Lender claims dealt a blow by Supreme Court

This morning the Supreme Court handed down its much anticipated judgment in the case of Tiuta International Limited (in Liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77. Despite the Court of Appeal having found in favour of Tiuta (a former lender) last summer, the Supreme Court overturned that decision and gave judgment for the valuers and, notably, their insurers.

This latest judgment from the Supreme Court tops off a bad year of decisions for lenders. Lender claims were dealt a blow by Lord Sumption’s judgment in BPE Solicitors and another (Respondents) v Hughes–Holland (in substitution for Gabriel) in March this year, significantly narrowing the scope of professional negligence claims that can be brought against conveyancing solicitors. Hot on the heels of BPE was Lord Sumption’s damning decision in Lowick Rose LLP (in liquidation) v Swynson Limited and another in April which found that, although a firm of accountants had been negligent, the lender could not recover any loss because of the way in which the lender had structured the loan repayments. It should probably not come as a surprise that, once again, Lord Sumption has decided against the lender in Tiuta, limiting the amount of damages a lender can recover from a negligent valuer where the valuation was provided for refinance purposes.

Facts

The question before the Supreme Court was: can a lender recover all its loss on a refinance loan from a negligent valuer, or is the lender limited to the “top up” advanced after the existing loan is redeemed (because it would have suffered the loss on the existing loan in any event)?

De Villiers were instructed by Tiuta to value a property in Berkshire. In reliance upon the valuation report, Tiuta advanced funds to its borrower. The borrower later approached Tiuta to request an increase in the loan facility. De Villiers was instructed to prepare a second valuation report, in reliance upon which Tiuta redeemed the existing loan and advanced further funds of c£2.84m (c£2.5m to redeem the existing loan and rest as the “top up”) to the borrower by way of a refinance.

Tiuta subsequently sought to recover the loss arising out of the refinance loan (c£890,500) from De Villiers, claiming that the second valuation report had negligently overvalued the property. De Villiers applied for summary judgment in relation to the issue of quantum, claiming that if its second report was negligent, Tiuta could not have suffered a greater loss than the amount by which the indebtedness had increased thereafter (i.e. Tiuta’s loss is limited to the “top up” advance of c£272,700).

First instance

At first instance, the Court agreed with De Villiers and held that any negligence by De Villiers in relation to the second valuation had not caused the loss attributable to the original loan (i.e. the c£2.5m), meaning that Tiuta’s recoverable loss was limited to the “top up” advance of c£272,700. Tiuta sought leave to appeal this decision, which was granted, and the matter came before the Court of Appeal in April 2016.

Court of Appeal

The Court of Appeal held, by a majority, that De Villiers was liable for all of the loss flowing from the negligence of its second report. De Villiers accepted instructions from Tiuta to value the property. They accepted those instructions, in their professional capacity, in the knowledge that their valuation was sought in order to inform the lender in making its decision in respect of the borrower’s application for a loan to be secured on the property. The Court of Appeal found that it was of no interest to the valuer what the purpose of the new loan was. De Villiers valued the property in expectation that the Tiuta would advance funds up to its full reported value in reliance upon the second valuation report.

The Court of Appeal went so far as to state 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.”

So why then did the Supreme Court disagree?

Supreme Court

In his judgment, Lord Sumption found that the repayment of the first loan was a term of the second loan and that Tiuta’s exposure on the second loan was limited to the “top up” advance. As a result, any negligence by De Villiers in relation to the second valuation had not caused the loss attributable to the original loan (i.e. the c£2.5m). Tiuta’s recoverable loss is therefore limited to the “top up” advance of c£272,700.

Analysis

Whilst this is yet another disappointing Supreme Court decision for lenders, 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.