The High Court has handed down its judgment in Titan Europe 2006-3 plc v. Colliers International UK (in liquidation)1. The judgment is significant in that it confirmed that an SPV issuer was the “correct claimant” to bring a claim against a valuer for negligent valuation and provides a detailed analysis on a matter which had not previously been considered by the English courts.
The judgment (which Colliers have indicated they will appeal) is of interest to participants in the real estate and commercial backed securities market because it provides guidance as to circumstances in which an SPV is entitled to bring a claim against valuers for negligent valuation.
Overview of the dispute
Titan Europe 2006-3 plc (Titan) was an SPV issuer of a European CMBS conduit securitisation. In common with other CMBS conduits, Titan had acquired a portfolio of secured property loans originally advanced by the originating bank (in this case Credit Suisse). The portfolio included a loan secured on the “Nuremberg” property which had been valued by Colliers in 2006 at €135m. The relevant loan subsequently defaulted, the security was enforced by the special servicer and the property is currently in the process of being sold for €22.5m. Titan sought to recover the difference between Colliers’ valuation of the property at €135m and what Titan argued was the true market value at that time of €76.6m.
Summary of legal issues
Colliers advanced two main arguments to support its contention that the securitisation had been structured so that the noteholders, rather than Titan, were the parties with the right to bring the claim, being: (i) allowing Titan to bring a claim created the possibility of double liability to both Titan and its noteholders; and (ii) Titan did not suffer any loss because the limited recourse provisions of the Titan notes meant any losses in respect of the loan were ultimately passed on to Titan’s noteholders.
Mr Justice Blair acknowledged the considerable practical and legal difficulties involved in noteholders bringing a claim against the valuers and demonstrated the English courts’ ability to take a commercially pragmatic view of complex contractual arrangements between the various parties involved in the securitisation, explaining2:
“The important points are that (1) where the contractual structure allocates the bringing of a type of claim to a particular party, that party brings the claim, complying with any conditions for doing so, and (2) that the proceeds are dealt with according to the contractual requirements. Provided this happens, all parties will get what they bargained for.”
Mr Justice Blair also noted that neither party in that case had argued that the note trustee was the correct claimant and that “a different answer to the “correct claimant” question might arise in a different case, depending upon the contractual documentation, and the arguments in that case”.