Last Friday 1st July 2016 saw a landmark court ruling that is forecast to have wide implications and may raise negligence insurance policy premiums for professional advisers. berg Partner in Dispute Resolution and Professional Negligence expert Daniel Brumpton comments.

The Court of Appeal handed down it’s decision on the matter of Tiuta International Ltd (in Liquidation) v De Villiers Surveyors Ltd on 1 July 2016. This decision has helped clarify the “but for” test in situations where a lender provides security on the strength of a negligent valuation and then later provides additional security (or replacement security) on a further negligent valuation.

The Court of Appeal (with McCombe LJ dissenting) upheld an appeal brought by Tuita International appealing the decision of the lower court summarily dismissing their claim by way of Summary Judgment.

Judgment

In the leading judgment Moore-Bick LJ confirmed that in circumstances where Tiuta had (i) loaned a developer a sum of money to develop some land which was based on a negligent valuation; and (ii) then, later still, made a further loan along the lines of a refinance of the original loan (which, in effect, replaced the original loan) and that second valuation had also been negligent. It was not open to the Respondent to argue that if the second valuation was negligent (which it denied) Tuita could not have suffered a greater loss than the amount by which the indebtedness had increased thereafter i.e. the difference between the first and second “negligent” valuation.

Put another way any negligence in relation to the second loan had not caused the loss attributable to the original loan.

As such, if the “but for” test had been applied correctly it would have lead to a conclusion that the respondent is liable to Tiuta for the whole of the loss flowing from the second negligent valuation.

Impacts

In terms of impact on lending institutions then it certainly clarifies how loss will be calculated when loans have been refinanced. The risk for surveyors is that they could be found negligent for far larger sums than previously thought