Redefining the causation requirement in a Professional Negligence case against a surveyor
A recent English Court of Appeal judgment in the case of Tuita International Ltd (in Liquidation) v De Villiers Chartered Surveyors [July 2016] overturned a decision whereby the Defendant surveyor had successfully argued that the Plaintiff had not established causation in respect of losses arising from an alleged negligent valuation underpinning a refinance loan. The earlier decision of the court was viewed as having re-established causation as a vital element in a professional negligence case. The new decision has refined the scope of the causation requirement and has implications for valuers, lenders and insurers.
The Plaintiff provided a loan to a borrower in February 2011 on the basis of a valuation provided by the Defendant. The property was then revalued by the Defendant in November 2011 and the plaintiff advanced £2.8million to the borrower, which redeemed the first facility of £2.5million and provided a top up loan. The borrower failed to repay the money and Receivers were appointed. After the sale of the property, the Plaintiff sought to recoup losses which were in the region of £900,000 in a claim against the Defendant, alleging that they had acted negligently in relation to the second valuation on foot of which the refinance facility was provided.
In the first hearing, the court found in applying the causation “but for” test that even if the second valuation had been negligent and the second loan not proceeded, the Plaintiff would still have been exposed to the debt arising from the original loan therefore the losses had to be limited to the amount by which the second loan exceeded the first loan.
The decision was seen as an important affirmation of the courts reluctance to depart from the well-established test of causation, which means that even where a plaintiff can establish a breach of duty on the part of the defendant, he needs to prove that “but for” that breach, the Plaintiff would not have suffered a loss. In these circumstances, the comparison between what the Plaintiff’s position would have been if the Defendant had fulfilled his duty of care and the Plaintiff’s actual position was only the difference between the first and second loan therefore summary judgment was granted to that extent.
However, when the Court of Appeal considered the application of the “but for”/causation test and held that had there not been a negligent second valuation, the Plaintiff would still have had a potential claim against the valuer in respect of the first loan. Therefore, the plaintiff was entitled to recover all the losses and not the difference between the 2 loans. This was to avoid such claims being lost in a “black hole” in such refinance situations and very much turned on its particular facts and the broad retainer of the valuers concerned who were retained to value the property as a whole.
As ever, the devil is in the detail with all professional negligence cases and this case turned on its specific facts.
The Court of Appeal judgment will be a welcome judgment and clarification for lenders particularly in the area of refinancing where there was a risk of the total loss being unrecoverable in such situations.
This judgment will mean that surveyors will however be more exposed to lenders for the entire loss flowing from subsequent valuations and will mean that surveyors will need to limit their liability in their terms of retainer when providing valuations to lenders.
Due to the increased exposure to surveyors, Insurers will no doubt be looking at this area when considering appropriate premiums for surveyors. It also reaffirms that causation is a tricky area of law and requires careful review of the factual matrix of each case.
As Ireland shares a common law practise with England, most English judgements are regularly referenced and persuasive in most areas of Irish Law. Therefore the above commentary is likely to be equally applicable here.