commentary delves into the intricacies of the case, exploring the court's reasoning, the precedents cited, and the broader implications for legal professionals and investors alike.

Summary of the Judgment

The appellants invested in two LLPs, SAD2 and SAD3, promoted by Scotts Atlantic Management Limited ("Scotts") as vehicles for acquiring and exploiting film distribution rights. The marketing materials promised tax relief through trading losses, contingent upon the LLPs meeting statutory tests of carrying on a trade on a commercial basis with a view to profit.

Thornhill, engaged by Scotts, provided tax opinions endorsing the tax benefits, which were included in the Information Memorandum (IM) used to attract investors. The investors later faced challenges from HMRC, leading to significant tax disputes.

At trial, the High Court judge dismissed the appellants' claims, concluding that Thornhill owed no duty of care to the investors. The Court of Appeal upheld this decision, affirming that the language and disclaimers in the IM appropriately directed investors to seek independent tax advice, absolving Thornhill from liability.

Analysis

Precedents Cited

The judgment extensively references pivotal cases that shape the understanding of duty of care in professional advisement:

• Hedley Byrne v Heller [1964] AC 465: Established the foundational principle for negligent misstatements and the assumption of responsibility in duty of care.
• NRAM Ltd v Steel [2018] UKSC 13: Reiterated the importance of the assumption of responsibility test in determining duty of care.
• Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655: Affirmed that commercial activities carried out with a view to profit constitute a trade.
• BCCI Ltd v Price Waterhouse: Highlighted factors influencing the reasonableness of reliance on professional advice.
• Caparo Industries Plc v Dickman [1990] 2 AC 605: Refined the test for duty of care, emphasizing foreseeability, proximity, and fairness.

Legal Reasoning

The court's deliberation hinged on whether Thornhill owed a duty of care to the investors, despite not being their direct adviser. Key aspects of the reasoning include:

• Assumption of Responsibility: Thornhill’s role was viewed through the lens of Hedley Byrne and NRAM, assessing if he intentionally assumed responsibility towards the investors.
• Disclaimers and Directions: The IM contained explicit disclaimers directing investors to seek independent tax advice, thus diluting any implied duty Thornhill might have had.
• Independent Inquiry: Investors were required to obtain their own professional advice, establishing that reliance on Thornhill’s advice without such inquiry was unreasonable.
• Commercial Context: The investment schemes were marketed to sophisticated investors through regulated intermediaries, inherently reducing the likelihood of reliance on Thornhill’s opinions.

The court emphasized that Thornhill remained on the "sales side" without acting as an independent expert for the investors. His involvement was part of the marketing strategy, but the contractual and informational safeguards in place negated the establishment of a duty of care.

Impact

This judgment has profound implications for professionals involved in investment advisement:

• Clarification of Duty of Care: Establishes clear boundaries on when a professional adviser owes a duty of care to third parties, particularly in complex investment scenarios.
• Importance of Disclaimers: Underlines the effectiveness of well-crafted disclaimers and directions to seek independent advice in mitigating liability.
• Regulatory Compliance: Reinforces the necessity for investment schemes to adhere to regulatory frameworks, ensuring protections are in place for investors.
• Professional Conduct: Encourages advisers to delineate their roles clearly, especially when their advice is utilized in broader marketing efforts.

Future cases involving professional advice in investment contexts will likely reference this judgment to assess liability and duty of care, shaping how advisement is structured and communicated.

Complex Concepts Simplified

Duty of Care

A Duty of Care refers to the legal obligation of an individual or organization to adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. In legal terms, it necessitates that certain professionals provide competent and accurate advice when others rely on it.

Assumption of Responsibility

The Assumption of Responsibility test determines whether a professional has taken on a role that obliges them to provide advice diligently to those who rely on it. If the adviser is aware that their advice will be relied upon by others, especially without disclaimers, they may assume responsibility, thereby establishing a duty of care.

Negligence in Professional Advice

Negligence in the context of professional advice refers to a failure to exercise the care that a reasonably competent professional would under similar circumstances. If such negligence leads to harm or loss for those relying on the advice, the professional may be held liable for damages.

Conclusion

The McClean & Ors v Thornhill judgment delineates the boundaries of professional responsibility in investment advisement. By affirming that Thornhill did not owe a duty of care to the investors due to the explicit disclaimers and the requirement for independent advice, the court underscores the importance of clear communication and contractual safeguards in professional engagements.

This case serves as a crucial reference for legal professionals, advisers, and investors, emphasizing that while experts can significantly influence investment decisions, their liability is moderated by the structure of their advisement and the protections they implement. Moving forward, professionals must ensure that their roles and the nature of their advice are clearly defined, particularly in complex and high-stakes investment contexts, to mitigate potential legal exposure.