In the judgment handed down this morning in the Court of Appeal, Lords Justice Longmore, Lloyd Jones and Briggs overturned Justice Blair’s September 2014 ruling. As a result, Titan, the issuer of the CMBS for which the asset was collateral, was not entitled to €32m in damages plus interests and costs.
However, the Court of Appeal upheld the precedent set by the High Court, which ruled that Titan was the correct claimant with the right to pursue a claim against Colliers.
This is third time lucky for Colliers which also lost on appeal in December last year, vowing at the time that it would appeal further.
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.
Colliers valued the property in December 2005 at €135m. Based on which valuation, Credit Suisse advanced a loan of €110m, the bulk of which was subsequently securitised in the circa €1bn Titan Europe 2006-3 securitisation.
The reversed judgement is the result of a reconsideration of the assumptions used to define disputed valuation, which led to an upward revision of the “correct valuation” from €103m, as decided by Justice Blair, to €118.3m.
The revised “correct” valuation as decreed by Lords Justice Longmore, Lloyd Jones and Briggs falls within the 15% permissible margin of error, or the “bracket” as it is known, which was uncontested from the original Justice Blair ruling.
Under which basis, the Quelle Nurnberg property could legitimately fall anywhere between €100.5m and €136m and as such, Colliers was found not negligible – albeit the valuation firm was narrowly within the new accepted valuation range.
In a statement issued this morning, 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.”
In his written judgement, Lord Justice Longmore wrote: “We are conscious that the figures fall somewhat narrowly rather than generously into the bracket selected by the judge but they speak for themselves and a narrow success is still a success.
“It must also be remembered that the market was a rising market; that is a factor which has not been included in our calculations at all, but would favour Colliers if it was.”
Richard Spooner, deputy general counsel at HPI, said, “We are obviously disappointed with the Court of Appeal’s judgment in relation to the valuation and Colliers’ negligence.
“The Court of Appeal has, however, underpinned a significant legal precedent in that although Titan (as the Issuer of the securitisation) did not hold any financial risk, as the owner of both the loans and the security for such loans it also held the right to sue Colliers for any negligence caused by it.
“This aspect of the ruling provides some further welcome certainty on the often debated topic of who is the correct party within these complex structures to pursue a claim against a valuer who acted negligently at the point of loan origination.”
James Walton, partner at Rosling King, said, “We are liaising with our client in connection with an application for permission to appeal to the Supreme Court.
“Despite the Court of Appeal agreeing that it could not overturn the findings of fact in the Court below, that is exactly what it has done. It has decided on the actual valuation of the property in question without having had the benefit of hearing the valuation experts at trial and without fully considering the relevant comparables.
“In its judgment, the Court of Appeal comes up with its own opinion of value seemingly without carrying out any detailed valuation analysis, and by failing to take into account many of the key facts at play.”
Walton added: “The Court of Appeal’s decision on the ‘correct claimant’ point is most welcome, not only for those claimants currently pursuing similar cases, but more importantly for new CMBS issuances; the documentation can now be structured in the knowledge that the Issuer is the right and proper person to pursue a claim of this nature, should one so arise.”
In conclusion, Lord Justice Longmore wrote: “If therefore Colliers had been negligent and provided a valuation outside the 15% bracket we would have held, like the judge, that Titan could recover the difference between their valuation and the ‘correct’ value whatever that was.
“As it is, however, this appeal must be allowed and judgment entered for Colliers on Titan’s claim.”