Introduction
On April 28, 2023, the Court of Appeal has issued a judgment in the case of David McClean & Ors v Andrew Thornhill KC [2023] EWCA Civ 466, unanimously dismissing the appeal.
The case was brought by investors who had put their money into three film finance schemes promoted by Scotts Atlantic Management Limited between 2002 and 2004, with the intention of obtaining sideways loss relief.
I note an article on the lower courts decision in this case with my colleague Richard Gray. This was featured in Taxation Magazine in May 2022.
Sideways loss
Sideways loss relief provides for tax relief in the United Kingdom such that individuals can offset losses from one trade against other taxable income in the same tax year. It must be said, this facility has been significantly curtailed over the years – in many respects as a result of these schemes.
It was intended that the relevant schemes qualified for this relief. However, the investors’ claims were ultimately dismissed by HMRC and the courts.
The investor’s claims
The investors alleged that Mr. Thornhill KC, who provided tax advice to Scotts Atlantic Management Limited, had negligently advised that the schemes met the requirements for sideways loss relief, when in fact they did not.
They claimed that if they had been advised differently, they would not have invested in the schemes.
However, the Court of Appeal found that Mr. Thornhill KC did not owe a duty of care to the investors, but only to his client, Scotts Atlantic Management Limited.
The court held that it was objectively unreasonable for investors to rely on Mr. Thornhill’s advice without making independent inquiry into the likelihood of the schemes achieving the tax benefits.
The court also noted that the schemes were unregulated and could only be promoted through independent financial advisors, who were required to analyze the risks and provide their own advice to their clients.
The court further held that Mr. Thornhill KC’s conduct was “clearly within the typical role of a barrister,” despite the investors’ arguments that he had effectively formed part of the sales team with Scotts Atlantic Management Limited.
The court dismissed the investors’ argument that the situation was analogous to the statutory regime applying to an issuer of prospectuses in shares and debentures, which requires the issuer to have reasonable grounds for believing the content of the prospectus to be true.
The court found that the IMs did not make factual representations as to the tax consequences but only contained what were deliberately and carefully described as Scotts’ understanding and expectation as to the tax outcome.
Conclusion
The court’s decision will likely have implications for similar cases in the future, where investors claim that they have been misled or given bad advice in connection with unregulated investment schemes.
The decision underscores the importance of investors seeking independent financial advice and making their own assessment of the risks involved in such schemes, rather than relying solely on the advice of the promoters or their advisors.
If you have any queries about this article on this article, or matters in general, then please get in touch.