Summary Judgment granted to defendant surveyors on a novel point of causation
Tiuta International Ltd (in liquidation) and De Villiers Surveyors Ltd  All ER (D) 267 (Mar).
The Defendant valuer valued an unfinished residential development for the Claimant lender in February 2011. Relying on this valuation, the Claimant provided a loan of £2,221,768 to the borrower under a facility agreement in April 2011. In November 2011 the Defendant undertook a further valuation on the same property which resulted in the Claimant providing the same borrower with a new facility agreement in December 2011 (to advance up to £3,088,252). This was achieved by the claimant redeeming the first mortgage by replacing it with the larger one and transferring the debt into the new facility.
The Claimant brought a claim for professional negligence against the Defendant based upon its November 2011 valuation when the borrower failed to repay the loan (the Claimant having appointed LPA receivers to deal with the security). About £2,840,000 of the new facility had been drawn upon.
The Defendant applied for summary judgment on the issue of causation, on the basis that at the time when the moneys under the new facility were first drawn down in 2012, the borrower already owed the Claimant a total sum of £2,560,168.45 ("the existing indebtedness"). Since this sum was loaned on the basis of the February 2011 valuation, which the Claimant was not alleging had been negligent, the Defendant argued it could not be liable for this sum.
The 'but for' test
The Claimant argued that the monies drawn down in 2012 were provided as a completely new loan, with different terms and a new facility fee, and that the new advance fully discharged the existing loan account and the first legal charge. Therefore, the Claimant said the whole of the monies now due to the Claimant were advanced in 2012, in reliance on the negligent November 2011 valuation.
The Defendant countered by arguing that even if the second loan did redeem the first loan and legal charge, any negligent valuation in November 2011 still did not cause the Claimant loss, in so far as said loss was attributable to the existing indebtedness.
The court agreed with the Defendant that the existing indebtedness could not be attributable to the Defendant's November 2011 valuation, since it failed the 'but for' test of causation. If the Defendant had valued non-negligently in November 2011, and the Claimant lender had therefore refused to offer the borrower a new facility, the Claimant would still have been exposed to the existing indebtedness.
The Claimant sought to rely on the decision in Preferred Mortgages Ltd v Bradford and Bingley Estates Agencies Ltd  EWCA Civ 336. In Preferred Mortgages, the court held that a lender's claim against a valuer for a negligent valuation was extinguished upon the redemption of the loan made based on that valuation. The Claimant in the present case argued that following Preferred Mortgages would leave it without a remedy, since the loan made based on the February 2011 valuation had been redeemed by the second loan based on the November 2011 valuation, and the court should therefore display the 'but for' test to avoid this legal black hole.
A novel point
The court recognised that the point argued by the Claimant was a novel one, but held that there was nothing in Preferred Mortgages which supported the Claimant's argument that causation should be decided on a basis other than the usual 'but for' test in the present case. The fact that no claim was possible in respect of the first valuation (February 2011) did not make the application of the 'but for' test to the second valuation (November 2011) inappropriate or unfair, since the Claimant was not left without a remedy. If the first valuation was made negligently then, whilst a claim for it would be extinguished following Preferred Mortgages, the loss of availability of this claim would be a loss the Claimant had suffered due to the second valuation. In other words, 'but for' the November 2011 negligent valuation, the Claimant would have still been exposed to the existing indebtedness, but would not have lost its right to sue for any negligence in the February 2011 valuation.
The court therefore accepted the application for summary judgment in the Defendant's favour in the case as pleaded. The court recognised, however, that this decision would not in principle prevent the Claimant from seeking to amend its particulars of loss, to rely on the value of a claim for any loss that would have been caused by negligence in the February 2011 valuation.