A closely watched case, in which an Irish company was awarded €32m (£23.7m) in damages for professional negligence over a valuation of commercial premises in Germany, today moved to the Court of Appeal.
Colliers International UK plc, which went into liquidation in March 2012, is appealing against Justice Blair’s 2014 ruling that it overvalued the premises in Nürnberg in 2005.
Colliers International UK valued the premises at €135m, but the judge ruled that it should have been valued at €103m. Because this overvaluation was outside the permissible margin of error, he found that Titan Europe 2006-3 plc was entitled to damages of €32m.
Now Lord Justices Longmore, Lloyd Jones and Briggs are being asked to overturn that ruling in a complex appeal scheduled to last three days. They are expected to reserve their decision.
Guy Fetherstonhaugh QC commented that the eventual Court of Appeal judgment will be eagerly awaited by valuers and professionals.
He said: “This is one of the few negligence cases to emerge from the bad old days leading up to the Lehman Bros crash, when (notoriously) Midwestern peanut farmers were being advanced loans to buy properties that were beyond their wildest repayment prospects.
“The views of the Court of Appeal are expected to be studied keenly by lawyers and valuers involved in similar negligence cases which are coming before the courts. While every case turns on its own facts, of course, those in the property market who have been following the progress of this case will be interested to see whether the result will serve as a precedent for other negligent valuation claims.”
In his decision, Blair explained that the Nürnberg property was security for a loan made by Credit Suisse and transferred to special purpose vehicle Titan Europe as part of a securitisation in respect of which Credit Suisse was arranger and lead-manager. Titan was the issuer of the commercial mortgage backed securities (“CMBS”) in June 2006, and the subscription by investors in the securities funded the acquisition of the loans by Titan Europe from Credit Suisse.
He added at the time in September 2014: “The market for such securities dried up in the wake of the 2007-8 financial crisis, but the principal cause of the present litigation is the insolvency of the tenant of the Nürnberg property in 2009. The property is currently in the process of being sold for about €22.5m, which is far below the valuation.”
The judge rejected the valuer’s claim that Titan Europe had not suffered any loss, as opposed to the investors in the securities, and was therefore the wrong claimant. He was satisfied that Titan Europe was entitled to bring the claim, and that the valuation was negligent.
The judge said that the valuation 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 International UK had not paid enough attention to the difficulties, if that occurred, of attracting a single occupier; of re-letting the whole of the property; or of the cost of subdividing the premises into parts that could be let.
While he acknowledged that the valuation was a difficult one, he decided that the permissible margin of error was 15%, but the overvaluation was, in this case, by more than 30%.
In its appeal, the valuer maintains that Titan Europe is the “wrong claimant”, because the underlying securitisation was deliberately structured so that Titan Europe could not sufrfer loss. It says that its duty of care was owed to the investing noteholders.
Opening the appeal, Patrick Lawrence QC, representing Colliers International UK, said that this title to sue point also arises in a number of “similar or near identical cases involving claims against professionals in the aftermath of a failed securitisation”.
He said: “it is obvious that this court’s judgment on the point will be looked at with considerable interest by those involved in other cases and those, if they still exist, who are putting together similar packages now.”
He said that the case raises the question of how allegedly negligent valuers should be made to pay compensation where their valuation was used in a “complex, multi-property securitisation”.
Challenging the negligence finding, Colliers International UK argues that Blair J also found that Titan Europe relied on its own valuer who had made a number of fundamental errors in arriving at a much lower valuation of the property (€76.6m) that was manifestly “miles out”. It says that it was not open to the judge to make a finding as to the true value which was not supported by any expert evidence, and should have held that Titan Euirope had failed to prove its case.
In addition, it challenges the judge’s findings on causation and on Titan Europe’s alleged reliance on the valuation.
Titan Europe argues that the appeal should be dismissed, and the award of damages upheld.
