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Tiuta International Limited (In liquidation) v De Villiers Surveyors [2017]

21 August 2018

In November 2017, the Supreme Court overturned the previous decision of the Court of Appeal, and found in favour of the defendant surveyors, De Villiers. This was on the basis that the loss suffered by Tiuta had not been ‘caused’ by the negligence of De Villiers.

This claim arose out of a loan made by the claimant (Tiuta) to a property developer. In the usual way, before making the loan, Tiuta obtained a valuation report for the property over which its loan was to be secured. The defendant surveyors, De Villiers, prepared that report.

Subsequently, the property developer approached Tiuta for a further advance. So Tuita obtained a second valuation report from De Villiers. The second report indicated that the value of the property was sufficient to cover both the first loan and the further advance.

However, instead of a making a ‘further advance’ under the first loan agreement, Tiuta instead discharged the first loan, and then made a brand new loan to the property developer for the larger amount.

From the property developer’s point of view, it presumably made little difference that the transaction had been structured as two consecutive loans, rather than as a further advance on the original loan. From Tiuta’s point of view, too, the amount that it had actually loaned to the property developer was the same either way. However, this unusual loan structure caused huge difficulties further down the line.

The difficulties arose because the property developer defaulted on the loan, the lender re-possessed the property, had it valued, discovered that it was worth significantly less than it had been led to believe, and so sued De Villiers for negligence.

The question was not so much whether De Villiers had valued the property negligently (it was assumed that it had). Rather, the question was: had De Villiers’s negligent second valuation “caused” Tiuta to lose the whole of the second loan, or just the difference between the first loan and the second loan?

The test for causation, in the legal sense, starts with the “but for test”. In other words, a claimant must show that, ‘but for’ the negligence of the defendant, the loss would not have been suffered. But although passing the ‘but for test’ is necessary to establish causation, it is not sufficient. In other words, there are situations where, even though the loss would not have been suffered but for the defendant’s negligence, the defendant is nevertheless not liable for the loss. For example, the loss may fall outside the scope of the duty owed by the defendant to the claimant, or the loss may be held to be too remote.

In this case, the Court of Appeal had held that, ‘but for’ the negligently prepared second valuation report, Tiuta would not have suffered any loss at all. Many thought that this played rather fast and loose with the ‘but for test’, because in reality, had the second valuation report been accurate, Tiuta would still have been saddled with the original loan (which of course it had already made), and would have suffered the losses that arose out of the original in any event.

The Supreme Court over-ruled the Court of Appeal’s claimant-friendly decision, and found in favour of De Villiers. The highlights of the Supreme Court’s decision were:

  • The ‘but for’ test is alive and well,
  • “There are many cases in which the internal arrangements of a claimant mean that his financial loss is smaller than it might have been. This may be fortunate for the defendant, but it cannot make him liable for more than the claimant’s actual financial loss.”
  • “The general rule is that where the claimant has received some benefit attributable to the events which caused his loss, it must be taken into account in assessing damages, unless it is collateral.”

Comment

The loan structure which gave rise to this decision was unusual, so the precise situation is unlikely to arise again. However, it is now a leading decision on the issue of causation. Solicitors and barristers will no doubt be returning to it frequently for guidance, whenever particularly thorny questions concerning causation, avoided loss and collateral benefit crop up.

By Esther Millard

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