Valuers' negligence and refinancing transactions

The Supreme Court has applied basic principles of the law of damages to a valuers' negligence claim in the context of a refinancing transaction.

The Supreme Court handed down its judgment in Tiuta International Limited v De Villiers Surveyors Limited on 29 November 2017. The case raised interesting issues as to the measure of damages to be adopted where there has been a negligent valuation of property in the context of a financing transaction. The Supreme Court unanimously overturned the majority judgment of the Court of Appeal and restored the order made at first instance by a deputy judge.

The facts

In outline, Tiuta International Limited (TIL) was the financier of a residential development and De Villiers Surveyors Ltd (DVS) was its surveyor. In February 2011, DVS valued the partly completed development at £3.25m in its then current state of development and £4.9m on completion. In reliance on the valuation, TIL advanced approximately £2.56m to the borrower and took a first legal charge over the development.

In November 2011, the borrower requested that the amount of the loan should be increased to approximately £3.088m. TIL instructed DVS to provide an updated valuation. DVS valued the development at £3.5m in its then current state and £4.9m on completion. TIL increased the amount of its loan to the borrower. It documented the further advance not by way of an amendment to the original loan agreement, but by entering into a new loan agreement with the borrower. Under the arrangement, the first loan was discharged along with the existing security. TIL took a new legal charge over the development.

The borrower encountered financial difficulties. TIL appointed receivers to enforce the security and, on the resulting mortgagee sale, the development realised some £2.141m. TIL looked to DVS for the shortfall as a result of the alleged negligence of DVS in relation to the second valuation.

The issue

The case came before the courts on an application for summary judgment and had to be decided on the basis of facts and arguments some of which were admitted and others which had to be assumed to be correct. The application was concerned only with liabilities arising out of the second valuation. It was assumed that the second valuation had been negligent and that but for that negligence, the advances under the second facility would not have been made. It was also common ground between the parties that existing case law established that where advances made under a facility were discharged out of advances under a second facility, the lender was left with no recoverable loss under the first facility.

DVS argued that the most that they could be liable for by way of damages was the new money advanced under the second facility. They could not, they said, be liable for that part of the loss which arose from the advance made under the second facility and applied in discharge of the indebtedness under the first. TIL argued that DVS should be liable for the difference between the full amount advanced under the second facility and the amount realised on sale.

The Court of Appeal’s judgment

The majority in the Court of Appeal held that TIL was correct. Moore-Bick LJ said:

“When a lender is considering making a fresh loan, part of which is to be used to re-pay an existing loan, the purpose to which the new loan will be put is of no interest or relevance, either in fact or in law, to the person who is asked to value the property on which it is to be secured. The valuer is liable for the adverse consequences flowing from the lender’s entering into the transaction insofar as they are attributable to any negligent deficiency in the valuation… The loan made under the second transaction was the means by which the borrower was enabled to pay off the first and it was the fact that the second loan was used to repay the first in full that released the respondent from any potential liability in respect of the first valuation. The second loan therefore stands apart from the first and the basic comparison for ascertaining the appellant’s loss is between the amount of that second loan and the value of the security.”

The Supreme Court’s judgment

The Supreme Court held that DVS was correct, disagreeing with the majority in the Court of Appeal. Lord Sumption, delivering the judgment, noted that the result based on the assumed facts was in reality “perfectly straightforward” and turned on ordinary principles of the law of damages. Damages are intended “to restore the claimant as nearly as possible to the position that he would have been in if he had not sustained the wrong”, subject to questions of causation and remoteness. It was necessary, on these facts, to apply the “basic comparison” from Nykredit v Erdman Group, namely to compare the claimant’s position had it not entered into the transaction, and its position under the transaction. This involves asking how much better off would the lender have been if it had not lent the money which it was negligently induced to lend. It did not follow from the fact that the advance under the second facility was applied in discharge of the advances under the first that the court was obliged to ignore the fact that the lender would have lost the advances under the first facility in any event.

Lord Sumption said:

“if the valuers had not been negligent in reporting the value of the property for the purpose of the second facility, the lenders would not have entered into the second facility, but they would still have entered into the first. On that hypothesis, therefore, the lenders would have been better off in two respects. First, they would not have lost the new money lent under the second facility, but would still have lost the original loans made under the first. Secondly, the loans made under the first facility would not have been discharged with the money advanced under the second facility, so that if the valuation prepared for the first facility had been negligent, the irrecoverable loans made under that facility would in principle have been recoverable as damages. There being no allegation of negligence in relation to the first facility, this last point does not arise. Accordingly, the lender’s loss is limited to the new money advanced under the second facility".


Ultimately, the result of this case was particularly sensitive to the assumed facts. That result would almost certainly have been different had there been an allegation of negligence in relation to the first valuation as well as to the second. It is therefore useful as clarification on the application of the ordinary principles of damages law in this very particular scenario but is of limited value elsewhere. Negligence was not alleged here in relation to the first valuation. Whilst there may have been very good reasons for this, the decision does serve as a useful reminder to parties to ensure that where necessary, they keep open avenues which, if closed off, may lead to unintended consequences.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.