Valuer liability: the final word (for now)
After our recent series, readers of the blog probably (hopefully) feel like they know all they need to know about valuers and professional negligence. However, as foreshadowed in those earlier posts (here and here), the Supreme Court has recently ruled in its hearing of the appeal in Tiuta International Ltd v De Villiers Surveyors Ltd. Consequently it makes sense to bookend our thoughts on valuer liability with a brief report on the Supreme Court judgment.
You may recall the original case considered the correct measure of damages where a lender had advanced funds based on a negligent (second) valuation of a property representing the lender's security. The funds included money used to refinance an earlier debt from the same lender. The lender argued that "but for" the valuer's negligence in relation to the second valuation, the refinancing monies wouldn't have been advanced. The valuer contended that, given the fact the first valuation wasn't alleged to be negligent, the most the valuer was liable for was the "new money" advanced, not money used to refinance the existing debt. The Court of Appeal held (reversing the High Court's decision) that the valuer was liable for the full amount because the nature of the refinancing meant the lender entered into that refinancing transaction, discharging the first debt in reliance on the second valuation. The loss sustained being the lender's advance of the second loan and, if the property's value was negligently overstated, the valuer must be liable to the extent the lender's loss was caused by that over-valuation.
On appeal the Supreme Court panel considered the correct position to be rather straightforward. Its decision was based on ordinary principles of the law of damages. That is, when a lender lends and "but for" a negligent valuation wouldn't have done so, you must look at what is required to restore the lender to the position it would have been in had the valuation not been negligent. Applying Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No.2) [1997] 1 WLR 1627 to the specific facts, there could be no basis for recovery of money advanced under the first facility because there was no allegation of negligence in respect of the first valuation. Simply, if the valuer hadn't been negligent, the lender would have still have provided the first facility but not the second. Accordingly the lender could only recover the "new money" advanced under the second facility.
In light of the recent back and forth on valuer liability, the decision helps to clarify the position where a lender has granted additional (refinancing) facilities, relying on valuations by the same valuer (and where the first valuation isn't negligent). In such cases losses will be limited to the amounts advanced over and above those used to refinance the original debt. However, in a concession to the specific facts of this case, the panel stressed that the outcome may differ where the initial valuation had also been negligent.
It's safe to say that in applying the authorities to the specific facts of this case, the decision can hardly be said to provide comfort to lenders or valuers. The points made in our previous posts remain valid. That is, lenders should not regard valuers as a route to recovering any (let alone all) of their losses if their lending decisions turn out to be bad ones. Similarly valuers cannot automatically expect to be protected by inherent limitations in recoveries.