Tiuta International Limited (In liquidation) v De Villiers Surveyors Limited

Posted on 22/08/2016 · Posted in Expert Witness, Financial Litigation, Investment

Damages and the “but for” test in Professional Negligence

This is one of many blogs currently published by solicitors as well various legal e-magazines in respect of this case, which represents an important decision by the Court of Appeal. The solicitors for Tiuta were Rosling King. In this article I do not intend to look at the finer legal points but to look at the judgement from the point of view of lenders and their professional advisers.

The background facts are that, in April 2011, Tiuta provided a loan of £2.22 million to a borrower. De Villiers had provided a valuation report to Tiuta in respect of the property forming the security, February 2011.

In December 2011, De Villiers valued the property again for Tiuta, following which Tiuta entered into a new facility agreement with the borrower for a loan of up to £3.09 million. The new facility resulted in the original loan being redeemed and a new mortgage being put in its place. The new facility was drawn in 2012.

There is always inequality in life.”
John F. Kennedy

The borrower defaulted and Tiuta brought a professional negligence claim against De Villiers. The issue before the court was whether Tiuta could make a claim in respect of the whole amount advanced or whether it would only be for the additional amount advanced as a result of the new facility in 2012. By this time, the original debt stood at £2.56 million. Total drawings under the new facility were £2.84 million. As such the amounts at stake were substantial – would Tiuta be able to claim up to £2.84 million or only the £280,000 difference between the new facility and the original in April 2011?

At first instance, the court found in favour of De Villiers, although pointed out that Tiuta could still, in principle, frame a claim in respect of negligent advice regarding the February 2011 valuation and the original loan facility. However, the Court of Appeal overturned this and found for Tiuta.

The Court of Appeal decided that the relevance of the “but for” test is that, De Villiers knew that Tiuta would rely on its December 2011 valuation. If that valuation had not been negligent, Tiuta would not have entered into the new facility and, thereby, suffered loss. Therefore, De Villiers was liable for the whole loss resulting from the December 2011 valuation.

The Court of Appeal held that there is “nothing unjust in holding the respondent liable in accordance with its own valuation, prepared specifically for the purposes of the second transaction” and that the “second loan is entirely independent from the first loan…had there not been a negligent valuation, the appellant would not have entertained the second transaction and [its] loss is the total advance of the second loan, less the [borrower’s] covenant and the true value of the security”.

The Court of Appeal added that “it could be said to be inherently unfair that…. a negligent valuer could use an attack on the legitimate working practices and systems of the appellant as a means of escaping part of the consequences of his or her negligence.”

Expert Evidence Limited is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

Link: Tiuta International Limited (In liquidation) v De Villiers Surveyors Limited [2016] EWCA Civ 661 and [2015] All ER (D) 267 (Mar)

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