The Supreme Court has reinstated the traditional "but for" approach to assessing loss in valuer's negligence claims.
A business financier (Tiuta) had granted a second facility agreement to a developer, relying on a valuation by De Villiers, a firm of surveyors, which, it was accepted for the purposes of this decision, was negligent. The second facility agreement required the developer to use the bulk of the second advance to pay off the first facility agreement with Tiuta. The developer did so, but later went into administration.
Following an appeal by the valuer, and overturning the decision of the Court of Appeal, the Supreme Court has held that Tiuta's measure of damages in its claim for negligence against the valuers should be only the difference between its overall loss and the loss it would have suffered had it not made the second loan, relying on the negligent valuation. The first loan, F1, was for £2,475m. Of the second loan, F2, £2,560m was used to repay F1. £281k was new lending. Only the £281k should be recoverable from the valuers, the Supreme Court said.
The Supreme Court (Lord Sumption giving the leading judgment) applied basic compensatory principles. The basic measure of damages will be what is required to restore a claimant as nearly as possible to the position that it would have been in had it not sustained the wrong. In this case, if the valuer had not been negligent in relation to the second facility, Tiuta would not have advanced monies under that facility, but it would already have advanced monies under the first facility and the loans made under that facility would not have been discharged. Tiuta's loss was therefore limited to additional money advanced under the second facility. The discharge of the first loan could not be ignored for the purpose of assessing damages. As Lord Sumption put it: "that part of their loss would therefore have been suffered in any event, irrespective of the care or lack of it which went into the valuations prepared for the purposes of the second facility".
"Collateral benefits" are ignored for the purposes of assessing loss. Tiuta had argued that it had received a collateral benefit, in the form of the proportion of the second advance that had been used to pay off the first advance, and that as such the receipt of that collateral sum should be ignored for the purposes of calculating its loss. Lord Sumption disagreed. He said that "the paradigm cases [of collateral benefits] are benefits under distinct agreements for which a claimant has given consideration independent of the relevant legal relationship with the defendant, for example insurance receipts or disability benefits under contributory pension schemes." He pointed out that the Supreme Court in Swynson v Lowick Rose LLP  2 WLR 1161 has held that "as a general rule, collateral benefits are those whose receipt arose independently of the circumstances giving rise to the loss". But here, "the benefit arising from the discharge of the indebtedness under the first facility was not collateral because it was required by the terms of the second facility".
This is a welcome return to the straightforward approach to causation. There is also useful guidance in the decision as to what constitutes a "collateral benefit", separate from the transaction in question, which can be ignored for the purposes of calculating recoverable loss.