© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
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Y4: Causation
Causation must arise from the specific duty breached
Breach of duty to give correct advice to third parties to whom responsibility assumed is different to duty to give correct advice to persons who sold the scheme to the third parties
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"[342] The claimants' principal case on causation is that if Mr Thornhill had given the Relevant Risk Warning then the Schemes would not have been marketed by Scotts at all, and so none of the claimants would have invested.
[343] I reject this case for two reasons. First, I consider that it is wrong in law. Second, I do not think that it is made out on the facts.
[344] So far as the law is concerned, no authority was cited by Ms Day QC in support of the contention. Mr Adam QC submitted that it failed because it depended on a different duty of care to that which was relied on in this case. The duty relied on by the claimants is the duty to take reasonable care that advice provided to them was correct. This causation argument depends, however, on a duty being owed to the claimants to take care that the advice given to Scotts was correct. Such a duty would sidestep established jurisprudence as to assumption of responsibility, because no question of reliance on the advice by the claimants, reasonable or otherwise, would arise. It would instead impose on a range of advisers a duty as "gatekeeper" to prevent their client from doing things that might cause other people loss, as long as it could be proved that the client would not have done those things but for the professional's advice. It would in effect render the professional adviser liable "in an indeterminate amount for an indeterminate time to an indeterminate class", in the words of Cardozo CJ in Ultramares Corpn v Touche (1931) 174 NE 441, 444 cited with approval by Lord Bridge in Caparo Industries plc v Dickman [1990] 2 AC 605, itself cited with approval by Lord Sumption in Playboy Club London Ltd v Banca Nazionale del Lavora SpA [2018] 1 WLR 4041, at [8]. For these reasons, Mr Adam QC contended, no such duty of care existed." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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Distinction between negligent advice and negligent omission
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"[198] However I accept the submission of counsel for the claimants that Bolitho was a case of negligence by omission. The relevant paragraph of the judgment is at page 239F:
"where, as in the present case, a breach of a duty of care is proved or admitted, the burden still lies on the plaintiff to prove that such breach caused the injury suffered… In all cases the primary question is one of fact: did the wrongful act cause the injury? But in cases where the breach of duty consists of an omission to do an act which ought to be done (e.g. the failure by a doctor to attend) that factual enquiry is, by definition, in the realms of hypothesis. The question is what would have happened if an event which by definition did not occur had occurred." [Emphasis added]
[199] Similarly the case of Altus to which the defendants refer, was a case where the allegation was that the defendants failed to give advice and as a result the claimants lost the opportunity of implementing a restructuring. That too was a case of omission. In the present case where the negligence is a positive act in that Mr Dallimore provided an assurance, it seems to me that the question is did the assurance cause the loss and it is not necessary for me to consider the counterfactual position.
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[216] In conclusion therefore if it is necessary for the claimants to prove the counterfactual, in my view there is sufficient evidence to infer that Messrs Halsall, Stanton and Higgins would not have participated in the charity shells (excluding in relation to Mr Higgins, Readymarket) had they not received the assurances which they received from Mr Dallimore." (Halsall v. Champion Consulting Limited [2017] EWHC 1079 (QB), HHJ Moulder)
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Identify the non-negligent advice carefully
"[358] Moreover, the question of causation has to be assessed in light of the terms of the Relevant Risk Warning that I have concluded a reasonably competent tax QC could have given. To a lawyer, it might be correct to equate that Relevant Risk Warning (see [340] above) with a material or significant risk that the Tax Benefits would not be achieved, because material might be seen as anything which is not immaterial, and significant might be seen as anything which is not insignificant. I consider that a layman, however, would view "material risk" or "significant risk" as involving a more serious degree of risk than that." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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For Claimant to establish what he/she would have done if negligence had not occurred
"[348] It is for the claimants to establish what would have happened if Mr Thornhill had given the Relevant Risk Warning. On the basis of the very limited evidence presented on this point, I do not think that the claimants have established that there would have been no Scheme.
