Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77

Tiuta sued De Villiers for negligent valuation underpinning a second loan facility which refinanced an earlier non-negligent facility plus advanced new money. The Supreme Court held the valuer's liability was limited to the new money, since the original loan would have been lost anyway.

Facts

Tiuta International Ltd, a short-term business lender, entered into a first loan facility with Mr Wawman in April 2011 for £2,475,000, secured by a charge over a residential development in Sunningdale. The facility was based on a valuation by De Villiers. In December 2011, shortly before the first facility expired, Tiuta entered into a second facility for £3,088,252, of which £2,799,252 refinanced the existing indebtedness and £289,000 was new money for completion of the development. The second facility was based on a further (revised) valuation by De Villiers. Tiuta went into administration in July 2012 and the sums advanced under the second facility were not repaid.

It was common ground that no liability arose in respect of the first facility because there was no allegation of negligence in respect of the first valuation, and the first facility’s advances were in any event discharged out of the second facility (per Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd and Swynson Ltd v Lowick Rose LLP). The claim related only to the second valuation, which was assumed for present purposes to have been negligent.

Issues

The principal issue was the quantum of damages recoverable from De Villiers for the alleged negligent valuation underpinning the second facility: specifically, whether the valuers could be liable for the whole of the advance under the second facility (including the refinancing element) or only for the new money (£289,000) advanced under it.

Arguments

Appellant (De Villiers)

The valuers contended that on the basic measure of damages, the lender’s loss was limited to the new money advanced under the second facility. The sums applied in discharge of the first facility would have been lost in any event, as the first facility’s indebtedness would have remained outstanding and unpaid even absent the negligence in respect of the second valuation.

Respondent (Tiuta)

Counsel for Tiuta submitted that the application of the second facility advance in discharge of the first facility indebtedness was a collateral benefit which should be disregarded in computing loss. Once disregarded, damages should be assessed as if the whole of the second facility were an additional advance, all of which was caused by the negligent valuation.

Judgment

The Supreme Court (Lord Sumption giving the leading judgment, with whom Lady Hale, Lord Kerr, Lord Lloyd-Jones and Lord Briggs agreed) allowed the appeal, restoring the order of the Deputy Judge (Timothy Fancourt QC).

Lord Sumption applied the “basic comparison” articulated by Lord Nicholls in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, quoting:

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… 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.

Applying that test, had the valuers not been negligent in respect of the second facility, Tiuta would not have entered into it, but would still have entered into the first. The lender would not have had the refinancing portion of the second facility money in any event, because it had already been lent under the first facility. The loss attributable to the negligence was therefore limited to the new money of £289,000.

Lord Sumption rejected the reasoning of Moore-Bick LJ in the Court of Appeal majority, which had treated the second facility as “standing apart” from the first. He held that the valuer’s reasonable contemplation might be relevant to scope of duty or remoteness, but could not enlarge the lender’s actual financial loss as established by the basic comparison.

On the collateral benefits argument, Lord Sumption referred to Swynson Ltd v Lowick Rose LLP, noting that collateral benefits are generally those whose receipt arose independently of the circumstances giving rise to the loss. The discharge of the first facility indebtedness was not collateral: it did not confer a benefit on the lender (the refinancing element increased exposure under the second facility by the same amount it reduced exposure under the first, so its net effect was neutral); and in any event, the discharge was required by the very terms of the second facility, and the concept of collateral benefits cannot be deployed to deem the transaction giving rise to the loss to be other than it was.

The analogy with Komercni Banka AS v Stone and Rolls Ltd was rejected as unhelpful, the circular payments in that case not forming an intrinsic part of the relevant transaction.

Implications

The decision confirms the strict application of the “basic comparison” measure of damages in negligent valuation claims involving refinancing. Where a lender refinances an existing loan with a fresh advance based on a negligent valuation, and the original loan was not itself the subject of any actionable negligence, the valuer’s liability is restricted to the new money advanced; the lender cannot recover for sums used merely to discharge the pre-existing indebtedness which would otherwise have been lost.

The judgment clarifies the limits of the collateral benefits doctrine: a benefit dictated by the very terms of the transaction giving rise to the loss is not collateral and cannot be disregarded in the damages computation.

The decision is important to lenders, surveyors and their professional indemnity insurers in structuring and assessing exposure on refinancing transactions. Lord Sumption emphasised that the reasoning is sensitive to the assumed facts, in particular that no negligence was alleged in respect of the first valuation, and that different considerations might arise if both valuations were impugned. The case sits alongside Swynson and Preferred Mortgages as part of a coherent line of authority on causation and loss in lender claims against valuers.

Verdict: Appeal allowed. The Supreme Court restored the order of the Deputy High Court Judge, holding that the valuer’s liability in damages was limited to the new money advanced under the second facility (£289,000), not the entirety of the second facility advance.

Source: Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77