On 30 September 2014 Mr Justice Blair handed down a lengthy judgment on a valuers professional negligence case, finding against the defendants, Colliers International UK Plc (in liquidation).
The case is about a December 2005 valuation by Colliers of a commercial property in Nürnberg, being one of a number of commercial properties mortgaged and forming part of a securitisation transaction arranged by Credit Suisse, valued at just under a billion Euros. Colliers valued the Nürnberg property at EUR135 million. The claimant, Titan, argued that the true value of the Nürnberg property was EUR76.6 million.
The legal principles, as to whether or not the valuation was negligent and the principles to be applied under SAAMCO to calculate any recoverable loss, were not in dispute. The Judge, in fact, concluded that the correct valuation was EUR103 million, that the appropriate bracket for a permissible margin of error in this case would have been 15% (but it was even outside Colliers’ contended for bracket of 20%) and that, on balance, Credit Suisse would not have made the loan on a valuation of EUR103 million.
It is worth noting that the Judge, when finding that Titan had made out its case on reliance on the valuation, quoted from the recent case of Hunt v Optima (Cambridge) Limited (2014): “A person can, in appropriate circumstances, be said to rely on a report that is in existence, and of whose contents he is aware, but which he has not seen and which is to be provided to him later”.
The “no loss” issue
However, in addition to disputing negligence and reliance, Colliers argued that Titan had not suffered any loss by the alleged over-valuation and that Titan was not the correct claimant. Titan was Credit Suisse’s nominee SPV, incorporated to issue the commercial mortgage backed securities including the loan secured on the Nürnberg property. At the same time that Titan purchased from Credit Suisse the senior tranche of the loan made to Credit Suisse’s mortgagee, Titan received funds from subscribers to the floating rate notes and issued the Notes on a non-recourse basis to these Noteholders. The funds from the Noteholders used to purchase the portfolio of loans were without recourse to Titan’s assets, save in respect of the net proceeds of the loans and the assets securing the loans themselves. Colliers argued that the Noteholders were the correct claimants.
While the Judge noted that a different answer to the “correct claimant” question might arise in a different case depending on the contractual documentation and the argument in that case, he made some general findings:
- The Judge accepted Colliers’ general point that, from an economic perspective, the investors in the Notes had suffered the loss, as a reduction in the value of the mortgage receivables was matched by a reduction in the repayment obligation of the Notes and that Titan was, essentially, an economically neutral conduit between the investing Noteholders and the debt in which they were investing. However, the Judge held that Titan, nevertheless, had suffered a loss as it was able to show that it was contractually obliged to distribute any sums received to the Noteholders according to the contractual structure to which the Noteholders’ had subscribed when they invested.
- The Judge held that Titan suffered a loss the moment it acquired a chose in action worth less than the price it paid for it (Forster v Outred & Co (1982)) and the amount of the loss would crystallise at a later date once the insufficiency of the security was known (VTB Capital Plc v Nutritek International Corp (2012)).
- Per Paratus AMC ltd v Countrywide Surveyors Ltd(2012), in the context of a finance scheme relating to the mortgage pool, “The fact that the consequence of the loss legally attributable to the cause of action against the valuer is a diminished return for a third party does not mean,… that there is no recoverable loss.”
- The fact that the securities were issued by Titan on a non-recourse basis was irrelevant because the non-recourse nature of the Notes issue arose out of contractual arrangements with third parties and was irrelevant to Titan’s loss i.e. res inter alios acta in respect of a negligence claim against a valuer.
In summary, as the Judge noted, while this particular securitisation was complex and not a conventional issue of securities in which investors look to the issuer to repay the debt, the developing case law shows that the courts are reluctant to accept “no loss” arguments.
Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation)  EWHC 3106 (Comm)
Hunt v Optima (Cambridge) Limited  EWCA Civ 714
Paratus AMC ltd v Countrywide Surveyors Ltd  PNLR 12 (63(4))
Forster v Outred & Co  1 WLR 86
VTB Capital Plc v Nutritek International Corp  2 BCLC 437