The simple “but for” test in negligence can tax the sharpest legal minds. Challenge accepted, writes Stuart Pemble
Key points
- The Court of Appeal has struggled with the correct way to apply the “but for” test in a case of negligent valuation where a loan is used to repay an existing liability
- The issues are complicated and merit consideration by the Supreme Court
The Court of Appeal’s decision in Tiuta International Ltd v De Villiers Surveyors Ltd [2016] EWCA Civ 661; [2016] EGLR 51 shows that even the most fundamental of legal tests can be devilishly difficult to apply in practice.
The challenge faced by anyone bringing a negligence claim is that they must show that the defendant’s negligence caused their loss. In other words, “but for” the defendant’s carelessness, the claimant would not have suffered the damage for which they are seeking compensation.
In Tiuta, this was a difficult hurdle for the claimant to overcome; so much so, that four of the country’s leading legal minds ended up equally split on the issue
The facts
The dispute arose out of a residential development in Sunningdale, Berkshire. In 2011, and again in 2012, Tiuta had lent money to the developer behind the project based on two separate valuations carried out by De Villiers.
The claim in negligence only related to the second valuation, when the developer had asked for an increase in the funds available to it. The case was considered on assumed (but disputed by Tiuta) facts; rather than simply extending the amount available under the first loan, Tiuta decided to treat the second loan as a new facility with the original debt (£2.6m) being paid off and further funds drawn down by the developer as required.
When Tiuta commenced proceedings, De Villiers applied for summary judgment on the basis that any loss attributable to the original loan was not caused “but for” the second valuation. Instead, it was caused by the decision to lend £2.6m as a result of the first valuation and there was no allegation of negligence in relation to that. If this analysis was correct, then Tiuta’s claim was limited to any loss caused by any additional funds being drawn down by the developer under the 2012 loan.
The summary judgment application was heard by one of our most distinguished property lawyers, Timothy Fancourt QC, who was sitting as a deputy High Court judge. Tiuta argued that De Villiers’ argument left it without a remedy for the majority of its loss; De Villiers countered that the court could not ignore the but for test simply as a result of Tiuta’s decision to structure the second facility as a new loan rather than an extension of the existing one.
The deputy judge, who was influenced by the decision in Preferred Mortgages Ltd v Bradford and Bingley Estate Agencies Ltd [2002] EWCA Civ 336 (where it was held that a claim for negligent valuation was extinguished when the loan made on the basis of the allegedly negligent valuation had been redeemed) agreed with De Villiers. Tiuta appealed.
The appeal
By two-to-one, the Court of Appeal allowed the appeal. Moore-Bick LJ (with whom King LJ agreed) gave the leading judgment. McCombe LJ wrote a robust dissent in which he endorsed the analysis of the deputy judge.
There were two key points for the majority of the Court of Appeal. First, “the purpose to which the new loan will be put is of no… relevance, either in fact or in law, to the person who is asked to value the property on which it is to be secured”.
Also, the fact that the second loan was used to pay off the first actually helped Tiuta’s case:
“The loan made under the second transaction was the means by which the borrower was enabled to pay off the first and… that released [De Villiers] from any potential liability in respect of the first valuation.”
As a consequence, the second loan stood completely apart from the first and “the basic comparison for ascertaining [Tiuta’s] loss is between the amount of that second loan and the value of the security”.
In other words, Tiuta would not have lent the amount that it did but for the second valuation and it was entitled to damages for the difference between the amount outstanding and the sale price of the development.
Consequences
Although of little comfort to De Villiers in particular, or valuers in general, the case highlights how nuanced decisions regarding professional negligence can be.
Arguably, the positions adopted by both the majority of the Court of Appeal on the one hand, and the deputy judge and McCombe LJ on the other, are equally compelling. It is only an accident of the appellate system that a two-all draw among judges actually results in a victory for one side.
It has been nearly 20 years since the House of Lords’ decision in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1997] UKHL 53 that the basic measure of damages recoverable from a surveyor in respect of a negligent overvaluation was the difference between the position if the defendant had fulfilled its duty of care and the actual position as a result of the negligence.
Given the issues raised in Tiuta, perhaps it is time for the Supreme Court to reach a definitive conclusion on the correct measure of damages in cases of negligent revaluations. As the deputy judge said of the current state of the law, despite the plethora of cases on surveyors’ negligence, “there are always cases where the particular facts throw up tricky issues as to how the established principles should be applied”.
* This article was amended (on 13 February 2018) from an earlier version, which stated that “…the property could only be sold for around £2.14m.” This was incorrect and the sentence has been updated accordingly. It also stated that “On both occasions (February and December 2011), De Villiers had valued the still-to-be-completed property at £3.25m.” This was incorrect and the sentence has been removed.
Stuart Pemble is a partner at Mills & Reeve LLP
