Tiuta International Ltd v De Villiers Surveyors Ltd

In a refinancing, the court must identify the legal and factual nature of the transaction when applying the ordinary but for test of causation. Where a new facility is used to repay an existing facility and is supported by fresh security, the new loan may stand apart from the earlier loan even though the lender is the same. The lender’s loss is then assessed by comparing the amount of the new advance with the value of the borrower’s covenant and the true value of the security. The valuer is liable for loss attributable to the negligent deficiency in the valuation supporting that new transaction. The purpose for which the new loan is used is irrelevant to the valuer unless the valuer has limited its exposure by contract. Such issues should generally be determined at trial on established facts.

Tiuta International Ltd lent money on the security of a partly completed development after obtaining valuations from De Villiers Surveyors Ltd. It later refinanced the facility, using part of a new advance to repay the original loan, and obtained fresh security. The property was subsequently expected to realise less than the outstanding debt.

Tiuta claimed damages for professional negligence, alleging that the November and December 2011 valuation had overstated the property’s value. The claim was pleaded on the basis that, had a careful valuation been provided, Tiuta would not have made the second loan. The respondent obtained summary judgment on the issue whether any loss attributable to the original lending could be recovered. The High Court held that the ordinary but for test applied and that liability was limited to loss caused by the additional lending: [2015] EWHC 773 (Ch). The central issue on appeal was how causation and loss should be assessed where the second facility refinanced and discharged the first.

1. Appeal allowed. The majority, Lord Justice Moore-Bick and Lady Justice King, held that the ordinary but for test of causation applied, but that the judge had applied it without properly recognising the structure of the refinancing.
2. On the assumed facts, the second facility was a new transaction. Part of the new loan enabled the borrower to repay the first loan, which was released together with its security. The fact that the same lender was involved did not alter that analysis. The second loan therefore stood apart from the first.
3. Following Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] 1 W.L.R. 1627, the relevant comparison was between the amount advanced under the second facility and the value of the rights acquired, namely the borrower’s covenant and the true value of the property. As the covenant was assumed to have no value, the respondent was liable for loss attributable to any negligent over-valuation supporting the second advance.
4. The purpose to which the new loan was put was irrelevant to the valuer. Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd [2002] EWCA Civ 336 reflected the transactions before that court, and the majority declined to disregard the commercial structure of a routine refinancing. Swynson Ltd v Lowick Rose LLP [2015] EWCA Civ 629 concerned avoided loss and mitigation, and did not establish a broader substance-over-form rule applicable here.
5. Lady Justice King agreed and stressed that, absent an agreement limiting exposure, the valuer could not rely on the lender’s legitimate method of organising its affairs to escape liability. Lord Justice McCombe dissented. He relied on the ordinary causation rule, including the statement in Sienkiewicz v Greif UK Limited [2011] UKSC 10, and considered that the pleaded case made the second loan conditional on a non-negligent valuation. He would have dismissed the appeal.
6. The court added that issues of this kind are generally better resolved at trial on findings of fact. If early determination is necessary, a preliminary issue should ordinarily be tried so that relevant evidence can be called.

• Court of Appeal (Civil Division): [2016] EWCA Civ 661. By a majority, the appeal was allowed.
• High Court of Justice, Chancery Division: summary judgment was given for the surveyor on the causation issue: [2015] EWHC 773 (Ch).