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[365]...In the counterfactual world, where a non-negligent opinion reached the same conclusion as Mr Thornhill, I cannot discount the real possibility that the relevant IFAs would have recommended the Schemes on the same basis and in materially the same language even if the eminent tax QC had included the Relevant Risk Warning. It is for the claimants to establish reliance and causation, and the lack of any evidence from their IFAs is a significant hurdle in this respect." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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- Causation not established if scheme promoters would have found alternative barrister to advise that scheme worked
"[347] As to these matters, neither the fact that a Leading Counsel's opinion was a pre-requisite of schemes such as these being marketed, nor the fact that WB required Mr Thornhill's sign-off assists in determining what would have happened if Mr Thornhill's advice had contained a risk warning. I accept that, on the face of it, Scotts' internal procedures required an unequivocal advice from Mr Thornhill. Mr Thornhill's alleged admission, however, was that if he had said the Scheme "didn't work" then either Scotts would have abandoned it or possibly "gone to someone else who they thought could give more sensible advice". This does not address what would have happened if Mr Thornhill's advice had contained the Relevant Risk Warning.
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Second, there was insufficient evidence from which I could draw the conclusion that – had Mr Thornhill not provided an opinion with which Scotts were happy – they would not have been able to find another eminent tax QC who would have given non-negligent advice on the basis of which they would have proceeded with the Scheme. To the extent that there was any evidence in the case relevant to this point, it was to the effect that there were many film partnership schemes in the market at the time and that these had the backing of senior tax counsel: see for example the article from Mr Churchill in Tax Efficient Review in March 2003." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J - query how D's duty of care could have prevented him providing non-negligent advice that the scheme worked but allowed another barrister to provide such advice)
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- C who did not see actual advice needs to prove risk warning would have been conveyed to them
"[363] First, where Mr Thornhill's advice was not conveyed (either directly or via their IFA) to a claimant and if, contrary to my conclusion above, a duty was owed, I do not see how that claimant could establish that they would have acted any differently had the advice contained the Relevant Risk Warning. If they were not aware of the contents of his Opinions, they cannot have known that they did not contain the Relevant Risk Warning. While that does not preclude the theoretical possibility that such a claimant could establish reliance and causation through what their IFA would have done, that would require evidence from the relevant IFA, and there is no evidence from any claimant's IFA." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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Loss of chance evaluation where loss depends on what others would have done
"[20] For present purposes the courts have developed a clear and common-sense dividing line between those matters which the client must prove, and those which may better be assessed upon the basis of the evaluation of a lost chance. To the extent (if at all) that the question whether the client would have been better off depends upon what the client would have done upon receipt of competent advice, this must be proved by the claimant upon the balance of probabilities. To the extent that the supposed beneficial outcome depends upon what others would have done, this depends upon a loss of chance evaluation." (Perry v. Raleys Solicitors [2019] UKSC 5)
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- Loss of chance of successful negotiation or legal claim
"[21] This sensible, fair and practicable dividing line was laid down by the Court of Appeal in Allied Maples Group Ltd v Simmons & Simmons (a firm) [1995] 1 WLR 1602, a decision which received surprisingly little attention in either of the courts below (although, in fairness, the trial judge cited another authority to similar effect: namely Brown v KMR Services [1995] 4 All ER 598). Allied Maples had made a corporate takeover of assets and businesses within the Gillow group of companies, during which it was negligently advised by the defendant solicitors in relation to seeking protection against contingent liabilities of subsidiaries within the vendor’s group. Allied Maples would have been better off, competently advised, if, but only if: (a) it had raised the matter with Gillow and sought improved warranties and (b) Gillow had responded by providing them. The Court of Appeal held that Allied Maples had to prove point (a) on a balance of probabilities, but that point (b) should be assessed upon the basis of loss of the chance that Gillow would have responded favourably. The Court of Appeal (Stuart-Smith, Hobhouse and Millett LJJ) were unanimous in that statement of legal principle, although they differed as to the outcome of its application to the facts. It was later approved by the House of Lords in Gregg v Scott , at para 11 by Lord Nicholls and para 83 by Lord Hoffmann.
