The recent Supreme Court decision in Tiuta International Ltd (In Liquidation) v De Villiers Surveyors Ltd  UKSC 77 creates quite a headache for both claimants and defendants in lender claims against professionals where the lender has refinanced an existing loan facility.
This article examines the decision, and the decision of the Court of Appeal which it overturned; and highlights the practical difficulties that may be caused by what appears to be, superficially, an admirably clear and concise Supreme Court decision occupying a mere fifteen paragraphs of judgment.
The facts and decisions in Tiuta
The claimant lender had made a loan (“Loan 1”) to a property developer (“the borrower”), relying on a valuation (“Valuation 1”) provided by the defendant valuer of the property development which was to stand as security for Loan 1. Shortly before the term of Loan 1 was due to expire, the claimant and the borrower entered into a second loan agreement (“Loan 2”) which was intended to repay Loan 1 and provide some additional monies to the borrower. Loan 2 was made in reliance on a second valuation by the defendant (“Valuation 2”).
When the Loan 2 agreement expired, the borrower did not repay any of the sums advanced under that agreement and there was a shortfall when the claimant tried to enforce its security. The claimant claimed damages based on Valuation 2 being negligent. The defendant sought summary judgment on the basis that as there was no suggestion that its first valuation had been negligent, the most it could be liable for by way of damages was the additional money advanced under Loan 2 and that it could not be liable for that part of the loss which arose from the Loan 2 advance which had been applied in discharge of Loan 1. The judge agreed and granted summary judgment in favour of the defendant. However, the Court of Appeal ( EWCA Civ 661; by a majority, McCombe LJ dissenting) reversed that decision, finding that the loss which the claimant sustained as a result of entering into Loan 2 was the advance of Loan 2, less the value of the borrower's covenant and of the security, considering that as Loan 1 had been discharged by Loan 2 it was no longer relevant, notwithstanding the ‘but for’ test.
The Supreme Court overturned the Court of Appeal’s decision, in a judgment delivered by Lord Sumption, and reinstated the order (for summary judgment) of the judge at first instance. Although other issues were also considered, the central point in the judgment, and with which this article is concerned, was that on the proper application of the ‘but for’ test, the claimant had not suffered any loss in relation to Loan 2 other than the additional monies over and above that part of Loan 2 which was used to repay Loan 1. This was because, quite simply, had the defendant not been negligent in relation to Loan 2, the claimant still would not have had the money used to repay Loan 1, as that was money which it had already lost as a result of making Loan 1 (see para.s ,  and  in the judgment). Lord Sumption considered that the majority in the Court of Appeal had fallen into error in conflating factual causation with legal remoteness and/or scope of duty.
Application of Tiuta going forward
What is the position where both Valuations are negligent?
The Supreme Court stressed that Tiuta was a decision on its own facts, and particularly turned on the fact that no allegation of negligence was made in relation to Valuation 1. However, the Court’s additional statements that (i) “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” (para.  judgment) and (ii) “different considerations might arise were it to be alleged that the valuers were negligent in relation to both facilities” (para.  judgment) are both help and hindrance.
On the one hand, these statements signal that had negligence been averred in relation to Valuation 1 and Valuation 2 then the Court might have been prepared to find that the wider claim for loss would have succeeded, albeit on the basis of loss of a chance to pursue a claim against the valuer re: Valuation 1 (and therefore for the transaction loss on Loan 1) as a result of Loan 2 discharging Loan 1.
On the other hand:
- Is the claim against the Loan 2 valuer, insofar as it is in respect of the Loan 1 loss, a loss of a chance claim under the doctrine expounded in Allied Maples v Simmons & Simmons  1 WLR 1602 (recently revisited in Wellesley Partners LLP v Withers LLP  EWCA Civ 1146)? The answer must be, in principle, ‘yes’. Whilst in the Tiuta situation the valuer is the same for each Loan (but see analysis below discussing the possibility of different (negligent) professionals in relation to each Loan), the claim in relation to Loan 1 can no longer proceed in its own right. The Court must look at what would have happened in terms of the claim in relation to Loan 1 had Loan 2 never occurred. That might have involved court proceedings as against the valuer for Loan 1 and thus introduce third party actions (i.e. of the Court). Of course, the judge in the instant claim will be particularly well-placed to decide on the likelihood of the lender establishing liability in relation to Loan 1, so in practical terms there may be little discount for contingencies applied and, although in theory the factual causation threshold is lower in a loss of a chance claim, the judge is likely to adopt a standard close to the balance of probabilities in deciding whether a claim in relation to Loan 1 would have succeeded in establishing negligence;
- Of rather more importance, in practical terms, is that the Supreme Court’s views on the result where both Valuation 1 and Valuation 2 are negligent are (a) obiter and (b) in any event expressed in rather cautious terms (‘might’ ‘at least arguably’ and ‘might arise’ stand out). The lack of certainty created by the terms of the Supreme Court’s decision has already led to debate between the parties in one of the author’s own cases as to the meaning of the decision and whether or not, if negligence can be established in relation to Valuation 1 and Valuation 2, the transaction loss in relation to Loan 1 is in principle recoverable.
Does the structure of the refinancing matter?
