Following the Supreme Court (SC) decision in Tiuta International Limited (in liquidation) v De Villiers Surveyors Limited [2017] UKSC 77, we look at the practical impact for lender claims.

Key facts

This was an appeal to the Supreme Court (SC) based on an underlying summary judgment application made by De Villiers Surveyors (the valuer). The facts were agreed in advance, namely:-

  • In February 2011, the valuer provided a valuation of a development site and, in reliance on that valuation, the lender advanced funds to the developer (the First Advance).
  • In November and December 2011, the same valuer provided updated valuations to the lender. In reliance on the second valuations, the lender discharged/redeemed the original loan facility. A new loan account was opened and a new legal charge was executed. The proceeds of the second advance (the Second Advance) were primarily used to redeem the First Advance.
  • The lender sued the valuer in relation to the second valuations only and there was no allegation of negligence in relation to the first valuation.
  • The Court of Appeal overturned the High Court's decision. The Court of Appeal decided that the second valuations were provided by the valuer for the purposes of the Second Advance, which was factually and legally separate from the First Advance. On this basis, the lender was entitled to all the losses which flowed from the Second Advance (including the funds used to repay the First Advance), otherwise there was a risk that the valuer's liability could fall into a black hole.

The Supreme Court Decision

  • The SC disagreed with the Court of Appeal. The SC applied the "basic comparison" approach in Nykredit Mortgage Bank Plc -v- Edward Erdman Group Limited (No.2) [1997] 1WLR 1627. In summary, the valuer cannot be liable for more loss then his/her valuation has caused. In this case, had the valuation been non negligent, the lender would still have lost the First Advance monies. Therefore, the monies from the Second Advance used to repay the First Advance are not recoverable.
  • The refinance element (ie the First Advance) of the Second Advance would potentially be recoverable if the valuer was also extinguishing a liability from the same valuer under the First Advance. However, this argument was not developed by the SC. For example, there was no explanation of how the damages would be calculated. Further, and importantly, there was no discussion as to what would happen if the identity of the second valuer was different to the first valuer.

Impact on lenders' professional negligence claims

  • The impact of the decision is limited as it was completed on specific facts. Importantly, a full discharge of the First Advance facility had taken place with a new account, different facility documentation and a new charge. The decision broadly followed the Preferred Mortgages Limited –v- Bradford & Bingley (Court of Appeal case).
  • The decision leaves uncertainty, as it does not fully deal with a situation where the valuer who produces the valuation for the First Advance is also negligent. The suggestion is that if the valuer is the same, then the valuer may be liable for the refinance amount. The decision does not cover what happens if the valuer in the refinance is different from the first advance, i.e "the black hole argument".
  • In the High Court, the suggested way around the black hole was that the lender could have sued the valuer who completed the second valuations for the loss of opportunity to sue the valuer in relation to the first valuation, a rather convoluted solution.
  • The decision also does not give any guidance on what approach the courts will take in the situation where there is not a full discharge of an existing facility, instead there is refinance or facility renewal. Our view is that the Court in Barclays Bank Plc -v- TBS & V Limited [2016] EWHC was correct in that, in those situations, the defendant valuer owed a liability for all the losses even where a refinance or renewal of an existing facility has taken place.
  • The practical consequence of this case is that when assessing a commercial professional negligence claim it is now more important than ever to understand the facilities, any flow of funds and the involvement of particular professionals. To be on the safe side, as the law is uncertain, it is worth taking a cautious approach to adding defendants when pursuing claims and, in particular, where limitation is an issue, to make sure that any loss is recovered.