[22] The Allied Maples case was about the loss, due to negligence, of the opportunity to achieve a more favourable outcome in a negotiated transaction, rather than about the loss of an opportunity to institute a legal claim. But there is no sensible basis in principle for distinguishing between the two, and none was suggested in argument. In both cases the taking of some positive step by the client, once in receipt of competent advice, is an essential (although not necessarily sufficient) element in the chain of causation. In both cases the client will be best placed to assist the court with the question whether he would have taken the requisite initiating steps. He will not by the defendant’s breach of duty be unfairly inhibited in proving at a trial against his advisor that he would have done so, save perhaps where there is an unusual combination of passage of time and scarcity of other probative material, beyond his own unaided recollection." (Perry v. Raleys Solicitors [2019] UKSC 5)
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- Claimant must prove, on balance of probabilities what his/her own actions would have been
"[23] Two important consequences flow from the application of this balance of probabilities test to the question what the client would have done, in receipt of competent advice. The first is that it gives rise to an all or nothing outcome, in the usual way. If he proves upon the narrowest balance that he would have brought the relevant claim within time, the client suffers no discount in the value of the claim by reason of the substantial possibility that he might not have done so: see Stuart-Smith LJ in the Allied Maples case at [1995] 1 WLR 1602, 1610G-H. By the same token, if he fails, however narrowly, to prove that he would have taken the requisite initiating action, the client gets nothing on account of the less than 50% chance that he might have done so.
[24] The second consequence flows directly from the first. Since success or failure in proving on the balance of probabilities that he would have taken the necessary initiating step is of such fundamental importance to the client’s claim against his advisor, there is no reason in principle or in justice why either party to the negligence proceedings should be deprived of the full benefit of an adversarial trial of that issue. If it can be fairly tried (which this principle assumes) then it must be properly tried. And if (as in this case) the answer to the question whether the client would, properly advised, have taken the requisite initiating step may be illuminated by reference to facts which, if disputed, would have fallen to be investigated in the underlying claim, this cannot of itself be a good reason not to subject them to the forensic rigour of a trial. As will appear, this has an important bearing on the extent of the general rule that, for the purpose of evaluating the loss of a chance, the court does not undertake a trial within a trial." (Perry v. Raleys Solicitors [2019] UKSC 5)
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- Claimant must prove he/she would have brought an honest claim
"[25] Applied to the present case, the principle that the client must prove on the balance of probabilities that he would have taken any necessary steps required of him to convert the receipt of competent advice into some financial (or financially measurable) advantage to him means that Mr Perry needed to prove that, properly advised by Raleys, he would have made a claim to a Services Award under the Scheme within time. To this the judge added that it would have to have been an honest claim. He made this addition upon the basis of a concession to that effect by counsel on Mr Perry’s behalf, from which Mr Watt-Pringle QC for Mr Perry (who did not appear at the trial) invited this court to permit him to resile, so that the question whether the honesty of the claim was a requirement of Mr Perry’s cause of action could be properly argued.
[26] Having heard commendably concise argument on the point, I consider that the concession was rightly and properly made..." (Perry v. Raleys Solicitors [2019] UKSC 5)
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Evidence on causation
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- Caution re Claimant's evidence
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"[357] At a distance of 18 years since the events in question, I treat the claimants' statements – particularly as to what they would have done if Mr Thornhill's advice had been different – with great care. I was reminded in this context of the often-cited comments of Leggatt J (as he then was) in Gestmin SGPS S.A. v Credit Suisse [2020] 1 CLC 428 at [22]. It is difficult enough for a person to remember what they saw or heard on a date 18 years ago. It is that much more difficult to expect a person accurately to remember what factors influenced their decision – to the extent that but for that factor they would not have decided as they did – after such a long time. While I would expect a claimant to be readily able to say what they would have done if Mr Thornhill had advised that the Tax Benefits would not have been achieved, it is understandably much more difficult for them to be sure as to what they would have done if he had advised that the Tax Benefits would be achieved, but had caveated the advice in the form of the Relevant Risk Warning." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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- Rejection that any risk warning would have caused C to act differently
"[359] The claimants' statements as to what they would have done in those circumstances are necessarily to a large degree speculation. I reject the possibility that any claimant would have acted differently had there been merely "any qualifications or risk warnings" from Mr Thornhill because, as I note elsewhere, there were indeed qualifications and risk warnings in the IM (which Mr Thornhill specifically endorsed), yet every claimant invested anyway.
