In order to access the impact of the Court's decision in Tiuta International Ltd v De Villiers Surveyors Ltd  EWCA Civ 661, we need to briefly revisit the important Preferred Mortgages Ltd v Bradford & Bingley (Court of Appeal) case.
In the Preferred Mortgages case, the lender sued the first valuer in relation to its original valuation. But after the initial loan, the lender refinanced the lending in reliance on a valuation by a second valuer. The Court held that the original mortgage had been redeemed and, therefore, the first valuer could not be responsible for the loss suffered.
The decision was generally considered to be unhelpful to lenders where there had been multiple advances or refinances. It has been relied upon by some valuers and their professional indemnity insurers to run technical loss and causation arguments.
The High Court decision in Tiuta
With this in mind, there are some key facts to consider in the High Court's decision in the Tiuta case:
- In February 2011, the valuer provided a valuation of a development site and, in reliance on that valuation, the lender advanced funds to the developer.
- In November and December 2011, the same valuer provided updated valuations to the lender. In reliance on the second valuations, the lender refinanced the loan facility and made further advances to the developer. As part of this transaction, a new loan account was opened and a new legal charge was executed.
- The lender sued the valuer in relation to the second valuations only. It was, and remains, in dispute as to whether the first loan was in fact discharged and a "new loan" advanced.
- The valuer applied for summary judgment. The summary judgment application proceeded on the basis that the first loan was fully redeemed, which was what the lender argued.
- The valuer argued that the lender's claim failed the "but for" causation test. The Court found that, if the second valuations had been accurate, the lender would still have been left with the developer's existing debt. The Court therefore held that the second valuations did not cause the loss.
- It was argued by the lender that, following the Preferred Mortgages case, they could not pursue the valuer in relation to the first valuation. Therefore, there was a risk that the valuer's liability could fall into a black hole. The Court disagreed and suggested that the lender could have sued the valuer on the second valuations for the loss of opportunity to sue the valuer in relation to the first valuation; a rather convoluted solution.
Court of Appeal decision
The Court of Appeal overturned the High Court's decision and held:
- When a lender is considering making a new loan to (in part) repay an existing loan, the purpose of the loan is irrelevant to a valuer, who is simply instructed to provide a valuation.
- The second loan was independent from the first loan and the "but for" test should have been applied in that context. Had the judge done so he would have concluded that, had there not been a negligent valuation, the lender would not have entertained the second transaction. The basic loss is therefore determined by comparing the amount of the second loan with the true value of the property.
- There was nothing unfair in holding the valuer liable in accordance with its own valuation for the purposes of the second transaction. Nor was it unfair to hold the valuer liable for that part of the indebtedness to which the lender was already committed. The second valuations were provided by the valuer for the purposes of supporting a transaction that was factually and legally separate from that which had been carried out earlier in the year. The two were linked only in the sense that the second loan enabled the developer to repay the first.
- Had the valuer wished to limit its exposure, it could have sought to do so as part of its retainer with the lender.
One of the judges disagreed with the majority of the Court of Appeal and would have dismissed the appeal for the reasons given by the High Court.
We would suggest that the majority decision reflects a pragmatic approach to the issue faced by the Court of Appeal and should be welcomed.
Impact on lender claims against surveyors
The key points are:
- Where there is more than one valuation, the safest approach is to bring a claim in relation to all of the valuations where this is possible. Limitation should be preserved in relation to all valuations to keep the lender's options open.
- The decision is positive for lenders as it closes the potential liability black hole, which was created by the High Court decision in Tiuta, in conjunction with the Preferred Mortgages Court of Appeal decision.
- The decision follows on from another Court of Appeal case earlier this year (Urban Ventures Ltd v Thomas and others), in which the issue of whether there had been a new advance was addressed. Although based on different facts, it was another helpful decision to lenders who deal with technical, and, on occasions, opportunistic, defences raised by valuers.
- It is becoming increasingly difficult for surveyors, and other professionals, to seek to avoid liability on the basis of technical arguments which, if successful, would see genuine losses fall into black holes.
Whether or not a subsequent transaction redeems an earlier loan, where there have been errors made by professionals, there will normally be a remedy available to lenders.
Our team of experts are specialists in navigating through these arguments and pursuing recoveries for lenders in these circumstances. We would be happy to discuss the impact of these recent decisions in further detail.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.