The Court of Appeal has overturned a ruling in which an Irish company was awarded €32m (£23.7m) in damages for professional negligence over a valuation of commercial premises in Germany.
Colliers International UK plc, which went into liquidation in March 2012, triumphed in its appeal against Justice Blair’s 2014 ruling, in which he found that it overvalued the premises in Nürnberg in 2005.
Colliers International UK valued the premises at €135m, but the High Court 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 have overturned that decision, and stripped Titan of its award, finding that a more realistic true value was around €118m.
They refused Titan Europe leave to appeal to the Supreme Court, however it is open to it to petition the court directly to allow it to take the case further.
In his decision in 2014, Justice 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%.
However, overturning that decision today, Lord Justice Longmore disagreed and found that a more realistic value would have been €118.3m. As the valuation given was within 15% of that, he said “Colliers cannot therefore be liable”.
He accepted the argument advanced on behalf of Colliers that there was an “inherent inconsistency” in the judge below saying on one hand that a valuation below €100m would have no credibility in the market and then fixing on a true valuation of €103m.
The court rejected an additional ground of appeal put forward by Colliers that Titan Europe was the wrong claimant and had no title to sue.
During the hearing, this title to sue point was said to arise in a number of similar cases against professionals in the aftermath of a failed securitisation.
Lord Justice Longmore put emphasis in this case on the fact that Titan Europe were the owners of the loan and the securities, which gave it its right to sue. He added that it was not correct to say Titan Europe had suffered no loss.
Russell Francis, Head of Valuation and Advisory Services at Colliers International said: “We have always believed that we had a very strong case and as a firm we have stood by the valuation and the advice given at the time. We felt it was extremely important to stand up and be counted, when our expertise was called into question.”
