The much anticipated judgment of the Supreme Court in Tiuta International Limited (in liquidation) v De Villiers Surveyors Limited [2017] UKSC 77 was handed down on 29 November 2017 by Lord Sumption. This appeal stemmed from a summary judgment application made by the valuers in this matter which had been overturned by the Court of Appeal. Finding in favour of the valuers, the Supreme Court has now unanimously allowed the appeal.

Background

The lender, Tiuta, provided an initial lending facility of £2,475,000 to its borrower in April 2011 in reliance on a valuation by De Villiers, with a charge taken over the development in question. In December 2011, a second facility of £3,088,252 was entered into in reliance on further valuation advice provided by De Villiers in November and December 2011, with a fresh charge taken over the development. The first facility was repaid from the money advanced under the second facility, with the surplus being new money for the completion of the development. This second facility was not ultimately repaid.

Tiuta brought a claim against De Villiers in respect of the November/December 2011 valuation advice relied on in connection with the second facility, however there was no allegation that the first valuation was negligent.

De Villiers argued that the most they could be liable for under the second facility was the new money advanced - that is to say the money lent under the second facility over and above that used to repay the first facility.

As the appeal stemmed from a summary judgment application, various facts were either admitted or assumed (i.e. that the valuation advice relating to the second facility was negligent) for the purposes of the appeal.

The Supreme Court's decision

Disagreeing with the Court of Appeal's majority decision, and in a unanimous Supreme Court decision in favour of De Villiers, Lord Sumption, giving the leading judgment, held that it "does not follow from the fact that the advance under the second facility was applied in discharge of the advances under the first, that the court is obliged to ignore the fact that the lender would have lost the advances under the first facility in any event". The Supreme Court drew on the "basic comparison" conducted by Lord Nicholls in Nykredit[1] of the lender's position had it not entered the transaction and its position under the transaction as it actually unfolded. The reality in this case was that Tiuta had already lent the money under the first facility by the time of the second facility and therefore its loss in respect of a claim in relation to the November/December 2011 valuation advice was limited only to the 'new money' provided under the second facility.

The Supreme Court also rejected Tiuta's argument that the repayment of the first facility was a collateral benefit which did not need to be taken into account, Lord Sumption stating that "The discharge of the existing indebtedness out of the advance made under the second facility was plainly not a collateral benefit..". The lender "never intended to lend more than £289,000 of new money. The concept of collateral benefits is concerned with collateral matters. It cannot be deployed so as to deem the very transaction which gave rise to the loss to be other than it was".

However, Lord Sumption went on to note that:

  • he "would agree that if the valuers had incurred a liability in respect of the first facility, the lenders' loss in relation to the second facility might at least arguably include the loss attributable to the extinction of that liability which resulted from the refinancing of the existing indebtedness". However, in the circumstances there was no allegation that the first valuation was negligent; and
  • in allowing the appeal, the reasons were "of course sensitive to the facts, including those facts which are disputed and have been assumed for the purposes of this appeal. In particular, different considerations might arise were it to be alleged that the valuers were negligent in relation to both facilities".

Comment

From a lender's perspective, this case emphasises that it is worth considering the whole life of the security and whether there may be a number of valuations which it could be worth pursuing a claim in respect of. Whilst the Supreme Court has now drawn a line under the particular issue which arose on the facts of this case and the claim put forward by the lender, it will be interesting to see whether Lord Sumption's other observations identified above fall to be addressed by the courts on another occasion.