Tiuta International Limited (in Liquidation) v De Villiers Surveyors Limited
This judgment of the Supreme Court seeks to resolve the issue of whether a negligent valuation provided to a lender for the purpose of refinancing a borrower's existing indebtedness to the same lender was to be treated as a stand-alone transaction, or whether the existing indebtedness was to be accounted for in determining damages.
The issue came before the court as a result of De Villiers' application for summary judgment on certain issues raised in its Defence and therefore had to be determined on the basis of assumed and agreed facts, as follows:
The First Facility
In April 2011, Tiuta entered into a nine month loan facility with its borrower in the sum of £2,475,000 for the purposes of a property development in Sunningdale. In connection with that facility, De Villiers reported to Tiuta that the current market value was £2.3M and the GDV was £4.5M. Tiuta did not allege that this valuation was negligent.
The Second Facility
In December 2011, shortly before the First Facility was due to expire, Tiuta entered into a new six month facility agreement with the borrower in the sum of £3,088,252, for the purposes of the same property development. The drawndown debt from The First Facility stood at £2,560,268 and was discharged from the funds available under this second facility, such that the additional borrowing was limited to £281,590. In connection with this facility, De Villiers reported a current market value of £3.5M and a GDV of £4.9M. It was accepted for the purposes of the summary judgment application that this valuation was negligent .
The Second Facility expired in July 2012 and none of the borrower's indebtedness had been repaid.
De Villiers suggested that the most it could be liable for in damages arising out of negligence in relation to the Second Facility was the £281,590 of additional borrowing made under that Second Facility.
De Villiers succeeded in obtaining summary judgment at first instance, which substantially limited the quantum of the claim but that decision was overturned by the Court of Appeal. For the reasons given by Lord Sumption's judgment of 29 November 2017, the Supreme Court has unanimously restored the first instance decision.
Lord Sumption reiterated that in assessing loss in a claims by a lender against a valuer the "basic comparison " referred to by Lord Nicholls in Nykredit Mortgage Bank PLC v Edward Erdman Group Ltd ( No 2 ) had to be carried out . This involves comparing (a) what the lender's position would have been if the valuer had not been negligent and (b) the lender's actual position. That comparison "…requires one to look at the whole of the transaction which was caused by the negligent valuation. In this case, that means that one must have regard to the fact that the refinancing element of the second facility both (i) increased the lender’s exposure and ultimate loss under the second facility by £2,560,268.45, and (ii) reduced its loss under the first facility by the same amount. Its net effect on the lender’s exposure and ultimate loss was therefore neutral. Only the new money advanced under the second facility made a difference.”
On the assumed and agreed facts before him, Lord Sumption dismissed the reasoning of the majority of the Court of Appeal, which had been that the valuer had valued the property in the expectation that the lender would advance funds up to its full reported value in reliance on the valuation and it would have been unfair not to hold the valuer liable in accordance with its own valuation for the purposes of the Second Facility. Lord Sumption rejected any possibility of a ‘windfall’ to De Villiers arising from them not being liable for the full amount of the advances under the Second Facility even though De Villiers' valuer would have contemplated that he might be liable for the full amount of those advances. It was acknowledged that such issue may be relevant to scope of duty/foreseeability arguments but it was not relevant to the "basic comparison " because, "…the valuer cannot be liable for more than the difference which his negligence has made, simply because he contemplated that on hypothetical facts different from those which actually obtained, he might have been.”
Lord Sumption dismissed a suggestion made by Tiuta's Leading Counsel that the discharge of the indebtedness under the First Facility by the funds provided by the Second Facility should be disregarded because that discharge was a collateral benefit to the lender which it was not obliged to account for.
Whilst the decision reinforces the law limiting the damages recoverable from negligent valuers. It should be treated with some caution due to the fact that it came before the court on assumed and agreed facts and in particular : (i) the fact that no negligence was alleged by Tiuta in connection with the First Facility and (ii) that the First Facility was completely discharged with funds from the Second Facility. The position might have been different if it had been accepted that the valuation for the first facility had been negligent. Despite dismissing the majority of the Court of Appeal's reasoning Lord Sumption has left the door open for alternative outcomes by warning that the case was sensitive to its facts and recording his view that "I would agree that if the valuers had incurred a liability in respect of the First Facility, the lenders' loss in relation to the second facility might at least arguably include the loss attributable to the extinction of that liability which resulted from refinancing of the existing indebtedness."
Overall this decision represents a welcome confirmation that the courts will, even in the case of admitted breach of duty, take care to examine the precise consequences of any breach of duty for the purposes of assessing damages by scrutinising the position the claimant would have been in but for the breach of duty. It is of note that Lord Sumption, who delivered the Supreme Court judgment in BPE V Hughes Holland also gave this judgment with which all of the Supreme Court Justices agreed. The decision may also have implications for terms and conditions of engagement of valuers regarding awareness of previous lending or valuations, particularly where there are different valuers.
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