Looking to invest in an unregulated scheme? Why relying on ‘sales pack’ professional advice alone can be costly.

The financial scheme promoted in the prospectus looked attractive, particularly as a leading tax lawyer appeared to endorse it, so what could possibly go wrong?

As it turns out, a lot. A group of investors who all incurred heavy financial losses after investing £100 million in film finance schemes have lost their appeal over what they claimed was negligent advice from tax barrister, Andrew Thornhill KC.

In the long awaited case of McClean & Ors v Thornhill (2023) the Court of Appeal (CoA) has ruled that it was objectively unreasonable for the investors in the schemes to rely on Mr Thornhill’s advice without making independent enquiries and that Mr Thornhill could not have reasonably foreseen that they would not make such enquiries.

It shows the vital importance of taking your own independent advice before investing in an unregulated or tax avoidance scheme. If the investors in this case had done so, they would have had a potential claim against these advisers.

What happened in this tax avoidance investment scheme case?

The idea pitched to investors was that they would be able to write off their film losses against their other income. This is known as sideways loss relief but in 2016, HMRC ruled that this was not available as the partnerships were not really trading.

Mr Thornhill had acted as an advisor to Scotts Atlantic Management, the promoters of the film finance partnerships, on the tax benefits and was retained by them between 2002 and 2004.

The schemes were an ‘unregulated collective investment scheme’, the CoA judgement read, and directed at high-net-worth individuals with their own professional advisors. The schemes could not be promoted or marketed directly to the general public.

Mr Thornhill was asked to provide expert advice as to whether the schemes were trading commercially with a view to profit. His advice was that they were and he agreed that a copy of his opinions could be made available to potential investors on request.

The investors were also told to seek their own independent advice.

What are the implications of this case?

The Court of Appeal ruled there was ‘nothing to suggest’ that Mr Thornhill went beyond his role as advisor to Scotts and that he never himself offered advice to the investors and that none of them were his clients.

This stresses the principle of ‘caveat emptor’ or ‘let the buyer beware’ as although Scotts’ information memorandum said it believed the schemes would attract tax relief, it also said that prospective investors should consult their own professional advisors with ‘regard to the tax, legal….and other economic considerations related to the investment’.

In short, if you want to be able to rely on professional advice, you should get your own – so that if this advice proves to be wrong, you are more likely to be able to seek redress.

Get in touch

If you have had a problem with the professional advice given to you by an independent financial advisor and want help to pursue compensation, please contact Wards Solicitors’ Partner James Taylor, a specialist lawyer dealing with Financial Services Disputes.

James says: “Litigation is a minefield but, if you involve an expert at the outset, the paths through it lead to resolution. Speaking to a solicitor avoids costly mistakes, the case being sidetracked down blind alleys and ensures you’re taken seriously. We can deliver outcomes that you might never have considered, maximise your chances of success by putting the case properly and succinctly, and ensure that you don’t bury the good bits under piles of bad. In short, we work to achieve resolution in a cost-effective way.”

Email James: James.Taylor@wards.uk.com

Phone James: 01454 204880