Banks, building societies, asset based lenders and surveyors will be affected by the decision that means lenders can recover all of their losses from a negligent valuer arising out of a refinance loan. Rosling King, the solicitors of bridging lender Tiuta International Limited, said that the effect of the case goes 'well beyond' both the lending and valuation industries.
Solicitors Rosling King acted for the Liquidators of bridging lender, Tiuta International Limited, against De Villiers Surveyors Limited in a case involving the valuation of a property development in Sunningdale, Berkshire.
Tiuta sought to recover £890,500 from De Villiers, a loss it suffered arising out of a refinance loan, claiming the valuation report significantly and negligently overvalued the property. De Villiers, however, claimed Tiuta could not have suffered a greater loss than the amount by which the indebtedness had increased after the initial loan, i.e. the loss is limited to the “top up” advance of c£272,700.
The question before the Court of Appeal was whether there was a pre-existing indebtedness created by the first loan, which prevented the lender pursuing a claim for the full loss suffered by entering into the second loan. In an earlier hearing in the Chancery Division, the Court ruled that Tiuta’s loss should be limited to the amount lost in ‘topping up’ the original loan (c£272,700). However, the Court of Appeal has now overturned that decision.
In its judgment, The Court of Appeal held:
“There is nothing unjust in holding the respondent liable in accordance with its own valuation, prepared specifically for the purposes of the second transaction” and that the “second loan is 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 Court of Appeal also stated: “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.”
Georgina Squire, head of Dispute Resolution at Rosling King, said:
“This is a resounding win for lenders on an important point of law. Not only does it have wide ramifications for claims against professional advisers, but it also has a much wider impact as it changes the way in which parties have to assess their loss under the “but for” test. ”
“Lenders will welcome this decision as it settles a contentious issue in relation to how much of their loss they can recover having refinanced. They can now be certain that they may recover their full loss in the event the valuation was negligent, not being restricted to the amount by which the refinance exceeds the original loan.”
“The question was should 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? The Court of Appeal has given much-needed and welcome clarity on the issue."
