In what Lord Sumption described as a "perfectly straightforward" result, the Supreme Court has considered the approach to determining the quantum of damages in a case where a property was negligently overvalued.
In the present case, Tiuta was a specialist lender of short-term business finance, which later became insolvent. One of the projects it financed was a development in Sunningdale, in respect of which it entered into two facility agreements with the developer. Both facility agreements were made following valuations by De Villiers. There was no suggestion in the proceedings of negligence in relation to the first valuation (and Tiuta would have had no recoverable loss in that regard anyway, because the facility was discharged). Tiuta alleged negligence in relation to the second valuation, and this was assumed to be the case for the purposes of the summary judgment application that eventually reached the Supreme Court.
The issue here was that the second facility agreement was for a sum of £3,088,252. Almost all of this money was used to repay the first facility. Only £289,000 of the amount advanced was new money. De Villiers argued (and the Supreme Court agreed) that it was only liable in relation to the new money lent.
As Lord Sumption recorded, the basic measure of damages is that which is required to restore the claimant as nearly as possible to the position he would have been in if he had not sustained the wrong. In this case, had Tiuta not entered into the second facility in reliance on De Villiers' overvaluation, the advances it made under the first facility would not have been paid. It would therefore have lost that sum in any event, through no fault of De Villiers. Lord Sumption restated the need in cases of this kind to perform the "basic comparison" explained in Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd (No. 2) 10 as "a comparison between the plaintiff's position had he not entered into the transaction in question and his position under the transaction".
The judgment considers this issue fairly briskly, and is worth reading for its review of the relevant considerations in cases of this kind. Also interesting are Lord Sumption's comments on the potential difference it would have made to quantum if there had been an allegation of negligence in relation to the first valuation. In that case, but for the second negligent valuation, the first loan would have been undischarged, and Tiuta could have sought to recover (much larger) damages in relation to the first (hypothetical) negligent valuation.