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Lenders 'dealt a blow' as Supreme Court overturns negligent valuations decision – Not Really?

Tiuta v De Villiers Surveyors made the headlines in December 2017, and some of the headlines (see above for one of many) sent a shiver through the lending industry. But the impact may not be quite as presented.

Why is this case so noteworthy?

What were the facts?

Tiuta lent circa £2.5 million in early 2011, secured against a residential development. De Villiers valued the site at £2.3million with a Gross Development Value of £4.5m.

In December 2011, the borrower sought to restructure with Tiuta and raise further capital. De Villiers, the same original valuer, were retained to produce a second valuation; this time valuing the property at £3.5million with a GDV of £4.9m.

In reliance on the second valuation, Tiuta advanced an entirely new loan facility of circa £3m, repaying the original facility debt (£2.8m), and releasing £280, 000 by way of “additional capital” (my terminology).

The original charge was released, and a new mortgage deed entered into and registered.

Tiuta went into administration. The borrower defaulted, and the Administrators pursued the valuer for all of its losses in professional negligence based upon its negligent second valuation only.

The Arguments

In simple terms,

In monetary terms, this decision was very significant indeed for the lender.

In legal terms, the decision was very significant in terms of how lenders may recover losses in professional indemnity claims where refinancing has taken place on the back of multiple valuations.

What the Supreme Court decided

The Supreme Court reaffirmed the long-held principle that a claimant shall be restored to its original position had the negligence not taken place. So, nothing earth -shattering here.

On these facts, Tiuta would still have suffered losses arising out of first loan facility and valuation, had the second valuation never taken place. It would not have lent a further £280,000. The original facility would not have been repaid.

The level of loss was restricted to the “second capital sum advanced” (my terminology) only.

Impact

Therefore, bad news for Tiuta, better news for valuer and their indemnity insurers, but not necessarily terrible news for lenders as the headlines may have suggested.

Because the decision is fact -sensitive and does leave some uncertainty. For example;

“The valuers had incurred a liability in respect of the first facility, the lender’s loss in relation to the second facility might at least be arguably include the loss attributable to the extinction of that liability which resulted from the refinancing of the existing indebtedness.”

Implications for lenders

Lenders will now need to more carefully consider the mechanics for refinancing existing facilities internally; balancing any commercial benefits of redeeming and advancing afresh (paid exit fees/ enhanced terms and the like) against the potential for restricting rights and claims against their valuation providers to additional sums made available on second facility.

And Lenders would also be best advised to take time and care to tailor the terms of any subsequent retainers with their valuer on second valuations to take into account any existing liabilities under existing valuations already carried out on the same property for the same borrowers.