In the recent case of Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd, the High Court granted summary judgment in favour of the defendant valuer (the "Defendant") in a claim for damages by the claimant lender (the "Claimant") for the alleged negligent valuation of a partly-built residential development (the "Property").
When reaching its decision, the Court examined the basic principles of factual causation, namely the need to satisfy the "but for" test, and the consequences of redeeming a loan.
In February 2011, the Claimant granted a loan facility of £2,221,768 to the borrower on the basis of a valuation of the Property by the Defendant. The Defendant had valued the Property at £2,300,000 and valued the gross development value ("GDV") at £4,465,000.
In November 2011, a further valuation of the Property was carried out by the Defendant at which time the Property was valued at £3,250,000, with a GDV of £4,900,000. The Claimant relied on the November valuation when agreeing to advance to the borrower a new, increased loan facility of up to £3,088,252.
Upon the expiry of the second facility, the borrower failed to repay the loan and the Claimant appointed receivers to realise the value of the property.
Interestingly, at the time when the monies were drawn down under the facility obtained in November, the borrower was already indebted to the Claimant for an amount in the region of £2.5 million.
The Claimant alleged that the Defendant was negligent in that it undervalued the Property in relation to its market value and overvalued the Property in relation to the GDV.
Furthermore it was alleged that the monies due to the Claimant were advanced in reliance on the alleged negligent November valuation and that had the November valuation been non-negligent, the Claimant would have not advanced any money to the borrower.
The Defendant was granted summary judgment on the basis that although the losses claimed were attributable to an existing indebtedness, the losses were causally unrelated to the alleged negligent valuation on which the loan advanced in November was based.
The Defendant argued that the Claimant was incorrect in arguing that any loss in relation to the indebtedness that existed prior to the November valuation was caused by the negligence of the November valuation because, in any event, had the Defendant valued the Property non-negligently and no new facility been offered to the borrower, the Claimant would have remained exposed to the existing debt.
The Claimant had already incurred the losses prior to the Defendant giving the alleged negligent valuation.
In establishing whether or not the alleged November valuation caused the Claimant's loss, the Court said that the established principles of factual causation, namely the "but for" test, would need to be satisfied.
The Court referred to the judgment in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) where Lord Nicholls said that in assessing any loss caused by the defendant's negligence, the basic measure is the comparison between:
- What the plaintiff's position would have been had the defendant fulfilled his duty of care; and
- The plaintiff's actual position.
Applying the basic measure to the case in question, had the Claimant not advanced further monies to the Defendant (as it argued it would not have done), the Claimant would still have been left with a debt of around £2.5 million.
Thus in comparing the position the Claimant would have been in had the Defendant fulfilled its duty of care with its actual position, the Claimant would, in any event, have been exposed to the loss.
As such, the Court held that the loss was not factually caused by the Defendant.
Consequence of redemption of the loan
The Court held that the Claimant did not have a cause of action against the Defendant in relation to any negligence in respect of the February valuation because the loan was fully redeemed by the second loan and no loss was suffered (Preferred Mortgages Ltd v Bradford and Bingley Estates Agencies Limited). Thus, the Claimant only had a claim in respect of any loss caused by the November valuation.
The Court rejected the Claimant's argument that the Preferred Mortgage case established that the normal "but for" test does not apply in such circumstance where the first loan is redeemed and no cause of action is established. The fact that there is no cause of action in respect of the February valuation does not make the application of the "but for" test in respect of the November valuation unfair.
The case serves as a useful reminder that the established principles of factual causation should be applied when assessing loss caused by a defendant's alleged negligence. However, although the Judge emphasised that this is an area "with a well-developed jurisprudence at the highest level of jurisprudence" he also acknowledged that there "are always cases where the particular facts throw up tricky issues as to how the established principles should be applied". So, it is unlikely that this is the last time the Court will be asked to determine an issue of this nature.