Colliers International (Colliers), the US-based real estate services firm, has won its case at the Court of Appeal in London, with a unanimous verdict that its valuation of a German mixed-use property at €135 million in December 2005 was not negligent.
The latest case was the result of an appeal by Colliers following a High Court ruling last year that that it had over-valued the former headquarters of German mail order business Quelle, in Nuremberg, Germany, by €32 million.
The property served as collateral for a €110 million loan sold to SPV issuer and CMBS conduit Titan Europe 2006-3 (Titan).
“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,” said Russell Francis, head of valuation and advisory services at Colliers. “We felt it was extremely important to stand up and be counted, when our expertise was called into question.”
Richard Spooner, deputy general counsel at Hatfield Phillips International (HPI), the debt advisory firm which brought the case on behalf of Titan noteholders, said: “We are obviously disappointed with the Court of Appeal’s judgement in relation to the valuation and Colliers’ negligence.”
James Walton, a partner at law firm Rosling King, HPI’s legal counsel, said his firm was discussing with its client the possibility of applying 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,” he said. “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.”
The Court of Appeal judges ruled that a ‘true’ valuation of the building was €118.3 million rather than the €103 million valuation determined by the High Court. While there was thus an over-valuation of €16.7 million (or 14.1 percent), this did not constitute negligence since the permissible margin of error was 15 percent.
In last year’s ruling, Mr Justice Blair found that Colliers had negligently over-valued the Quelle headquarters, stating that Colliers’ duty of care extended beyond the lender to loss suffered by the issuer and that Titan was therefore entitled to €32 million in damages.
Counsel for Colliers had argued that the issuer was not the correct claimant in the case as it did not suffer any losses as it was fully reimbursed by notes sold to investors. It was argued that the investors, or noteholders, who suffered losses would be the correct claimants.
However, the latest verdict upheld the right of issuers such as Titan to sue for perceived negligence. “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,” said Spooner.