Tiuta International Limited v De Villiers Surveyors Limited

Damages for a negligent valuation are assessed by comparing the lender’s actual position with the position it would have occupied had the valuation not been negligent. Where a refinancing facility discharges an existing loan which would otherwise have remained outstanding and unpaid, that element causes no additional loss. The lender may recover only the new money advanced under the refinancing facility.

The valuer’s reasonable contemplation may affect foreseeability or the scope of duty, but it cannot increase damages beyond the loss which the negligence actually caused. Nor may the collateral-benefit doctrine be used to disregard an intrinsic part of the transaction that produced the loss.

The lender advanced money under a first facility secured over a residential development. It later entered into a second facility, relying on a further valuation by the defendant surveyors. Most of the second advance discharged the first facility; only £289,000 represented new money. The second valuation was assumed to have been negligent, while no negligence was alleged concerning the first valuation.

A Deputy High Court Judge granted summary judgment limiting the recoverable loss to the new money. The Court of Appeal, by a majority in [2016] EWCA Civ 661, reversed that decision. The central issue was whether damages could include the refinancing sum used to discharge the pre-existing indebtedness.

1. Appeal allowed unanimously. Lord Sumption gave the judgment, with which Lady Hale, Lord Kerr, Lord Lloyd-Jones and Lord Briggs agreed. The Deputy High Court Judge’s order limiting the claim to the new money advanced under the second facility was restored, subject to submissions about the precise form of relief.

2. The basic measure of damages restores the claimant, so far as possible, to the position it would have occupied without the wrong. In a negligent-valuation case where the lender would not otherwise have lent, the court makes the “basic comparison” described in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627. It compares the lender’s actual position with its position had it not entered the transaction induced by the negligent valuation.

3. Without the assumed negligence, the lender would not have entered the second facility, but the first facility would have remained outstanding and unpaid. The refinancing element increased the loss under the second facility while reducing the loss under the first by the same amount. Its net effect was neutral. Only the new money advanced under the second facility made the lender worse off.

4. The valuer’s reasonable contemplation could be relevant to foreseeability or the responsibility assumed. It could not alter the factual comparison or make the valuer liable for more than the financial difference caused by the negligence. A defendant does not become liable for a hypothetical loss merely because different facts might have produced that loss.

5. The discharge of the first facility was not a collateral benefit. It conferred no net benefit and was an intrinsic, required part of the refinancing transaction. The collateral-benefit doctrine could not be used to treat the transaction as though the whole second advance were additional lending. Komercni Banka AS v Stone and Rolls Ltd [2003] 1 Lloyd’s Rep 383, concerning circular payments that were not intrinsic to the relevant fraud, was distinguishable.

6. Different considerations might arise if negligence had been alleged in relation to both facilities. The decision was confined to the assumed facts, including the absence of any liability arising from the first valuation.

1. United Kingdom Supreme Court: Allowed the surveyors’ appeal unanimously and restored the Deputy High Court Judge’s order, subject to submissions about the precise form of relief.
2. Court of Appeal: By a majority, allowed the lender’s appeal in [2016] EWCA Civ 661. McCombe LJ dissented.
3. High Court: Timothy Fancourt QC, sitting as a Deputy High Court Judge, granted summary judgment limiting the recoverable loss to the new money advanced under the second facility.