Tiuta International Limited v De Villiers Surveyors Limited  EWCA Civ 661.
This case concerns a common situation where a borrower required additional funds to complete a development. De Villiers Surveyors Limited had been instructed by the lenders Tiuta to value a partly completed residential development in February 2011. They valued it at £3.25 million in its then state of development and £4.9 million on completion. Tiuta advanced funds of just over £2.5million. In November 2011 the developer sought an increase in the loan to £3,088,252 on the same security. De Villiers prepared a fresh report and valued the property at £3.25 million and £4.9 million on completion. In a further valuation carried out in December 2011 the property was valued at £3.5 million in its then condition and £4.9 million on completion. Additional funds were advanced. The loan was not repaid and the property was sold resulting in a loss to Tiuta of the order of £700,000.
Tiuta raised an action alleging that the valuation of December 2011 had negligently overstated the value of the property and that it had suffered loss as a result. There was no allegation that the earlier valuations had been negligent.
De Villiers argued that if the later valuation had been negligent their liability should be restricted to the increase in indebtedness. Titua argued that the second transaction was a separate transaction, unrelated to the earlier one, and had to be viewed independently.
The case proceeded on the assumption that the first loan was discharged and a new loan was advanced and that the valuation in December 2011 was negligent. The court held that where a lender is considering making a fresh loan, part of which is to be used to repay an existing loan, the purpose to which the new loan is to be put is of no legal interest or relevance to the valuer. The repayment of the first loan by the second loan meant that De Villiers was released from any potential liability in respect of the first valuation. The fact that the same lender was involved did not alter the legal position.
There are clear implications for surveyors in assessing the extent of their exposure to liability when providing a valuation in relation to additional lending. In order for surveyors to properly assess their exposure they will require to understand the structure of the re-financing transaction. The later valuation from De Villiers lead to further lending of just under £162,000 but an exposure to losses of £700,000. There may be no legal interest but there is a clear commercial interest for a surveyor to understand the details of the re-financing.
Surveyors and their insurers need to be able to assess and price their exposure correctly. This could be done at the time instructions are given by the lender when the surveyor could ask the lender about the use of the additional funds and seek to restrict liability for losses within the terms of their contract with the lender. It is perhaps unlikely that lenders would find that acceptable. In that event insurers will require to elicit sufficient information from surveyors through the proposal form for professional indemnity insurance to properly understand the extent of exposure. It is the total extent of the lending that will be relevant rather than simply the additional advance. It can be expected that will lead to an increase in premiums to reflect this additional risk.