FML Timeline: Tiuta International Ltd (Claimant/Respondent) v De Villiers Surveyors Ltd (Defendant/Appellant)

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Tiuta was a specialist lender of short-term business finance which went into administration in July 2012. De Villiers is a property valuation firm. Tiuta made two loans to a property developer, in April and December 2011 respectively. The granting of each loan was supported by distinct valuations of the development by De Villiers. The majority of the second loan was for the purpose of refinancing the outstanding monies under the first, with the remainder being new monies for the purpose of completing the development. The property developer failed to repay any of the outstanding monies under the second loan.

Tiuta issued proceedings against De Villiers, seeking to recover the amount of the second loan on the basis that the second valuation supporting it was negligent. No allegations of negligence were made in relation to the first valuation. De Villiers applied for summary judgment in respect of the part of the damages claim which related to the refinancing element of the second loan, on the basis that Tiuta would not have recovered the loan monies outstanding under the first loan in any event.

Decision

This was a successful appeal by De Villiers against the decision of the Court of Appeal, restoring the decision of the High Court. Tiuta’s damages in any subsequent negligence claim would be limited to the amount of the second loan which represented the advance of new monies rather than the refinancing.

Key Reasoning

The Supreme Court had to consider the correct method for assessing the basic measure of damages. Citing Nykredit Mortgage Bank Plc v Edward Erman Group Ltd, it restated the “ordinary” principle that damages should be calculated on a comparison of the position the claimant would have been in if the defendant had fulfilled his duty of care and the claimant’s actual position. Here, assuming that the defendant’s valuation was negligent, it followed that if the defendant had fulfilled its duty of care, the claimant would not have entered the second loan facility, but it would still have entered the first. Therefore, because the claimant would not have recovered the monies advanced under the first loan in any event, its loss could only be the new monies advanced under the second.

Divergence from the Court of Appeal

The Court of Appeal had departed from this reasoning because, as the second loan incorporated the refinancing, it considered the second valuation and loan to be distinct from the first. The Court of Appeal found persuasive the fact that the defendant expected the claimant to rely on its second valuation up to the full amount of the second loan. The Supreme Court was critical of this reasoning, affirming that simply because the second loan incorporated a refinancing element should not have led the court to ignore the fact that the claimant would have lost the advances under the first loan in any event. The assessment should be purely factual and irrespective of what a defendant contemplates when making such a valuation.

Noteworthy/ Novel points

The Supreme Court indicated that the position may have been different if the claimant had alleged that the first valuation was also negligent. In that circumstance, the claimant’s loss in relation to the second facility could arguably include the loss attributable to the extinction of the liability caused by the refinancing of the existing indebtedness under the first.