Negligence ruling hits surveyors

7 July, 2016
by: Cripps Pemberton Greenish

 

On 1 July 2016 the Court of Appeal handed down judgment in a lending case that is expected to have important consequences for the lending industry, for surveyors and, potentially, other professionals. Tiuta International Limited (in Liquidation) v De Villiers Surveyors Limited [2016] EWCA Civ 661.

Housing development

The issue: a lender provides a loan to a borrower to re-finance an existing loan, relying on a surveyor’s valuation of the security offered. The borrower defaults. It turns out that the surveyor negligently over-valued the security. Can the lender recover its total loss from the surveyor, or is the surveyor only responsible for the “top up” element of the second loan because the lender would have suffered the loss on the existing loan anyway?

The quirk in this case was that the surveyor provided the valuations for both the original loan and the re-financing loan, which were to fund a property development.

The lender’s total loss was £890,000 but the top up advance was £270,000.

At first instance, the court accepted the surveyor’s argument that the second, negligent, valuation had not caused the loss on the original loan, only on the top up element.

The Court of Appeal disagreed. The surveyor was instructed to value the property to help the lender decide whether to lend more money to finance the property development. The property was security for the loan. The valuation was negligent. The way the loan was to be made i.e. by re-financing rather than a smaller ‘top up’ loan, was not relevant to the question whether the negligence had caused the loss. The valuer knew the lender would advance funds up to the full reported value as given in the second valuation report.

The Court of Appeal concluded that the second loan was “entirely independent from the first loan…had there not been a negligent valuation, the appellant would not have entertained the second transaction and [its] loss is the total advance of the second loan, less the [borrower’s] covenant and the true value of the security”.

The conclusion would have been the same if a different surveyor had carried out the first valuation. It is an important decision for lenders, and for their professional advisers, and it is being said that it will impact upon surveyors’ professional indemnity premiums. We will see if it has wider ramifications.