In Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation) [2014] EWHC 3106 (Comm); [2014] PLSCS 262 the court was asked to consider a negligence claim against valuers where a loan, which was made on the back of their valuation, was subsequently securitised. The property against which the €110m loan was made was situated in Germany and comprised 2.5m sq ft of accommodation, which the judge described as “old fashioned and inflexible”. It was let to, and served as the headquarters of, a large mail order company. Colliers valued the property at €135m on that basis, but the property fell vacant after the tenant became insolvent and was in the course of being sold for €22.5m.
Securitisations are complex financial transactions. They are neither conventional loans, nor a conventional issue of securities in which investors look to the issuer to repay the debt, and the judge made it clear that the way in which legal claims may, or must, be brought in such cases will depend on the terms of the relevant agreements.
The proceedings in this case were brought by the company that issued the securities, to a value of just under a billion euros, to investors on a non-recourse basis to fund the acquisition of a portfolio of loans. Although it was the investors who would ultimately lose out, it would have been difficult for them to bring claims themselves because of the practical difficulties of valuing their losses (which would depend on when they acquired their investments, on market movements and on the performance of the rest of the loans in the portfolio). There were also obstacles in the way of a class action; there was no mechanism to ascertain who the investors were and membership of the class was likely to change because the securities were tradable.
The valuation provided for the original loan was also addressed to any purchaser, transferee, assignee, or servicer of the loan, as well as to any investor in any securities backed by the loan. Was the company entitled to pursue the claim in its own name, or should the claim have been brought by the investors who would ultimately lose out? On the facts of this case, the judge was satisfied that the company was entitled to bring the claim. It had acquired a chose in action that was worth less than the price paid for it and would have to distribute any sums received to investors in accordance with its contractual duties and the priorities established in the securitisation documentation.
The judge agreed that the valuation was negligent. It did not give sufficient weight to the size and age of the property and the fact that it had been designed to satisfy the needs of its one and only tenant. A reasonably competent valuer would have concluded that there was a real risk that the tenant might leave and Colliers had not paid enough attention to the difficulties that were bound to ensue: of attracting a single occupier; of re-letting the whole of the property; and of the cost of sub-dividing the premises into parts that could be let.
Case law suggests that the permissible margin of error in a valuation ranges between 5% and 15% above or below the “true” value of a property and, if a property is exceptional, that the permissible margin of error might even be higher. Colliers argued that the margin of error in this case should be as high as 20%. However, despite the fact that the valuation was a difficult one, the judge decided that the permissible margin of error was 15%. The judge took the view that the property should have been valued at €103m and, because the €135 valuation was over 30% higher than this, the company was entitled to €32m in damages.
Allyson Colby is a property law consultant