It should also be noted that the Court of Appeal was concerned about the actual structure of the refinancing in question (see para.s  and  C of A judgment). As the matter had arisen by way of summary judgment application, it felt obliged to assume that Loan 2 had indeed been used to repay Loan 1. However, evidence would have had to have been called at trial by the lender to establish that that was actually the way in which the refinance had proceeded.
In reality, such ‘refinancing’ can proceed by a number of mechanisms. If negligence by the same valuer/other professional is assumed to have occurred in relation to both Loan 1 and Loan 2 then:
- If the lender uses ‘new’ money in Loan 2 to pay off Loan 1 then this is the scenario assumed by the Court of Appeal and the Supreme Court in Tiuta. The Lender can claim the loss of a chance to recover the loss for which the valuer/professional would have been liable in respect of Loan 1; and any additional loss from Loan 2;
- If the borrower repays Loan 1 from some other source and the lender then makes Loan 2, with the repayment being unconditional then, in such admittedly unlikely circumstances, the Lender should, in principle, be able to claim in respect of Loan 2 as a standalone full transaction loss as it had already recovered its loss under Loan 1 prior to making Loan 2;
- If the lender simply, in substance, makes a further advance then all it has done is extend Loan 1; Loan 1 has not been discharged and ‘Loan 2’ is an additional liability. Each ‘Loan’ gives rise to a separate (potential) claim for damages.
Note that the lender may or may not require a separate, new charge over any property put up as security for the Loan 2 even if it was security under Loan 1; or if it has an ‘all monies’ charge (as is usually the case) then it may not require a further charge. The Court of Appeal in Tiuta noted that a new charge had been taken; but it is submitted that the critical point, in deciding whether the refinancing involves a discharge of earlier liability, is whether there is a new Loan, not what the security for each Loan is. It is the ‘new money’ being used to repay the existing loan that discharges the liability, not the associated redemption (or not) of any charge: aside from appearing to be correct on principle, this proposition is supported by para.  in the Court of Appeal judgment in Tiuta (undisturbed by the Supreme Court).
Of course, the question of which Loan/negligence the claim stems from is of particular importance in relation to limitation. It is not uncommon for lender claims to be brought many years after the loss is incurred (even taking into account the principles in Nykredit  1 WLR 1627) and it might well be that, say, by the time the lender instructs solicitors to consider a claim against the professional(s), the inception of Loan 1 was more than 6 years ago but the inception of Loan 2 was not. In those circumstances, if the claim for transaction loss on loan 1 can be brought by way of a claim re: Loan 2 (because both were negligent and Loan 2 discharged Loan 1, causing the lender to lose the chance to sue the professional re: Loan 1) then there is no limitation difficulty. If, however, the lender needs to sue for negligence in relation to Loan 1 itself, then limitation becomes an issue.
What if the valuer/other professional is different as between the two transactions?
In principle, there being different negligent professionals in each of Loans 1 and 2 should make no difference to the analysis in terms of factual causation. However, what has not yet been tested is whether or not it is reasonably foreseeable or within the contemplation of the parties, and particularly the valuer or other professional, in Loan 2 that the (different) valuer or other professional in Loan 1 was negligent (i.e. the legal remoteness test). It is submitted that whether that the damage is too remote or not will depend on (a) whether the professional in Loan 2 actually knew about the work done by the professional in Loan 1 (b) how obvious the negligence of the professional in Loan 1 was and/or (c) to some extent, whether the negligent professional in each loan transaction is the same kind of professional.
For example, if in Loan 1 the valuer is negligent but in Loan 2 the solicitor is negligent, there must be a good argument for the solicitor that it did not contemplate or reasonably foresee that the valuer in Loan 1 was negligent and thus that the loss of ability to claim against the valuer in Loan 1 is too remote to be the subject of a damages award against the solicitor in Loan 2. However, if the solicitor was in fact aware of a negligent valuation in Loan 1 (or was constructively so aware as a result of the circumstances) then the loss of a chance to claim against the valuer from Loan 1 might sound in damages against the solicitor in Loan 2. However, even then, the overlay of the scope of duty principles set out in SAAMCo as recently updated in BPE v Hughes-Holland  UKSC 21 must be carefully considered. But if the SAAMCo ‘cap’ (if, indeed, it is a cap, which is the subject of academic and practitioner dispute) is sufficiently large as against the solicitor then the loss from Loan 1 might then be recoverable.
The foregoing highlights the significant risks taken by lenders in refinancing, as opposed to simply originating new lending. That such a distinction of risk exists seems rather unfair, and will lead (especially in the light of the Supreme Court decision in Tiuta) to harder-fought professional negligence litigation in refinance cases compared to original lending cases; however, the Supreme Court’s decision is in accordance with principle and will not likely be revisited any time soon.
Lenders, therefore, need to take particular care when structuring any refinance transaction and should perhaps consider whether there has likely been any negligence by any professional in relation to Loan 1 before proceeding with Loan 2, and structure Loan 2 (and its instructions to any professionals acting in relation to Loan 2) accordingly.
Defendants, on the other hand, may be able to exploit the conceptual difficulties in this area, and also any factual distinctions in a given case, to great effect whenever a professional negligence claim is brought by a refinancing lender.