A recent decision in the Chancery Division, Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd  EWHC 773 (Ch), raises an interesting causation issue in the context of valuer negligence claims brought by secured lenders. Whilst the decision was made by Mr Timothy Fancourt QC (sitting as a Deputy Judge) only in the context of a summary judgment application, assuming the approach is followed by the Court, it may have significant implications for claims in the context of revaluations.
The claim related to a residential development in Sunningdale (the "Property"). In early 2011, the Claimant ("Tiuta") advanced funds of some £2.2 million to the borrower on the strength of a valuation carried out by the Defendant ("De Villiers") in February 2011 (the "February Valuation"). The Febuary Valuation valued the Property (in its then-current state) at £2.3 million, with a gross development value ("GDV") of some £4.5 million. By November 2011, the sum outstanding had risen to some £2.5 million.
A second valuation of the Property was undertaken by De Villiers in November 2011 (the "November Valuation"). The November Valuation valued the Property at £3.25 million in its then-current condition, with a GDV of £4.9 million. On the strength of the November Valuation, Tiuta made a new facility of just under £3.1 million available to the borrower. By June 2012, the borrower had drawn down £2.84 million of the funds available under the loan facility. The borrower failed to repay the loan and Tiuta appointed receivers to realise the value of the property. It was estimated by the receivers that the property would, in fact, realise only some £2.14 million on sale, and Tiuta sought to claim the balance of the loan due and the cost of funding from De Villiers, on the basis that the November Valuation was negligent. Tiuta made no allegation of negligence in respect of the February valuation.
De Villiers applied for summary judgment on Tiuta's claim. De Villiers' case was that by the time the second loan was made to the borrower in January 2012, Tiuta already faced an unavoidable loss of £2.5 million in respect of the sums advanced under the first loan. Given Tiuta had already lent that sum to the borrower at the time of the November Valuation, it would have been exposed to that indebtedness of Tiuta in any event. Those sums had been advanced on the basis of the February Valuation, which was not criticised in the claim.
In answer, Tiuta's position was that the monies advanced in 2012, on the basis of the November Valuation, were a completely new and separate loan, on different terms and subject to a further facility fee. That loan was used to discharge in full the existing indebtedness of the borrower, which was replaced with the new loan. Thus, Tiuta claimed that the whole of the money due from the borrower was advanced in reliance on the (impugned) November Valuation. De Villiers did not strenuously contest this (and the Court found that there was a triable issue on the point) but argued that in any event, it had not caused any losses flowing from the existing loan.
The Court held that Tiuta was required to satisfy the "but for" test of causation, and demonstrate that but for De Villiers' negligence, it would not have suffered the relevant loss. The relevant comparison is:"between (a) what the plaintiff's position would have been if the defendant had fulfilled his duty of care and (b) the plaintiff's actual position." Where absent the defendant's negligence, the claimant would not have entered into a transaction, the comparison is between "the plaintiff's position had he not entered into the transaction in question and his position under the transaction" (Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No. 2)  1 WLR 1627, per Lord Nicholls).
Applying that comparison, the Court held that even had the November Valuation been non-negligent, Tiuta would in any event have been exposed to any loss attributable to the £2.5 million already advanced to the borrower and, to that extent, the loss was not caused by De Villiers' assumed negligence in the November Valuation. On that basis, the Court's decision was that summary judgment should be granted in favour of the defendant valuers as the losses attributable to the existing indebtedness were not caused by negligence in the November Valuation.
As a result of the November Valuation, however, Tiuta had advanced further funds to the borrower, and those funds had been used to pay off the original loan. Accordingly, the Court considered that Tiuta had lost the right to sue on the February Valuation: the first loan had been fully redeemed and therefore there could be no loss in respect of it. The Court therefore suggested that the value of the right to sue in respect of the first valuation (i.e. the loss of chance of succeeding on a claim against the first valuer) could form part of the loss suffered by Tiuta as a result of entering into the second loan transaction, in reliance on the later valuation. Tiuta's claim, as pleaded at the time of the application, did not allege that the February Valuation had been negligent, and it does not therefore appear that Tiuta had a claim on that basis, although the parties appeared to accept that Tiuta could (in principle) seek to amend its particulars of loss to advance that claim.
The Court acknowledged that the fact that De Villiers had carried out both the February Valuation and the November Valuation meant that there was a risk of an unattractive result if the causation argument would allow De Villiers to escape liability for the existing exposure that they had themselves caused by reason of the February Valuation. However, no allegation had been made that the February Valuation was negligent and, in any event, Tiuta's remedy would not have disappeared into a 'legal black hole', but rather: "the application of the "but for" test of causation would allow the value of the inchoate claim based on the February valuation to be recovered… because, in the no negligence world, the claimant would have had the benefit of that claim, in diminution of its losses attributable to the existing indebtedness."
The decision is subject to appeal.
Whilst the principles governing causation in valuer negligence cases are (as the Court acknowledged in this case) well established in leading authorities, this case shows that unusual facts continue to raise potentially novel points. Whilst the facts of this case were relatively straightforward, there is plainly scope for complex loan structures (and multiple valuations) to continue to cause difficulty for potential claimants. The Court's conclusion in this case follows the well-established principles on causation, and seems to reflect the Court seeking to achieve broad fairness between the positions of the claimant and the defendant. We await the appeal with interest.