Surveyors valuing properties for refinancing could be liable for the whole loan if their valuation is negligent, following a surprise Appeal Court decision. The case considered whether a firm of surveyors was liable for the ‘top-up’ amount of the refinancing or the whole loan. The decision could lead to an increase in professional indemnity insurance premiums for valuation surveyors.
De Villiers Surveyors Limited were appointed to provide a valuation on a residential development in Berkshire in 2011. On the basis of the valuation of £4.46m on completion, lender Tiuta International Limited advanced just over £2.2 million to the developer. Later the developer approached Tiuta for a further loan of £800,000. De Villiers was again asked to provide a valuation, following which Tiuta made the further advance, which combined both loans into a new facility of just over £3m.
The developer failed to repay the loan and Tiuta appointed receivers to recover its loss. The sale of the residential property only realised £2.1m and Tiuta commenced proceedings against De Villiers for negligent valuation.
The High Court decided that De Villiers’ liability was limited to the amount of the ‘top-up’ loan. It said that the firm’s second valuation had not caused the loss attributable to the original loan. The Court of Appeal overturned the decision and concluded that De Villers was liable for the whole loan.
Georgina Squire, Head of Dispute Resolution at Rosling King, which acted for Tiuta, said: “Lenders will welcome this decision as it settles a contentious issue in relation to how much of their loss they can recover having refinanced. They can now be certain that they may recover their full loss in the event the valuation was negligent, not being restricted to the amount by which the refinance exceeds the original loan.”
Professional indemnity insurers could increase premiums for valuation surveyors as a result of the case, believes James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “The Court of Appeal’s decision sets a new legal precedent regarding ‘causation’, the legal principle requiring that an act of negligence must lead to the actual loss for liability to attach. Whilst at first glance the decision may appear counter-intuitive, the key was that the second loan fully redeemed the first loan, and therefore the second loan was considered in isolation from the first. Now valuation surveyors could face far higher claims for negligence in refinancing cases and insurers may well reflect this in their premiums for firms working in this area.”