In Tiuta International Limited (in liquidation) v De Villiers Surveyors Limited [2017] UKSC 77 the Supreme Court reminded us that the measure of damages is that which is required to restore the claimant as nearly as possible to the position that he would have been in if he had not sustained the wrong.
Tiuta International provided short term business finance until it went into administration in July 2012. In April 2011 it had entered into a loan facility for a term of nine months. The funds were advanced relying on a valuation by De Villiers. Shortly before the facility was due to expire Tiuta provided a second loan in an increased amount for a term of six months. Both loans were in connection with the same development. The second loan refinanced the indebtedness under the first facility and advanced an additional sum for the completion of the development. The second advance proceeded on further valuations by De Villiers. On expiry of the second facility none of the outstanding loan had been repaid. The total lending was £3,088,252.
The case proceeded on certain agreed and assumed facts:
- the valuation on which the first facility was based was not negligent,
- the advances made under the first facility were discharged out of the advances under the second facility,
- the valuations given for the purposes of the second facility were negligent,
- but for that negligence, the advances under the second facility would not have been made and
- but for the negligence the advances under the first facility would have remained outstanding.
The Court of Appeal had found that because the second facility was used to repay the pre-existing debt, there was no loss arising out of that lending and Tiuta's loss was the whole amount of the second loan. The Supreme Court criticised this approach as ignoring the fact that the lender would have lost the advances under the first facility in any event. If there had been no negligent valuation then there would have been no second facility. The first facility would have remained outstanding. The negligent valuation had caused only the additional lending and De Villiers' liability was restricted to that amount.
The Supreme Court relied upon the basic comparison set out by Lord Nicholls in Nykredit Mortgage Bank Plc –v- Edwards Bergman Group Limited (2) [1997] 1WLR 1627. Where a claimant would not have entered into the transaction had the valuer fulfilled its duty of care then the correct approach to damages is to compare the position had he not entered into the transaction with his position having done so. This is one occasion where to compare apples with oranges will indeed bear fruit.
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