A Mayfair firm of chartered surveyors has successfully fended off a valuation negligence claim from a lender that blamed it for £3m losses following a refinancing deal gone wrong.
The Supreme Court ruled in favour of De Villiers Surveyors that the lender’s losses were limited to less than £300,000 – the difference between the sum loaned on the basis of a first valuation not alleged to be negligent, and the higher sum loaned following a second valuation months later.
The ruling is one which will be welcomed by surveyors, but may cause concern among lenders, as it potentially has a significant impact on future negligence claims in cases of refinancing.
Juliet Schalker, a partner in Debenhams Ottaway LLP’s commercial disputes team, said: “It is important to remember that this decision does not extinguish a lender’s ability to bring a claim against a negligent valuer where the valuation was provided for refinance purposes. It merely limits the quantum that lenders can claim to the ‘top up’ advance.
“It may well be that, in order to recover the loss incurred on the first loan, lenders include a loss of chance claim arising out of the first loan when suing on the refinance loan. No doubt this judgment will prompt lenders and their lawyers to think of innovative ways to maximise recoveries to ensure that the loss incurred on the first loan does not fall down a black hole.”
David Stevens, real estate litigation partner at Norton Rose Fulbright, added: “Lord Sumption has fortunately restored the common sense application of the ‘but for’ test to a refinancing scenario and sensibly concluded that the lender cannot recover that part of the loan that had previously been advanced on the basis of an earlier, non-negligent, valuation and that would have been lost whether or not the refinancing transaction had proceeded. This is a victory for substance over form and should make it easier for lawyers to advise litigants about their likely recoverable losses at an early stage in proceedings.”
In April 2011, Tiuta International, a lender of short-term business finance until it went into administration in July 2012, entered into a nine-month loan facility agreement in connection with a residential property development in Sunningdale, following a first valuation by De Villiers.
In December 2011, Tiuta entered into a second loan facility agreement with the same borrower for £3,088,252, with £2,799,252 of that sum used to discharge the outstanding indebtedness under the first facility.
However, the borrower defaulted and no sums have been repaid. Tiuta alleged that a second valuation provided by De Villiers for the purposes of the second facility was negligent, and that but for that negligence, it would not have advanced the sums under the second facility. It did not allege negligence in respect of the first valuation.
De Villiers applied successfully to the High Court for summary judgment, arguing that Tiuta would have suffered some loss in any event. It claimed that, but for the allegedly negligent second valuation in respect of the second facility, no sums would have been advanced under the second facility, but the sums due under the first facility would have remained unpaid. The judge ruled that, as a result, Tiuta’s loss was limited to the £289,000 difference between the two loan facilities.
However, last year the Court of Appeal disagreed and allowed Tiuta’s appeal, paving the way for a full trial of the action.
Now though, the Supreme Court has sided with De Villiers and restored the High Court decision.
Lord Sumption said that the surveyors should not be held liable for more than the lender’s “actual financial loss”.
He said: “It does not follow from the fact that the advance under the second facility was applied in discharge of the advances under the first, that the court is obliged to ignore the fact that the lender would have lost the advances under the first facility in any event.”
While it remains open to Tiuta to pursue a much smaller claim relating to its increase in the overall loan amount, back in 2015 when the High Court first granted summary judgment, it was not thought that the sum involved – less than £300,000 – would warrant litigation.
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