Titan Europe 2006-3 Plc v Colliers International UK Plc (in liquidation)  EWCA Civ 1083
The Court of Appeal has ruled in a valuer’s favour in a professional negligence claim brought against it by a secured lender. In giving judgment, the Court set out the key principles to be considered in cases of this nature. Although the factual findings of the High Court Judge were not challenged it was decided that elements of the expert evidence had not been properly considered. Most notably, the Judge had not given sufficient weight to a transaction of the relevant property, by way of a share sale, six months before the valuation was made. The Judge had also failed to justify an unusual rental yield figure, which was a consequence of his conclusions.
The case concerned a large commercial property in Nuremburg, Germany (the “Property”). In 2003, the landlord of the Property sought a loan from Credit Suisse, to be secured on the Property. Colliers International UK Plc (“Colliers”) was instructed to value the Property on behalf of Credit Suisse, and on 15 December 2005 it advised that its value was €135 million. A loan of €110 million was subsequently advanced to the landlord. This loan was later repackaged and sold to Titan Europe 2006-3 Plc (“Titan”), the Claimant in this case. At the time of the valuation, the Property was let to a national mail order company, pursuant to a 15 year lease, with 10 years remaining unexpired.
Unfortunately, in September 2009, both the landlord and the tenant of the Property became insolvent. The tenant stopped paying rent and the landlord’s administrator eventually sold the Property for €22.5 million.
Titan subsequently made a claim at the High Court, alleging that it had suffered substantial losses owing to negligent valuation advice provided by Colliers. The Judge found in favour of Titan and, based on the expert evidence put forward, concluded that the true value of the Property when the valuation was undertaken was €103 million. Damages were assessed as the difference between the valuations, i.e. €32 million. Colliers appealed.
The general law
The Court of Appeal reviewed case law concerning valuations, and made the following observations:
- The valuation exercise may be described as both an art and a science, and not every error of judgment may amount to negligence.
- In order to establish negligence, a claimant must prove that the disputed valuation was one that no reasonable valuer would have reached, and that it was outside the permissible margin of error.
- Even if the valuation is outside the acceptable range of error, the valuer may still escape liability if he or she can prove that they exercised reasonable skill and care.
- The acceptable range of error will vary from case to case. For a standard residential property, it may be as low as plus or minus 5%. However, for a “one off” property with exceptional features, it could be as high as plus or minus 15% (or higher, in an appropriate case).
Turning to the issues at hand, the Court of Appeal reviewed the methodology of the Judge, and made note of the following findings:
- The evidence presented by the parties’ experts presented particular difficulties for the Judge, because their conclusions were very far apart and both had been highly critical of the other. By the time of trial, Titan alleged the true valuation to have been €76.6 million. Colliers contended that it was €125.9 million.
- It was accepted that the Property was sufficiently unusual to justify a valuation figure of 15% either side of the “correct” valuation.
- Comparable evidence was found to be of little use, but there had been several transactions and valuations of the Property itself between 2000 and 2005. Most notably, on 1 June 2005, the landlord’s shares had been sold for €127.1 million, which represented an “arm’s length” sale of the Property on that date.
The Court of Appeal reversed the decision of the High Court and found that the “correct” value of the Property had been c.€118.3 million. This figure fell only just within the agreed 15% acceptable range, but it was noted that the market had been rising. If this had also been considered, this would have been another factor in Colliers’ favour.
Although the factual findings made by the High Court Judge were accepted, the Court found that the Judge had not given due consideration to rental yields and transaction evidence. The best evidence of value (i.e. the June 2005 share sale) was not mentioned in the Judge’s calculations. Furthermore, it was not possible for Titan to justify an 8.5% rental yield on its valuation, when the June 2005 sale resulted in an adjusted yield of 6.9%. This lower figure was also consistent with the yield figures resulting from the other valuations that were undertaken.
Valuation advice will almost always involve an element of subjective judgment on the part of the valuer, which is one reason that Claimants can struggle to win cases of this nature. In this case, the valuer had overestimated the value of the Property by c.€16.7 million, but the acceptable valuation range was still large enough to accommodate this. As the Court noted “a narrow success is still a success”. However, if there had been better comparable evidence, or if the Property had been of a more generic type, the Claimant may well have succeeded.
In the circumstances, valuation specialists should make it clear in their advice if there are likely to be difficulties involved in the valuation exercise. Equally, when engaging a valuer, a client should take into account the full extent of the valuer’s “range of error” when making decisions based on the valuer’s conclusions.