Tiuta International Ltd v De Villiers Surveyors Ltd [01.07.16]
Court of Appeal decision may have removed the ‘but for’ test depriving valuers of valuable causation arguments.
Background
The case concerned a development in Sunningdale which the defendant (De Villiers) valued twice for the claimant, a lender. Initially, the lender made just over £2.56 million available to the borrower, on the strength of De Villiers’ first valuation of the site in February 2011 at £3.25 million and £4.9 million on completion. Within seven months the borrower required more money and applied for a loan of just over £3.088 million.
In December 2011 the lender instructed De Villiers to value the site once again. De Villiers valued the site at £3.5 million in its current condition and £4.9 million on completion. The lender therefore advanced the borrower the same amount (i.e. £2.56 million) and provided it with the option to draw down further funds. Crucially, it did so by proposing to refinance the entire loan, as opposed to extending the existing agreement.
The lender opened a new account containing an advance of £2.56 million to repay the original amount, drew up a new agreement and even registered a new charge at the Land Registry. The new loan was not repaid at expiry of the new facility. Receivers were appointed and the site sold, leaving the lender with a loss.
Proceedings were issued against De Villiers alleging negligence, not in relation to the first valuation but only the second valuation. De Villiers applied for summary judgment, arguing that its liability could not exceed the amount by which the borrower’s indebtedness had increased as a result of the refinance.
At first instance the High Court found in favour of De Villiers.
Decision
The Court of Appeal allowed the lender’s appeal (with one dissenting judgment).
It held that the transaction based on the second valuation was a refinance that paid off the existing debt in its entirety. That should have been reflected by the judge at first instance when he applied the ‘but for’ test.
The pre-existing debts should therefore be ignored for the purposes of assessing De Villiers’ liability. De Villiers should not be in a position to take advantage of the legitimate working practices of the bank to escape the damages which were properly within the scope of its duty.
The dissenting judgment (from Lord Justice McCombe) focused on the hypothetical nature of the refinance and the fact that the first valuation, which committed the lender to the development, was not the subject of criticism.
Implications
The publicity which the case is attracting may encourage some lenders to be more bullish in their approach to existing claims. It may even result in a few new claims.
However, it is important to put the judgment in context. The decision is fact specific, to a development where only one of two valuations is criticised. More importantly, all three judges commented (with some dissatisfaction) on the manner in which the issue had come before them.
De Villiers had applied for summary judgment. In order to do so it was obliged to concede certain facts for the purpose of the application. These included not just the fact that its valuation was negligent but also that the first loan had, as a matter of fact, been repaid in its entirety. De Villiers intended to challenge this at trial. In the vast majority of cases where the refinance is no more than an extension to the existing loan it may be difficult for the lender to prove repayment as a matter of fact.
The decision is to a large extent a result of the assumptions which the Court of Appeal was required to make in the lender’s favour. It could even work in a valuer’s favour. If later loans are fresh transactions, then those which were obtained without the benefit of advice may be said to extinguish any liability arising out of loans provided earlier on – where advice was relied on.
Valuers may wish to amend their terms and conditions to restrict their liability, when valuing for the purposes of a refinance, to the increase in the indebtedness.
It has been suggested that the case could have wider implications for other professions. We question this given the fact specific nature of the decision and the assumptions behind it.
Read other items in Professions and Financial Lines Brief - October 2016
