28/04/23
Introduction
No duty arose in Hedley Byrne because the defendant bank said that its credit reference was being given “without responsibility”. Sixty years on, McLean v Thornhill [2023] EWCA Civ 466 once again shows the power of words which qualify a statement. The Court of Appeal (The Chancellor, Simler and Carr LJJ) has now agreed with Zacaroli J here that a tax silk advising the promoter of a tax avoidance scheme owed no duty of care to the tax avoiders who invested in it, even though they had been allowed to see his advice.
Facts
Mr Thornhill KC was consulted by the promoter of an elaborate tax avoidance scheme. Before the scheme was sold to investors, he wrote an opinion for his client confidently advising that the scheme was soundly based. He did not include a disclaimer of responsibility.
He knew that the Information Memorandum selling the scheme stated that a copy of his opinion would be provided to any investor on request. He also knew that his advice went to the heart of the scheme, and that investors who read it would at the least take comfort from the positive nature of his advice.
However, he also knew:
Duty of care
In these circumstances, the Court of Appeal agreed with Zacaroli J that no duty of care was owed.
The claimants’ primary argument (new on the appeal) was that a duty should be imposed by analogy with statutory liability for prospectuses. Simler LJ described this as “untenable”, given that these were unregulated schemes [97]. Rather, the investors and the promoter were on opposite sides of the fence in a commercial transaction in which caveat emptor applied [99-103] and given his known status as the promoter’s adviser Mr Thornhill KC could not reasonably be regarded as some neutral figure [101]. The terms of the Information Memorandum and associated documents clearly conveyed that although the promoter believed that the scheme worked and had received advice to that effect, neither the promoter nor its advisers were accepting responsibility to investors; the investors were expected to take and rely on their own advice [107–15]. The relevant parts of the documents were not caught by UCTA 1977 as a matter of construction, but passed its reasonableness test even if it applied [119–120].
Applying the twin test in NRAM v Steel [2018] 1 WLR 1190, therefore, it was neither objectively reasonable for the investors to rely on the advice that Mr Thornhill KC had given to the promoter as if it was advice to them, nor objectively foreseeable that they would do so [117]. Nor (applying Playboy Club v Banca Nazionale del Lavoro [2018] 1 WLR 4041) could it be said to have been the “known purpose” of providing Mr Thornhill KC’s advice to investors that they should rely on it [93].
Breach
The Court of Appeal agreed with the Judge that on the state of the tax authorities at the time the views that Mr Thornhill KC had taken about the viability of the scheme were reasonable, and all the detailed criticisms of the Judge’s analysis advanced on appeal failed [126–157].
However, the Court of Appeal parted company with the Judge on one point, holding that even though Mr Thornhill KC’s views had been reasonable, he should not have expressed them in such confident terms [158–167]. Instead, the Court held, he should have qualified his views by saying that no two cases are the same; that no existing authority exactly covered the scheme’s detailed circumstances; and that therefore there was a risk of challenge by HMRC on each of the three critical statutory tests [167]. To that extent only, they held that if there had been a duty it would have been breached.
Causation
This was cold comfort for the claimants, as the Court of Appeal robustly rejected their case on causation. Their causation arguments had been entirely based on the proposition that Mr Thornhill KC should have warned them of a “significant risk of successful challenge” by HMRC. Since the Court of Appeal held that non-negligent advice would only have required a far milder warning, the claimants “came nowhere close” to establishing causation even if there had been a duty [169-170].
The Court of Appeal’s judgment is here.
Tom Adam KC and Max Schaefer acted for Mr Thornhill KC, instructed by Herbert Smith Freehills LLP. Daniel Piccinin KC and Chintan Chandrachud also acted for Mr Thornhill at earlier stages of the litigation.