Tiuta International Ltd v De Villiers Surveyors Ltd [2016] EWCA Civ 661 (01 July 2016)
The professional indemnity insurance (PII) challenges facing valuers between 2008 and 2014 have largely been overcome and most property consultants should now be benefitting from stable, if not reducing, PI insurance rates.
However, some matters are still haunting us, largely in the form of claims relating to valuations undertaken pre-downturn, which are finally being resolved whether in court via mediation or by way of group settlements.
Most of the claims that have attracted publicity in the last 12 months have produced positive outcomes for the surveying profession, including the recent decision in Mortgage Express v Countrywide where the High Court held that the claimant lender was unable to recover compound interest as damages.
One notable exception is the case of Tiuta International Ltd (in liquidation) v De Villiers Surveyors where the Court of Appeal found in favour of the claimants. The Court of Appeal was asked to make a judgement on a discrete issue and, as such, the case proceeded on the basis of assumed facts. A trial on the merits has not taken place and no decision has been reached on whether De Villiers’ valuation was correct or otherwise.
In February 2011, De Villiers provided a valuation for a partially completed residential development comprised of four units. TIUTA advanced the sum of c£2.2 million to the borrower. In November 2011, De Villiers were instructed to value the development again, this time for the purposes of a further advance.
TIUTA lent further funds to the borrower, but instead of amending the original loan to extend it, the original loan was repaid with funds lent in the new loan. The original charge was released and a new charge was registered at the Land Registry.
In September 2012, TIUTA entered administration after the collapse of its main funder. The developer entered administration several months later leaving £2.84 million unpaid. A claim was subsequently brought against De Villiers alleging that the November 2011 valuation had been negligent. Part of De Villiers defence has always been that the cause of any loss is the collapse of TIUTA and not a valuation report.
At the time of writing, the properties remain unsold but it is assumed that when they are marketed, the loan moneys will be re-paid and no loss will be realised.
James Perris, Managing Director of De Villiers said: “We would like to stress that we have not been found negligent and this decision, which is being appealed, is not about valuation. We would add that Lord Justice Moore-Bick, in his statement, incorrectly states the properties were sold. We have written to the Court of Appeal requesting the wording is changed as the properties remain unsold and are yet to be marketed by the receivers. Therefore, any loss, if there is any, has yet to be established.”
In light of the case, Perris stated: “In most instances we have stopped doing mid-development valuations for equity release lenders and will now only provide an initial site value and gross development value (GDV). Whilst that has led some lenders to choose other surveying firms we consider the risks associated with this work are too high. A site will invariably not increase in value proportionally to the monies spent by the developer as a residual valuation may imply.”
Simon Hilditch, a Partner in the International Insurance Litigation and Professional Risk Group at Simmons and Simmons, said: “No allegation of negligence has been made in relation to the first valuation which supported the original loan. In this case, Tiuta relied on an allegedly negligent second valuation provided by De Villiers in order to make a “new” loan secured against the subject property as opposed to making a further advance and effectively topping up the initial loan.
“The Court of Appeal was focusing on the overturning of a first instance decision which granted a summary judgment in favour of De Villiers. In that decision it was found that Tiuta’s recoverable losses, due to an allegedly negligent valuation provided in relation to a re-financed loan, would only relate to those suffered as a result of any additional lending. They would not apply to the amount of the original loan that was re-financed.
“The Court of Appeal, by a majority of 2 to 1, allowed Tiuta’s appeal. It found, based on the assumption that the original loan had been in fact been paid off and the new loan advanced, that the second valuation was for the purpose of supporting a factually and legally separate transaction, and that, assuming the valuation was negligent, the valuer would therefore be liable for the whole of the outstanding losses in question and not just an amount attributable to the additional lending.
“While one can see the logic in the Court’s judgment, the finding is also of course dependent upon the factual assumptions which the Court had to make in the summary judgment context (which might not be borne out at trial). However, in the future, we might see lenders encouraged to execute a fresh loan when they increase the amount of the sum that they are lending, as opposed to simply making a further “top up” advance, so as to take advantage of the CA’s judgment.”
Specialist PI brokers, Howden, have said premiums shouldn’t increase as a result of the case.
Lance Rigby, Executive Director of Howden said: “Whilst underwriters may pay closer attention to firms undertaking similar valuations to that at the heart of this case, it is highly unlikely that this decision alone, will lead to a wholesale increase in PI rates. Notifications against valuers have fallen by an estimated 25% in the last year and whilst this decision is unfortunate, most underwriters are confident that improvements to risk management across the valuation profession have been beneficial, especially when combined with the impact of limitation and the Jackson Reforms.”
Rigby adds: “We are supportive of recent guidance advising valuers to try and limit liability in circumstances where a valuation may be relied upon to extinguish an existing loan and make an entirely new loan. At the same time, we are aware of the historic difficulties associated with persuading lenders to agree to any form of amendment to their standard terms. However at a time when insurers are asking an increasing number of questions about the nature of the insured’s client base, we would expect those lenders who are lending in higher risk areas to be mindful of the fact that they may need to take a more amenable approach in order to ensure that the work valuers do on their behalf continues to be insurable.”