[360] The reliability of any view, given by a claimant today, as what they would have done if there had been the Relevant Risk Warning is also inevitably weakened by fact that the Schemes have in fact failed to achieve the Tax Benefits, with disastrous results for the claimants." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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Multiple causes
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- Sufficient that negligent advice/information was an equally effective cause, but consider contributory negligence
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"[173] If, as I consider, the society’s basic loss was within the scope of Grant Thornton’s duty, Grant Thornton submits that the decision of the judge and the Court of Appeal should still be upheld on the alternative ground that the judge was wrong to conclude that in law the loss was caused by Grant Thornton’s negligence. I find it difficult to see that there is any room for such an argument. In order to decide that the claimant’s loss was within the scope of the defendant’s duty, the court must be satisfied that the loss was caused by the particular matters which made the defendant’s advice incorrect and not by other matters unrelated to the subject matter of the defendant’s negligence. That seems to me to be sufficient to demonstrate that the defendant’s conduct was an effective cause of the loss.
[174] In any event, I am unable to accept that on the facts the judge was bound to conclude that the society’s decision to enter into swaps with terms far longer than the likely duration of the mortgages, combined with the way that interest rates turned out, were the only effective causes of its loss. In my view, he was fully entitled to conclude that an equally effective cause was Grant Thornton’s negligent professional advice, maintained over a period of some seven years, that it was permissible to use hedge accounting and prepare accounts which showed the swaps to be a highly effective hedge for the lifetime mortgages, thereby hiding the mismatch between the values of the swaps and mortgages and the society’s inadequate regulatory capital. The society’s own negligence which contributed to this state of affairs was properly reflected in the reduction of 50% which the judge thought it just and equitable to make to any damages awarded." (Manchester Building Society v. Grant Thornton UK LLP [2021] UKSC 20 - Lord Legatt and see agreement at §39)
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- Query whether it is necessary for misrepresentation to be a but-for cause
The problem with this approach arises if there are two sufficient causes. If A receives negligent advice from B and C, either piece of advice being sufficient to induce A to act to his/her detriment, neither piece of advice is a but-for cause of the loss. Do both B and C escape liability?
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"[352] As to the first question, Mr Thornhill's advice does not need to have been the sole reason a claimant entered into the Scheme. It would be enough that it played a "real and substantial part, though not by itself a decisive part" in inducing them to act: JEB Fasteners Ltd v Marks Bloom [1983] 1 All ER 583 (CA), at pp.588-9. The claimants accept that it is nevertheless necessary to show that Mr Thornhill's advice was causative in a "but for" sense, that is that the claimant would not have entered into the Scheme but for Mr Thornhill's advice (even though there may have been other "but for" causes): Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland PLC [2010] EWHC 1392 (Comm), per Christopher Clarke J at [171]." (McClean v. Thornhill [2022] EWHC 457 (Ch), Zacaroli J)
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"[170] Mr Zacaroli submitted that, whilst there may be more than one "but for" cause, in order to establish that any particular representation was a real and substantial cause it is necessary to show that but for such misrepresentation the claimant would not have entered into the contract on the terms on which he did, even though there were other matters but for which he would not have done so either.
[171] In the light of decision of the majority in Assicurazioni and the authorities to which I have referred, I accept that submission. The authorities shows that inducement is, in essence, a question of causation and that the misrepresentation must be an effective cause of the representee entering into the contract in the "but for" sense. "But for" causation means that unless the alleged cause (X) had come about the alleged result (Y) would not have occurred. In the present context that means showing that, unless the representee had had the representation made to him, he would not have contracted (or would not have done so on the same terms). If such causation is necessary in respect of a single misrepresentation, it must also be necessary in relation to an individual representation which is one of several." (Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland PLC [2010] EWHC 1392 (Comm), Christopher Clarke J)
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