Bank only able to recover additional amounts loaned on refinancing in claim against negligent valuer

In the case of Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77, a lender obtained a valuation for a property loan (F1). F1 was then refinanced under a second facility (F2),  at which time a second valuation was provided by the same valuer. The majority of F2 was used to repay F1, with a small additional amount of new money being advanced. The borrower failed to repay F2.

The Court of Appeal held that if the second valuation provided in respect of F2 was negligent, the lender could claim against the valuer for the full amount of F2, including the amount loaned under F1 which had already been advanced in reliance on the first, non-negligent valuation. The Supreme Court has now reversed this and held that the lender should be restored to the position it would have been in if it had not sustained the wrong. If the valuer had not been negligent for the purpose of F2, the lender would not have loaned the additional amounts pursuant to F2 but would still have lost the monies originally advanced under F1. The fact that most of F2 was applied in discharge of F1 did not alter this. Therefore, the bank could only recover in respect of the new money made available under F2. The position may have been different if the valuation given for F1 had also been negligent. 

This may seem like a common sense conclusion but it is useful to understand that valuers acting on a refinance are not underwriting loans previously made to the borrower prior to refinancing. The fact that the transaction may be documented as an entirely new loan, or the existing loan expressed to be repaid and redrawn, does not alter this in circumstances where the existing borrowings have not in fact been repaid.

Key points

• A bank was unable to claim against a surveyor in respect of a negligent valuation provided on a refinancing for existing borrowings, only any additional amounts being advanced at the time of the refinancing 
• This would be the case even where the original loan was deemed to be repaid and redrawn upon the refinancing.