Tiuta International Ltd ((in Liquidation)) v De Villiers Surveyors Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice McCombe,Lady Justice King |
| Judgment Date | 01 July 2016 |
| Neutral Citation | [2016] EWCA Civ 661 |
| Date | 01 July 2016 |
| Docket Number | Case No: A3/2015/1142 |
| Court | Court of Appeal (Civil Division) |
[2016] EWCA Civ 661
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr. Timothy Fancourt Q.C.
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
Vice-President of the Court of Appeal, Civil Division
Lord Justice McCombe
Lady Justice King
Case No: A3/2015/1142
Miss Joanna Smith Q.C. (instructed by Rosling King LLP) for the appellant
Mr. Alexander Hickey Q.C. (instructed by Reed Smith LLP) for the respondent
Hearing date: 21 st April 2016
This is an appeal against the order of Mr. Timothy Fancourt Q.C. giving summary judgment for the respondent, De Villiers Surveyors Ltd, on one issue relating to the claim by the appellant, Tiuta International Ltd, for damages for professional negligence.
The respondent is a surveyor. In February 2011 it was instructed by the appellant to value a partly completed residential development in Sunningdale, which the appellant was considering accepting as security for an advance to the developer. The respondent valued the property at £3.25 million in its current state of development and £4.9 million on completion. On the basis of that valuation the appellant made available to the developer a loan facility under which it advanced a total of £2,560,168.45 on the security of a first legal charge over the property.
In November 2011 the developer approached the appellant seeking an increase in the amount of the facility to £3,088,252 on the same security. The appellant instructed the respondent to provide a fresh report and in November 2011 the respondent valued the property at £3.25 million in its then state of development and £4.9 million on completion. In another valuation carried out in December 2011 the respondent valued the property at £3.5 million in its current condition and £4.9 million on completion.
The appellant agreed to provide the additional funds sought by the developer and did so by refinancing the facility, rather than by simply varying the original agreement. The amount outstanding under the original loan at that time was £2,560,168.45. In January 2012 the appellant opened a new account in favour of the developer in respect of the second facility. It advanced £2,560,168.45 to repay the amount outstanding under the first facility and further amounts from time to time as and when funds were drawn down by the developer. The parties entered into a fresh agreement in relation to the second facility. The original charge was released and a new charge was executed and registered at the Land Registry.
When the term of the second facility expired an amount of about £2.84 million remained outstanding. The loan was not repaid and the appellant appointed receivers to enforce its security. However, on sale the property was expected to realise only £2,141,280. The appellant therefore brought proceedings against the respondent to recover its loss.
In its particulars of claim the appellant alleged that the valuation report provided by the respondent in December 2011 had negligently overstated the value of the property and that it had suffered loss as a result. In its particulars of claim it put its case in the following way:
"16. Had the Defendant taken reasonable care and given the Claimant such a valuation [i.e. a careful valuation] of the Property, the Claimant would not have made the Loan available to the Borrower and would not have incurred the losses it has now incurred."
It was not part of the appellant's case that the valuation given by the respondent in February 2011 had been negligent.
Paragraph 16 of the particulars of claim invited the riposte from the respondent in paragraph 38 of its defence that at the time of the valuation in December 2011 the appellant had already advanced £2,560,168.45 to the borrower and therefore that, if the valuation in December 2011 had been negligent (which of course it denied), the appellant could not have suffered a greater loss than the amount by which the indebtedness had increased thereafter. The appellant's response was that the second transaction with the developer in December 2011 and January 2012 was a separate transaction unrelated to the earlier transaction and therefore had to be viewed on its own.
The respondent made an application under CPR Part 24 seeking summary judgment on the issue raised in paragraph 38 of its defence. There was, and remains, an issue between the parties whether the first loan was in fact discharged and a new loan advanced, but it was properly accepted, both below and in this court, that that was not a matter that could be determined on a summary application. The case therefore proceeded on the assumption that the appellant's case in that respect was well-founded. Whether the valuation provided by the respondent in November and December 2011 was negligent is also in issue, but for the purpose of this appeal it must be assumed in the appellant's favour that it was.
The application was heard by Mr. Timothy Fancourt Q.C. sitting as a Deputy Judge of the Chancery Division. He held that the "but for" test of causation was applicable in this case and that any negligence by the respondent in relation to the valuation in December had not caused the loss attributable to the original loan. The respondent was therefore liable only for any loss caused by the additional lending.
Since it had to be assumed that the original loan had been repaid through the medium of the second loan, it is not surprising that the decision of this court in Preferred Mortgages Ltd v Bradford & Bingley Estate Agencies Ltd [2002] EWCA Civ 336, [2002] P.N.L.R. 35 played an important part in the argument before the judge and before us. In that case the claimant had advanced £49,500 to the borrower on the security of a property that had been negligently over-valued by the defendant. It later advanced an additional sum on the security of the same property following a second negligent over-valuation by a different surveyor. It did so by refinancing the first loan, i.e. by advancing the borrower an amount sufficient to pay off the first loan and provide the additional funds he required. The claimant brought proceedings against the defendant seeking to recover a loss caused by the first over-valuation, but the claim was dismissed on the grounds that the refinancing transaction had discharged the first loan in full and that therefore no loss flowed from that valuation. That decision was upheld on appeal.
Miss Smith Q.C. submitted that in this case, as in Preferred Mortgages, the effect of the second transaction was to discharge the original loan and to create a new loan supported by fresh security. She argued that in those circumstances the simple application of the "but for" test, for which the respondent contended, would result in injustice, because the appellant would lose the benefit of any claim it had had in respect of the first over-valuation and the respondent, which had provided a negligent over-valuation in support of the second transaction, could not be held liable for the full extent of its breach of duty.
Mr. Hickey Q.C. for the respondent submitted that a straightforward application of the "but for" test of causation in this case would not give rise to an injustice. However it was structured, the second transaction involved nothing more than an agreement to increase the amount of the original loan. It could have been achieved without the need for any amendment of the existing security and if the appellant had decided not to go ahead, it would have remained exposed to the borrower to the extent of the existing loan. It was a matter for the appellant how it chose to organise its business. If it did so in a way which involved the repayment in full of the original loan, it could not complain of the consequences. In support of his submissions he drew our attention to the decision of this court in Swynson Ltd v Lowick Rose LLP [2015] EWCA Civ 629.
It is convenient to digress for a moment to deal with Mr. Hickey's submission on Swynson v Lowick Rose. He argued that the decision is authority for the proposition that in a case of this kind the court should look at the substance of the transaction rather than its form and that accordingly no significance should be attached to the fact that in the appellant's books the first loan had been treated as having been repaid out of the second and that a new charge has been created.
I am not sure that this argument is open to the respondent on this appeal. As I have already said, there is a live dispute between the parties over whether the second transaction was in fact anything more than an extension of the original loan, despite the manner in which it was formally structured and the fact that the first charge was released and a new charge created, and it was common ground below that that dispute could not be resolved in advance of trial. The case was therefore argued on the basis that there had been a refinancing in accordance with the position disclosed by the documents.
In any event, however, I do not think that the decision in Swynson v Lowick Rose supports Mr. Hickey's case. That case concerned a claim by a lender for damages against a firm of accountants for negligence in the production of a due diligence report on the borrower. Loans had been made in 2006, 2007 and 2008. At the end of 2008 there was a refinancing under which the owner of the lender, Mr. H, himself provided funds to the borrower to enable it to repay the 2006 and 2007 loans. The defendant contended that it was not liable for any loss in respect of the 2006 or 2007 loans, because they had been repaid in full. By a majority (Longmore and...
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