A company that had securitised a loan would have been entitled to make a claim in respect of a valuation, had it fallen outside the permissible margin of error

In Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation) [2015] EWCA Civ 1083 the court was asked to consider a negligence claim against valuers where a loan, which was made on the back of their valuation, was subsequently securitised. The property against which the €110m loan was made was situated in Germany and comprised 2.5m sq ft of accommodation, which was let to, and served as the headquarters of, a large mail order company. Colliers valued the property at €135m at a time when property values in Germany were rising, but the property fell vacant when the tenant became insolvent and was sold for €22.5m. The judge decided that the property was sufficiently unusual to justify a 15% margin of error in the valuation that was placed on it. He considered that the property should have been valued at €103m and, because the €135m valuation was over 30% higher than this, ruled that the company was entitled to €32m in damages. The Court of Appeal has just overturned the decision on the basis that the judge had drawn the wrong inferences from the facts. After considering previous valuations and evidence of previous transactions involving the property, their Lordships considered that the correct valuation should have been €118.3m and, because Colliers had been within 15% of this, it had not been negligent. Consequently, the court’s decision on the issue of who had been entitled to sue the valuers was by the by. However, because it was important to the securitisation industry, their Lordships went on to consider the point. The proceedings had been brought by a company that issued securities, to a value of just under €1bn, to investors on a non-recourse basis to fund the acquisition of a portfolio of loans. The valuers argued that the company had not been entitled to pursue the case and that it was the investors who would ultimately lose out – but the Court of Appeal upheld the trial judge’s ruling that the company was entitled to bring the claim. The valuation in respect of the loan had been addressed to any purchaser, transferee, assignee, or servicer of the loan (as well as to any investor in any securities backed by the loan), and the company was a purchaser or transferee of the loan. The company had parted with the risk, but had retained title to the loans and securities that it had acquired and would have been entitled to pursue Colliers for its negligence, had there been any. The company would have suffered a loss when it acquired the loan secured on the property, had it been overvalued, and would have to distribute any sums received in accordance with the priorities established in the securitisation documentation. In the court’s eyes, the company’s relationship with the investors was analogous to that of a company with its shareholders – and no one would suggest that, because the shareholders may be the ultimate losers in a case like this, the company has not suffered any loss.   Allyson Colby is a property law consultant