Titan Europe 2006-3 Plc v Colliers International UK Plc

A securitisation issuer may recover loss arising from a negligent valuation where the transaction documents require it to distribute recoveries through the contractual payments waterfall. The economic incidence of loss upon noteholders does not prevent the issuer from having suffered legal loss when it acquired an overvalued loan asset. A valuer must remain independent of the lending institution and must assess the market’s view of the tenant covenant, the property’s characteristics and the risks affecting future income. Valuation is not mechanical. Negligence is established only where the valuation falls outside the permissible bracket and the valuer cannot show reasonable skill and care. On the facts, the valuation was materially excessive and the claimant established negligence, causation, reliance and recoverable loss.

Titan, a special purpose vehicle issuing commercial mortgage-backed securities, claimed damages from Colliers for professional negligence arising from Colliers’ December 2005 valuation of a large commercial property in Nürnberg, Germany. The property secured a loan later acquired by Titan as part of a securitisation.

Colliers argued that Titan had suffered no loss and that the noteholders were the proper claimants. Titan argued that it acquired a chose in action worth less than the price paid and that any recovery was required to pass through the contractual waterfall. The central issues were whether Titan was entitled to sue, whether the valuation was negligent, and whether negligence caused recoverable loss.

1. Claimant and loss. The claim was properly brought by Titan. Rights arising from transferable notes attach to the notes and pass to the holder for the time being. A negligence claim concerning security for the notes was essentially part of recovery on the loan and therefore did not remain with former noteholders. The valuation and consent documents did not establish that noteholders, rather than Titan, were the exclusive claimants.
2. Titan suffered legal loss when it purchased the Senior Tranche for more than its value, subject to proving reliance and causation. The funding of the purchase by investors and the non-recourse terms were irrelevant to the existence of that loss. Any recovery had to be paid into the Collection Account and distributed under the contractual waterfall. The alternative Albazero argument did not arise; had it arisen, there was no legal black hole.
3. Valuation principles. Valuation involves substantial judgment and is not a mechanistic process. A valuer must consider the market’s perception of the tenant covenant, but need not perform the detailed credit analysis expected of a lending institution. A lending institution must not compromise the independence of a valuer. Earlier sales and valuations are important market evidence, though not conclusive.
4. The correct market value was €103m. It was open to a competent valuer to regard it as probable that Quelle would remain, but there was a real risk that it would leave. The large, old and inflexible property would have presented substantial re-letting, subdivision and conversion difficulties. Colliers gave insufficient weight to those risks and adopted yields that were too low. Its €135m valuation fell outside the appropriate 15 per cent bracket and was negligent.
5. Colliers’ valuation was an effective cause of the loss. Credit Suisse relied on it and, on the true valuation, would not have advanced the loan. Titan also relied on the valuation figure through the transaction documents and the 90 per cent loan-to-value warranty. Recoverable loss was capped at the difference between the negligent valuation and the true market value. Titan was entitled to judgment, with interest to be agreed.

First-instance decision. The judgment states that the proceedings were commenced in the High Court on 26 June 2012. No prior appellate decision is stated.