The High Court decision in Titan Europe 2006-3 plc v Colliers International UK plc  EWHC 3106 (Comm) will not be welcomed by surveyors and their professional indemnity insurers as it may open the gates to more securitisation disputes after it was found that a valuer was liable in negligence to the issuer of securitised bonds.
In 2005, Credit Suisse instructed Colliers to value a commercial property before agreeing a loan of EUR 110 million to the owner. Colliers valued the property at EUR 135 million. The loan was securitised along with other loans and transferred to Titan, a special purpose vehicle incorporated by Credit Suisse. To raise funds for the loan, Titan issued bonds to investors. In 2009, the tenant of the property became insolvent, which led the owner to default on the loan. The property was eventually sold in 2014 for EUR 22.5 million. Titan issued a claim against Colliers on the ground that it had negligently overvalued the property. Colliers argued in its defence that Titan had no cause of action as it had suffered no loss and that the claim should have been brought by the individual investors.
Considering first whether Titan was the correct claimant, although it accepted that it was the investors that had suffered loss in economic terms, the Court found that Titan had suffered a loss because it had acquired a chose in action worth less than the price it paid for it. Titan could therefore claim against Colliers. Crucial to the Court’s decision was the fact that, under the terms of the securitisation, Titan was contractually bound to distribute any amount received if its claim was successful, to the investors, in accordance with the payment waterfall terms of the bonds.
The Court then considered whether Colliers had been negligent. Whilst the Court acknowledged that valuations are subjective and that a certain margin of error should be permissible, it found that in this case Colliers had been negligent. It considered that Colliers had failed to properly consider the real risk of the tenant vacating the property and the fact that, because the property was very large, old and built for the needs of the existing tenant, it was likely to attract poor demand. On that basis, the Court estimated the proper value of the property at the time at EUR 103 million and was prepared to allow a 15% margin of error for a commercial property with exceptional features such as this. However, Colliers’ valuation well exceeded this. The Court further accepted Titan’s argument that, although it would not have read the entire valuation report, it still relied upon the valuation figure when it purchased the loan from Credit Suisse. Colliers was therefore found negligent and was ordered to pay Titan the EUR 32 million difference between its valuation and the Court’s valuation of the property.
This is the first case against a valuer involving complex financial arrangements and it could open the door to more litigation in relation to commercial mortgage backed securities. Although the Court made it clear that the important facts of this case were that the contractual structure allowed the issuer of the securities to bring a claim and provided for the distribution of any proceeds arising from the claim, the Court also showed its willingness to take a pragmatic commercial approach and its reluctance to accept no loss arguments.