Cases - Tiuta International LTD (in liquidation) v De Villiers Surveyors LTD

Record details

Name
Tiuta International LTD (in liquidation) v De Villiers Surveyors LTD
Date
[2017]
Citation
UKSC 77
Legislation
Keywords
Negligent valuation – causation – measure of loss
Summary

The Supreme Court examined the proper basis for assessing the quantum of loss where a lender Tiuta had advanced further monies to a debtor pursuant to a negligent valuation, some of those monies being used to pay off the indebtedness under the first facility. The question was whether the lenders loss was all of the second loan or should take into account the fact it would have lost money under the first facility.

Tiuta claimed against the defendant surveyors for negligently valuing a partially completed residential development over which it proposed to take a charge to secure a loan. On 4 April 2011, Tiuta entered into a first loan facility agreement with the debtor in the sum of £2,475,000 on the basis of a valuation of the development by De Villiers. They had reported that the development was worth £2,300,000 in its current state and when properly completed would be worth about £4,500,000.

On 19 December 2011, shortly before the facility was due to expire, Tiuta entered into a second facility in the sum of £3,088,252. Of this sum, £2,799,252 was for the refinancing of the indebtedness under the first facility and £289,000 was new money advanced for the completion of the development. The advances under the second facility were made on the basis of a further valuation of the development by De Villiers, that it was currently worth £3,500,000. None of the indebtedness under the second loan was repaid.

It was common ground that there could be no liability in damages in respect of the advances made under the first facility because

  1. there is no allegation of negligence in the making of the valuation on which the first facility agreement was based; and
  2. even if there had been, the advances made under that facility were discharged out of the advances under the second facility, leaving the lender with no recoverable loss (see Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd [2002] EWCA Civ 336 and Swynson Ltd v Lowick Rose LLP (in liquidation) [2017] 2 WLR 1161).

The present claim was simply in respect of the losses resulting from what was taken to be a negligent second valuation.

The valuers contended that the most they can be liable for by way of damages was the new money advanced under the second facility. They could not, they said, be liable for that part of the loss which arises from the advance made under the second facility and applied in discharge of the indebtedness under the first. If (as has to be assumed) Tiuta would not have made the advances under the second facility but for the valuers’ negligence, the advances under the first facility would have remained outstanding and would have remained unpaid. That part of their loss would therefore have been suffered in any event.

Lord Sumption giving the (unanimous) judgment of the Court restated the basic measure of damages as that which is required to restore the claimant as nearly as possible to the position that they would have been in if they had not sustained the wrong. This principle, he said, is qualified by a number of others that serve to limit the recoverable losses to those which bear a sufficiently close causal relationship to the wrong, could not have been avoided by reasonable steps in mitigation, were reasonably foreseeable by the wrongdoer and are within the scope of the latter’s duty. For the purposes of resolving the present case, he said that in a case of negligent valuation where but for the negligence the lender would not have lent, this involves what Lord Nicholls in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, 1631 called the 'basic comparison':

'It is axiomatic that in assessing loss caused by the defendant’s negligence the basic measure is the comparison between (a) what the plaintiff’s position would have been if the defendant had fulfilled his duty of care and (b) the plaintiff’s actual position. Frequently, but not always, the plaintiff would not have entered into the relevant transaction had the defendant fulfilled his duty of care and advised the plaintiff, for instance, of the true value of the property. When this is so, a professional negligence claim calls for a comparison between the plaintiff’s position had he not entered into the transaction in question and his position under the transaction. That is the basic comparison. Thus, typically in the case of a negligent valuation of an intended loan security, the basic comparison called for is between (a) the amount of money lent by the plaintiff, which he would still have had in the absence of the loan transaction, plus interest at a proper rate, and (b) the value of the rights acquired, namely the borrower’s covenant and the true value of the overvalued property.'

If in this case, the Court reasoned, the valuers had not been negligent in reporting the value of the property for the purpose of the second facility, the lenders would not have entered into the second facility, but they would still have entered into the first. On that hypothesis, therefore, the lenders would have been better off in two respects. First, they would not have lost the new money lent under the second facility, but they would still have lost the original loans made under the first. Secondly, the loans made under the first facility would not have been discharged with the money advanced under the second facility, so that if the valuation prepared for the first facility had been negligent, the irrecoverable loans made under that facility would in principle have been recoverable as damages. There being no allegation of negligence in relation to the first facility, this last point does not arise.

HELD: Accordingly, the Court held that the lender’s loss was limited to the new money advanced under the second facility.