02 Jan 2018

Case report: Tiuta International Limited (in liquidation) (Respondent) -v- De Villiers Surveyors Limited (Appellant) [2017] UKSC 77

In a welcome decision for valuers and other professionals, the Supreme Court has re-affirmed the primacy of the 'but for' causation test.

Background

In April 2011 the lender, Tiuta entered into a loan facility agreement to fund a partially completed residential property development (the First Loan). This was secured by a charge over the development site. Tiuta entered into the First Loan on the basis of a valuation of the development site by De Villiers (the First Valuation). 

The First Loan was refinanced in January 2012. On the basis of another valuation by De Villiers (the Second Valuation) Tiuta entered into another facility agreement with the developer which was secured by a new charge over the development site (the Second Loan).

Most of the Second Loan was used to refinance the First Loan and the remainder was new money to fund completion of the development. The Second Loan was never repaid by the developer and following Tiuta going into administration in July 2012, the development site was sold, with Tiuta suffering a significant shortfall. Tiuta then brought professional negligence proceedings against De Villiers.

De Villiers applied for summary judgment and the parties agreed to a number of key assumptions, namely that:

1.    The First Valuation was not negligent.

2.    The Second Valuation was negligent.

3.    But for the negligent Second Valuation, Tiuta would not have made the Second Loan.

De Villiers argued that, had Tiuta not entered into the Second Loan, the First Loan would not have been repaid. Therefore it could only be liable for the new money advanced under the Second Loan as Tiuta would have lost the First Loan in any event. The High Court agreed with that argument.

However, that decision was reversed on appeal. The majority of the Court of Appeal held that, as the valuer would have contemplated that he might be liable for the full amount advanced by Tiuta, it was irrelevant that Tiuta would still have suffered a substantial loss had De Villiers' Second Valuation been non-negligent. 

The Supreme Court's decision

The Supreme Court unanimously disagreed with the Court of Appeal and stated that the claim had to be decided in accordance with the normal principles which apply to the law of damages, of which the 'but for' causation test was key.
In this case, but for the assumed negligence of De Villiers, Tiuta would not have made the Second Loan and therefore could claim for the new money advanced under that Second Loan but nothing more.
Lord Sumption, who gave the only judgment of the Supreme Court was clearly unimpressed with Tiuta's argument that the repayment of the First Loan by the Second Loan was a collateral benefit which should be disregarded when assessing Tiuta's loss. He said that:

1.    The repayment was not a benefit because the net effect of the repayment on Tiuta's loss was neutral; and

2.    The repayment was not collateral because it was required by the terms of the Second Loan.

Comment

The decision of the Supreme Court is good news for surveyors because it re-affirms that – while a lender may be entitled to structure a loan as it sees fit from a business perspective – from a liability perspective it cannot claim for losses it would have suffered in any event.
However, what the decision does leave open is the question of whether Tiuta could have pursued De Villiers for the loss of the chance to bring a claim in respect of the First Valuation (such a claim having been extinguished by redemption of the First Loan). Lord Sumption seemed to hint that – had such a claim been made by Tiuta – the Court would have had to analyse the claim somewhat differently. Surprisingly Tiuta did not assert that the First Valuation was negligent and it may now be too late for it to do so because of limitation. If it does, we can expect the arguments over foreseeability of damage and scope of duty to be hotly contested!