High Court judge Justice Blair has rejected an appeal by Colliers International to overturn his earlier September judgement which found that the firm had negligently over valued a German department store eight years ago by €32m.
The property at the centre of the legal dispute is Quelle Nurnberg, a bespoke mail order property purpose-built for a tenant, which was a specialist mail order company before it later merged with department store group, Karstadt.
Mr. Justice Blair, the younger brother of former British Prime Minister Tony Blair, ruled in September that Colliers’ December 2005 valuation of Quelle Nurnberg – at €135m – was “negligently” overvalued by €32m.
Based on Colliers’ €135m valuation, Credit Suisse structured a two-tranche senior loan – a €99.35m senior loan and a €9.73m junior loan – and pooled the senior loan into Titan Europe 2006-3 CMBS, sold over May and June 2006.
Mr. Justice Blair decreed that this €32m figure is the amount Colliers is required to pay to Titan, together with interest and costs.
In his September judgement, Mr. Justice Blair said Colliers had “failed to give sufficient weight to the fact that the property was likely to attract poor demand because it was very large, old, and built to the needs of Quelle’s particular business.
“Although I have concluded that it was open to a reasonably competent valuer in December 2005 to conclude that it was probable that Quelle would stay in the property after the expiry of the lease, a reasonably competent valuer would have concluded that there was a real risk that it might leave, and Colliers did not give sufficient weight to the attendant problems which this building would then pose, in particular the difficulties that ought to have been foreseen in attracting a single occupier, the difficulties in re-letting the whole property, and the costs of sub-division.”
This legal case is the first time that a UK Court has been faced with a claim brought against a negligent property valuer where the loan advanced by the original lender has been securitised.
As a result, this case has been closely followed by the wider market as a potential legal precedent for upcoming negligent valuation claims, in particular the case brought against CBRE and Warwick Street over an estimated £100m over valuation for Glenn Maud’s Propinvest former Gemini portfolio back in 2006.
Representatives of the two valuation firms were in attendance at the High Court throughout legal proceedings against Colliers International.
Friday’s appeal rejection by Mr. Justice Blair was widely-expected but a necessary legal step ahead of Colliers seeking to take its appeal further through the court system.
In a statement to CoStar News, Colliers International said: “We are continuing to pursue our appeal to the Court of Appeal.”
In the event that Colliers appeal through the Court of Appeal is unsuccessful the €32m legal fine plus interest and costs payable to Titan, the issuer of the Titan Europe 2006-3 securitisation, will be met by the property services firm’s professional indemnity insurance.
At the time of the September ruling against Colliers, the company said in a statement: “We at Colliers International regret the court’s decision, which relates to a valuation that was undertaken by two former employees of Colliers UK in 2005 under its old ownership structure.
“We remain of the opinion that the property was correctly valued at the time and are pursuing an appeal.”
The case has so far taken five years to resolve and counting with wider implications for CMBS issuers and special servicers, with the outcome in favour of the securitisation issuer expected to result in the pursuit of other claims.
Importantly from a legal perspective, the perception that such claims are time-barred is removed. The special servicer for the Quelle Nurnberg loan in the Titan Europe 2006-3 CMBS is Hatfield Philips, which was advised by Rosling King partner James Walton throughout the case.
The Court of Appeal proceedings is expected to be heard in the New Year, although no date has yet been set.