Tiuta refinanced an existing loan and advanced some extra money on the strength of a new property valuation. If that valuation was negligent, how much loss had it caused? The lender would already have been exposed to the unpaid first loan. On the facts assumed for the appeal, only the additional lending could have made it worse off.
Tiuta International Limited, a specialist short-term lender which entered administration on 5 July 2012, sued De Villiers Surveyors Limited over valuations of a partially completed residential development. The appeal concerned only the measure of damages and arose on an application for summary judgment, so it was decided on a mixture of admitted facts and facts assumed in Tiuta’s favour.
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The two facilities
Tiuta agreed a nine-month facility of £2.475 million for a residential development. It took a charge over the property and relied on a valuation by De Villiers. There was no allegation of negligence about that original valuation.
The second facility refinanced the outstanding borrowing and provided up to £289,000 in new funding to complete the work. A little over £2.56 million discharged the balance on the first loan, and £281,590 was drawn as additional money. Tiuta took a fresh charge. Nothing had been repaid when the second facility expired.
What was and was not in issue
There was no claim for the advances under the first facility. No negligence was alleged in the valuation on which it was based, and those advances had been discharged by the second facility, leaving no recoverable loss. The live allegation, which had to be assumed, was that the valuations for the second facility were negligent and that the second facility would not have been made but for that negligence.
The surveyors accepted that this could expose them to the loss of the new money. They argued that it could not expose them to the refinancing element. Had they not been negligent, the first facility would have remained outstanding and unpaid, so that part of the loss would have occurred anyway. They sought summary dismissal of the refinancing part of the claim.
The basic comparison
Lord Sumption, with whom Lady Hale, Lord Kerr, Lord Lloyd-Jones and Lord Briggs agreed, said that the answer followed from the ordinary measure of damages: the claimant is to be restored, as nearly as possible, to the position it would have occupied had it not sustained the wrong. Other rules may limit recovery to losses that are sufficiently connected with the wrong, unavoidable by reasonable mitigation, reasonably foreseeable and within the scope of the duty. Here only the basic measure was in issue.
Where negligent valuation induces a loan that would not otherwise have been made, Lord Nicholls’ basic comparison in Nykredit asks what position the lender would have been in if the valuer had performed his duty and compares it with the lender’s actual position. On the assumed facts, Tiuta would not have entered the second facility but would still have entered the first. It would therefore have avoided losing the new money, while still losing the original advances. Since the first valuation was not said to have been negligent, there was no question of recovering those earlier advances through the loss of a claim arising from them. The loss caused by the second valuation was confined to the new money.
The Court of Appeal’s reasoning
Timothy Fancourt QC, sitting as a Deputy High Court Judge, had reached that conclusion. The Court of Appeal allowed Tiuta’s appeal by a majority. Moore-Bick LJ, with whom King LJ agreed, thought that the deputy judge had overlooked the refinancing structure. Payment of the earlier debt released the valuers from any potential liability for the first valuation, so the second advance stood apart and the comparison was between the whole second loan and the value of the security. He would have reached the same result even if a different valuer had made the first valuation. McCombe LJ dissented.
The Supreme Court rejected that analysis. Use of the second advance to discharge the first did not entitle the court to ignore a loss that would have been suffered in any event. The basic comparison assumes that, without the negligence, the lender would still have had the money it was induced to lend. Tiuta would not still have had the refinancing sum, because it had already lent it. There was also no potential liability on the first facility to be released: on the facts assumed for the appeal, that facility rested on a valuation which was not alleged to have been negligent.
Nor did it matter that the valuer might have contemplated liability for the full second advance, or that repayment of an existing debt might appear to be a windfall. Contemplation may matter to the scope of a duty or to foreseeability, but the basic comparison is a factual inquiry into how much better off the lender would have been. Legal filters may make the valuer liable for less than the difference his negligence made. They cannot make him liable for more merely because, on hypothetical facts different from those which occurred, his liability might have been larger.
Why repayment was not a collateral benefit
Tiuta alternatively argued that discharge of the first facility should be disregarded as a collateral benefit, allowing the whole second facility to be treated as an additional advance. Lord Sumption held that a benefit attributable to the events causing the loss is normally taken into account unless it is collateral. As explained in Swynson, collateral benefits generally arise independently of the circumstances giving rise to the loss. Leaving aside purely benevolent receipts, typical examples are benefits under distinct agreements for which the claimant gave independent consideration, such as insurance.
The repayment was not such a benefit. It conferred no relevant benefit requiring either inclusion or exclusion. The whole transaction caused by the allegedly negligent valuation had to be examined. The refinancing element increased Tiuta’s exposure under the second facility by £2,560,268.45 and reduced its loss under the first by the same amount, so its net effect was neutral. Only the new money increased the loss. The neutrality might have been different had repayment extinguished an actual liability of the valuers for the first facility, but no such liability was assumed.
The use of the money to repay the existing loan was written into the refinancing agreement. It was integral to the transaction. Tiuta had never intended to lend the full amounts under both facilities at the same time.
Verdict: The Court unanimously allowed the surveyors’ appeal and restored the deputy judge’s order, subject to submissions on its form. The claim could proceed only for loss attributable to the new money on the assumptions made. The Court did not find the valuation negligent or award damages.
Source: Tiuta International Limited v De Villiers Surveyors Limited [2017] UKSC 77
