How will a court assess damages in a claim for negligent valuation?
Negligence - Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77
The background
Tiuta was a specialist lender of short-term business finance before going into administration in 2012. It advanced an initial loan facility for £2,475,000 in April 2011 in connection with a property development. The loan was secured by a legal charge over that development, which was valued by De Villiers at £2,300,000 in its original state and at £4,500,000 after it had finished development.
Shortly before the initial loan was due to expire, Tiuta advanced a second loan facility for c.£3.1m and took a fresh charge over the development. Approximately £2.8m of this sum was to be used to settle the first facility and £289,000 was new money to be used to complete the development.
Tiuta’s advances under the second facility were made on the basis of further valuations from De Villiers, which upgraded its advice three times. At its highest, in December 2011, it valued the property at £3.5m in its current state and £4.9m after completion.
Eventually, the Borrower failed to repay the loan, the property proved to be worth less than its valuation and Tiuta alleged that De Villiers’ December 2011 valuation in relation to the second facility were negligent.
The key question was whether Tiuta could recover all of it losses (c.£900,000) or whether its claim should be limited to the second loan facility’s “new money” (£289,000).
The decision
The Supreme Court upheld De Villiers’ appeal.
In the High Court, the judge applied the “but for” test to exclude all losses which did not arise as a result of the December 2011 valuation.
The Court of Appeal reversed this decision. Rather than apply the “but for” test, the Court looked at the role of the surveyor in the wider transaction. The Court, by a majority decision, thought it was irrelevant that some of the second loan facility was used to service a debt owed toTiuta, and instead concluded they should look at the whole of the debt.
The Supreme Court unanimously overturned the decision of the Court of Appeal. Lord Sumption commented that “it does not follow from the fact that the advance under the second facility was applied in discharge of the advances under the first, that the court is obliged to ignore the fact that the lender would have lost the advances under the first facility in any event”.
The Supreme Court also called on the “basic comparison” in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, which aims to restore the claimant as nearly as possible to the position they would have been in if they had not lent the monies based on the negligent advice.
Tiuta made no allegation of negligence with respect to De Villiers’ valuation with the first loan facility, only in relation to the second loan facility. Therefore the amount of the second loan which was used to offset the first loan would have been lost regardless of the negligent valuation. Tiuta would not still have the money they lent under the second facility “but for” the negligent valuation, as this money had already been advanced. Lord Sumption noted it was a purely factual inquiry into how Tiuta would have been better off it if it had not lent the money which it had been negligently induced to lend.
Why is this important?
This Supreme Court decision clarifies the correct approach to assessment of losses for negligence.
Any practical tips?
If you are drafting agreements for the provision of consulting services or advice, be aware of the potential liability of ongoing or updated advice. Is this covered by limitations of liability and does the potential exposure change through the project?