Surveyors’ PI: successful application of “but for” test in assessing causation of loss
After a stream of successes for lenders in valuation claims against valuers in recent times, the recent success for a valuer in an application for summary judgement in the case of Tiuta International Ltd (in liquidation) v De Villiers Chartered Surveyors Ltd offers some comfort to valuers. It demonstrates the courts’ unwillingness to follow creative attempts by lenders to establish a cause of action by disregarding the established legal principles in respect of causation in valuation claims.
In this case the defendant valuers, De Villiers, successfully applied for a summary judgement against the claimant lender, Tiuta’s claim on the basis that the allegedly negligent valuation was not causative of the claimed losses. Rather, those losses claimed were attributable to an existing indebtedness.
Tiuta alleged that De Villiers negligently overvalued a partially built residential development in November 2011. Tiuta alleged reliance on the valuation to advance approximately £3 million (“the Loan”) to the borrower. The borrower failed to repay the Loan and Tiuta appointed LPA receivers.
De Villiers had previously valued the development in February 2011, which Tiuta had relied on to make an advance of £2.2 million (“the February Loan”). That valuation was not alleged to have been negligent. However, the losses claimed by Tiuta included those attributable to the February Loan which meant that at the time the monies under the Loan were drawn down Tiuta was already indebted for approximately £2.5 million.
The court had to decide:
- Whether the “but for” causation of loss test was applicable to the circumstances of this matter, with regard to the case of Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd  whereby the right of action against a valuer was extinguished as the loan in that matter was fully redeemed, the result of which meant the valuer could be liable only for any losses flowing from a transaction attributable to its valuation.
- If it was found that the “but for” test applied and this resulted in Tiuta losing any cause of action against De Villiers, Tiuta contended that this was an area of “developing jurisprudence” which could not be addressed on a summary judgement application.
“But for” arguments
De Villiers’ summary judgement application centred around the causation argument that any loss attributable to the existing indebtedness (i.e. from the February Loan) could not be said to have been caused by any negligence in respect of the November 2011 valuation. This was on the basis that had the property been valued correctly no new facility would have been offered and Tiuta would have “faced an unavoidable loss” irrespective of De Villiers’ advice. This, therefore, fell foul of satisfying the established principles of causation (the need to satisfy the “but for” test) as set out in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd No 2  - “the comparison between (a) what the plaintiff’s position would have been if the defendant had fulfilled his duty of care and (b) the plaintiff’s actual position.”
Tiuta advanced the argument that, on the basis the second loan discharged the first, the whole of the monies due were advanced in reliance on the November 2011 valuation and accordingly all losses suffered were caused by that allegedly negligent valuation. Tiuta also raised a fairness argument, insofar as it had lost its right of action in respect of the February 2011 valuation (through the loan discharge), that should the court decide that the “but for” test applied it would be left with no remedy.
The court sided with De Villiers. There was nothing in the Preferred Mortgages case which supported Tiuta’s argument that causation should be established on any other basis. The court held that the fact there was no claim in relation to the February 2011 valuation did not render the application of the “but for” test to the November 2011 valuation unfair. The claim in respect of the November 2011 valuation “must stand or fall on its own merits.”
Additionally, the court found that insofar as losses had been suffered as a result of making the Loan available to the borrower, on the basis of an allegedly negligent November 2011 valuation, Tiuta’s losses could have included the value of any ‘lost’ claim it had against De Villiers in the February 2011 valuation. The court was, however, clear that this did not mean the cause of action in relation to the February 2011 valuation would “disappear into a black hole”. It was open to Tiuta to amend its particulars to include losses flowing from the February 2011 valuation. This would be dependent on there being grounds for a negligence claim in respect of the February 2011 valuation (it is noteworthy the February 2011 valuation had not been criticised by Tiuta).
Novel point of law?
Unusually, Tiuta raised the argument that, upon its interpretation of the conclusion in Preferred Mortgages, the normal “but for” test was not applicable in circumstances where a “fresh” loan has been made. Tiuta therefore invited the court to dis-apply the “but for” test, suggesting that this was a novel point of law and that such decisions must be made on established facts rather than assumed facts.
The court held that the decision in Preferred Mortgages did not present a situation where the usual “but for” test should be dis-applied in such cases. The court concluded that this area is not one of “developing jurisprudence” and is instead a well-established area of law.
Whilst it remains to be seen whether Tiuta will re-formulate its claim (or indeed whether it is able to) in respect of the February 2011 valuation, this judgment strengthens the courts’ emphasis on upholding established principles of causation of loss in such claims against valuers. It will be welcome news to valuers that the court will not seek to create a ‘workaround’ to ensure lenders retain a cause of action in these circumstances. The court was clear: the rules are well established and will more often than not be adhered to.
These arguments will be particularly relevant to the range of claims being seen from valuations undertaken for re-financing purposes from the ‘back end’ of the financial downturn.
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