Tiuta International Ltd (In Liquidation) v De Villiers Surveyors Ltd  UKSC 77
The Supreme Court decision in Tiuta International Ltd (In Liquidation) v De Villiers Surveyors Ltd  UKSC 77 will provide comfort for professionals involved in valuing assets for the purposes of refinancing. The Supreme Court found that the lender, Tiuta International, would only be able to recover the loss resulting from the negligent act of De Villiers Surveyors, not its total losses that would have occurred in any event. This ruling provides welcome clarification of a complex area of law.
Tiuta International was a specialist lender of short-term business finance, until it went into administration in July 2012.
In February 2011, De Villiers Surveyors provided a valuation for a residential development site. As a result of this valuation, Tiuta made available a loan facility of £2,475,000, secured on the development site, to a party associated with the developer. In December 2011, shortly before the facility was going to expire, the developer wished to access further finance. De Villiers produced a further valuation of the site as a result of which Tiuta refinanced the debt to increase the borrowing by £289,000.
Tiuta went into administration not long before the facility was meant to be repaid; the developer also defaulted. Enforcement action was taken and the development site was sold. The sale of the asset left a shortfall and Tiuta looked to claim against De Villiers Surveyors.
Tiuta accused the surveyors of negligently overvaluing the property in December 2011, and claimed the whole amount it said it had lost from the transaction, which it estimated as being £890,558. Oddly, perhaps due to an oversight, Tiuta did not plead that the February 2011 valuation had been negligent. The claim only focused on the second valuation, at which point £2,475,000 had already been advanced. De Villiers argued that in December 2011 as Tiuta was already owed most of the sums it was now claiming, any damages should only relate to the new sums advanced. De Villiers highlighted just how unfair it would be if it was liable for all the losses given £2,475,000 had already been lent by Tiuta.
De Villiers successfully appealed to the Supreme Court following a Court of Appeal decision, which found, in contrast to the High Court, that it was responsible for all Tiuta’s losses, not just those caused as a direct result of the second advance. The Supreme Court concluded the case turned on the “ordinary law of damages”. A claimant should be restored as closely as possible to the position they would have been in had they not sustained the wrong. The Supreme Court quoted with approval the principlesals set out in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2), that a basic comparison should be made between the claimant’s position had the defendant fulfilled its duty of care and its actual position. Therefore what the surveyor may or may not have contemplated when making the valuation was irrelevant, De Villiers could not be liable for more than the losses Tiuta actually sustained as a consequence of the valuation.
The discharge of the first facility was relevant to calculating Tiuta’s loss. Given the large shortfall when the property was sold, as Tiuta would have incurred a loss in respect of the first advance it was not able to claim for all its losses. The Supreme Court ruled that Tiuta’s claim should be restricted to the new money advanced as a result of the second valuation.
This decision of the Supreme Court will provide assistance to those valuing assets for re-financing purposes. Any potential exposure should be limited to any new money lent as a result of a negligent overvaluation. The decision provides a reinstatement of the “but for” test when assessing damages, and the principle that a party should be placed in the position it would have been in but for the breach of duty it suffered.
The Supreme Court was keen to emphasise though that the decision turned on the facts, and hinted that the position may have been different had the valuation advice in relation to the first facility also been negligent. It cannot therefore be said that valuers will never be liable for earlier advances. When considering taking action in relation to negligent overvaluations it is imperative the parties properly formulate their strategies from the outset, and take care to formulate any claim fully from the outset.