Addressing causation in valuer negligence cases

One of the essential elements of a negligence claim is factual causation. Claimants and their solicitors, however, often focus on establishing duty, and breach of duty, on the assumption that causation should just follow. But such an approach will prove costly to claimants, particularly in view of the recent case of Tiuta International Ltd v De Villiers [2015] EWHC 773 (Ch), which highlights the importance of establishing causation.

Negligent overvaluation

Tiuta concerns the alleged negligent overvaluation of a partially built residential development by the defendant valuer, de Villiers, for mortgage security purposes. In February 2011, the defendant valuer advised that the market value of the property was £3,250,000.
It subsequently provided an additional market value of £3,400,000 in November 2011.

The claimant lender brought
a claim against the defendant valuer on the basis that it had negligently overvalued the property in November 2011.
The claimant lender asserted that, in reliance on the allegedly negligent November 2011 valuation, it advanced a loan facility of £2.8m to the borrower.

However, the claimant lender had also previously advanced sums to the borrower in reliance on the February valuation provided by the defendant valuer. Therefore, as at the time of the application for the new November 2011 facility, the borrower had an existing exposure of around £2.6m
to the claimant.

The defendant valuer therefore applied for summary judgment on the basis that
the November 2011 valuation had not caused the whole of
the claimant lender’s loss.
The claimant lender’s position was that the November 2011 facility was an entirely new facility that had fully discharged the existing indebtedness. Therefore, the whole of the monies advanced under the new facility had been advanced in reliance on the negligent November 2011 valuation.

Claimant’s loss

The claimant lender relied on the facts of Preferred Mortgages Ltd v Bradford and Bingley Estates Agencies Ltd [2002] EWCA Civ 336 in support of its argument.
It was averred that, given that the February 2011 loan was fully redeemed, no loss was suffered and, as such, no claim could be brought in relation to the February 2011 valuation.
The claimant lender argued
that, in circumstances where
the initial loan had been fully redeemed, the normal ‘but for’ approach should not be applied because application of this test could lead to injustice by virtue of the claimant’s remedy falling into a ‘black hole’.

The judge found against the claimant. He said that ‘in my judgment, the decision of the Court of Appeal in Preferred Mortgages does not lead to the conclusion that the usual “but for” test of causation should be disapplied in cases such as this’. This case was different from Preferred Mortgages as applying the ‘but for’ test in this case would not leave the claimant without a remedy for any losses allegedly caused by the February 2011 valuation. He added, as per Lord Brown of Eaton-under-Haywood in Sienkiewicz v Greif UK Ltd [2011] UKSC 10, that ‘the law tampers with the “but for” test of causation at its peril’.

In applying the ‘but for’ test, the judge held that the claimant lender’s recoverable loss was limited to that caused by any negligence of the defendant valuer in carrying out the November 2011 valuation. Therefore, from the information in the reported judgment, it appears that the sum advanced in reliance on the November 2011 valuation is around £2.6m less than initially claimed.

It is, however, still open to the claimant to apply to amend its pleadings to assert that the February 2011 valuation was negligent (if so advised), although this is only a point raised in principle by the judge. So, while establishing whether the claim satisfies the ‘but for’ test on causation is key, it is important to do so at an early stage, dealing with causation and any loss of chance arguments comprehensively
in the initial pleadings.

While we wait for the outcome of the appeal and
to see whether Tiuta seeks permission to amend its pleadings, the case highlights the necessity for claimants
to satisfy the ‘but for’ test without which their claims
are bound to fail. SJ

Eleanor Kilner is a solicitor at Weightmans