The Court of Appeal has overturned the High Court’s decision in Titan v Colliers and found that Colliers’ valuation of a substantial commercial property was not negligent.
Colliers were instructed by Credit Suisse to produce a valuation of a large commercial property inNürnberg, occupied by Quelle, the then biggest mail-order company in Germany. The valuation was issued in December 2005 and valued the property at €135 million. Relying on the valuation and with security over the property, Credit Suisse advanced a loan of €110 million. The loan was sold to Titan as part of a process of securitisation. Titan subsequently issued commercial mortgage backed securities and the subscription by investors, or “noteholders”, in the securities funded the acquisition of the loan by Titan. The noteholders became the ultimate beneficiaries of the loan and the securities supporting the loans. The borrower defaulted and Titan brought proceedings against Colliers, arguing that the value of the property was €76.6 million. At first instance, Blair J held:
- The correct valuation of the property was €103 million and the permissible margin of error in this case would have been 15%. Colliers’ valuation had been outside the permissible “bracket” and was therefore negligent;
- Rejecting Colliers' argument that Titan had suffered no loss and that the noteholders were the correct party to sue, Titan had been entitled to bring the claim.
Court of Appeal’s decision
Negligence and permissible margin of error
The legal principles in relation to a valuer’s negligence were not in dispute and, on appeal, Colliers did not challenge Blair J’s finding that the permissible margin of error in this case was 15% or the basic findings of fact on which he had based the valuation figure of €103 million. Instead Colliers challenged the judge’s inferential conclusions as to the “correct” value of the property.
In finding that Colliers’ valuation had not been outside the permissible margin of error, the Court of Appeal accepted that Blair J had not given enough weight to the transactions and valuations in the period leading up to the valuation. In particular, there had been an actual sale at €127.1 million (albeit on somewhat different terms) six months before the valuation and the market was rising. This made it “inconceivable” that the correct valuation could have been as low as €103 million. Also taking into account yield values, the court said that the “correct” valuation was €118.3 million. This narrowly placed Colliers’ valuation of €135 million within the 15% “bracket” and accordingly it was not negligent.
Title to sue and “no loss” argument
Having granted the appeal, the court provided obiter comments on whether Titan, as the issuer of the mortgage backed securities, was able to bring a claim against Colliers. The court said that as Titan had retained legal and beneficial ownership of the loan and the securities, it had the right to sue as well as the right to recover damages.
It was not correct to say that Titan had suffered no loss. It had suffered loss when it acquired the loans and securities as the price paid for the loans had been too high. The court drew an analogy between the relationship between Titan, as buyer of the loan, and the noteholders that became the ultimate beneficiaries of the loan, and that of a company and its shareholders. Where a shareholder’s loss merely reflects the company’s loss, the shareholder’s right to recover is as a matter of policy excluded in favour of the company’s right, so there is no double-recovery. The court said the same principle applied to the noteholders and that no one could say that, because the noteholders might be the ultimate losers in a case of this kind, Titan had not suffered a loss.
The parties’ experts in this case had produced valuations that were “a very long way apart”. The Court of Appeal’s ruling will likely provide valuers with some hope that all is not lost when respective experts’ valuations are vastly different and shows that the court will treat the most recent transactions/valuations as the most cogent evidence.
Whilst the court did not make any binding decision in respect of the title to sue, it seems clear that when a securitisation with a similar structure is in place, the court is likely to agree that the holder of a securitised loan, which was made on the basis of a negligent valuation, is entitled to sue the valuer.
It is understood that Titan are considering an application for permission to appeal and it will be interesting to see whether there is to be a third take.