The negligent valuation case brought by CMBS issuer White Tower 2006-3 against Colliers International UK began in London’s High Court last Friday (8 April).
White Tower alleges that Colliers negligently overvalued five London office buildings which were part of a portfolio of nine properties once owned by tycoon Simon Halabi. The properties were security for a £1.45 billion whole loan provided by Halabi’s relationship lender, Societe Generale, in 2006. The £1.15 billion senior portion was securitised in a deal which eventually defaulted following the financial crisis.
White Tower, the SPV issuer of that deal, claims that Colliers’ £1.2 billion valuation of the five buildings was 11.9 to 25 percent too high depending on the property and led to it suffering a net loss of £34.85 million.
A major focus of the case is whether Colliers owed a duty of care to White Tower, even though the valuation was carried out on behalf of SocGen, the original lender. It echoes a previous valuation case brought against Colliers by another CMBS issuer, Titan Europe 2006-3. In 2014, a High Court judge ruled in favour of Titan, including its right as an issuer to sue. The Court of Appeal cleared Colliers of negligence last year, but did not overturn Titan’s right to bring the action.
The White Tower-Colliers case is being heard by Justice Burton and is expected to last at least two weeks.
Anneliese Day QC, representing White Tower, said in her opening argument that a duty of care was made clear in a ‘reliance letter’ which SocGen requested Colliers sign alongside notification that the loan was to be securitised. Carl Barrand, who worked for Colliers at the time and had valued the properties, signed the letter on 26 October 2006.
The claimant also argues that the status of ‘lender’ was conferred on White Tower as a result of the wording of the credit agreement of 13 October 2006. The definition of lender in that document includes ‘successors in title’ meaning the SPV became the senior lender once the senior loan was transferred to it for securitisation.
“We say that the duty is very clear in the reliance letter,” said Day. “We will show that there can be no doubt that [White Tower] became successor in title to SocGen. Subsequently [White Tower] became senior lender.”
The intention to securitise the loan would have been implicit in the valuation process, Day further argued. The original instruction letter and resulting valuation report expressly stated that the valuations could be distributed to banks or other investors in connection to a securitisation, according to the claimant’s case.
“The point is that everybody knew this was going to be a securitised transaction,” said Day.
Patrick Lawrence QC for the defence admitted that the reliance letter is “not a model of clarity”. However, he argued that there was no duty of care owed by Colliers to White Tower and that there was no assignment of any cause of action by SocGen to the SPV. The security trustee, that being SocGen, would be the correct claimant if there were a valid case, Lawrence argued.
“It is obvious that my client [Colliers] and the insurance interests behind them have taken a very acute interest in which entities are legally able to sue the valuer,” said Lawrence.
The purpose of the security letter was to extend to SocGen the status of ‘security trustee’, rather than to extend any reliance to White Tower, the defence argues. SocGen requested that the “’addressee’ language” in the valuation report “should be slightly extended” and Barrand subsequently returned the reliance letter addressed to SocGen as “original lender, agent and security trustee for and on behalf of the secured parties and original hedging provider as such terms are defined in the credit agreement”.
Lawrence added that all indications point to White Tower not having received the reliance letter at the time it was issued.
The defence argues that there was no legal relationship between White Tower and Colliers, whether in contract or tort or otherwise. It also argues that there was not an assignment of any cause of action against Colliers by SocGen to White Tower.
On the subject of the valuation itself, the claimant argues that the figure arrived at by Colliers was crucial in determining the amount that was lent. SocGen stipulated that it would lend £1.45 billion or 83 percent loan-to-value (LTV), whichever was lowest. Had Colliers taken reasonable care, the securitisation would have proceeded with the advance under the senior loan being £1.0895 billion, rather than £1.15 billion, the claimant says.
“Far from being a gung-ho lender, the LTV was closely examined and the pressure was to get the LTV lower rather than higher,” Day said. “SocGen documents show a very careful and thorough process.”
However, Lawrence argued that the whole loan at £1.45 billion was about 87.5 percent of what the claimant contends was the true valuation of £1.655 billion. As White Tower only acquired the senior portion, it only became the lender to 69 percent LTV of what the claimant says is the true value.
“It is obvious from the maths that this claim is on a knife edge in terms of causation. That suggests quite a heavy burden rests on the claimant to prove a lower valuation would have led to an outcome where they part with less than £1.15 billion,” Lawrence said.
Lawrence also questioned whether the bank would have passed on the opportunity to provide a large loan to Halabi, a relationship client, irrespective of the valuation: “If Colliers had produced a lower figure, Mr Halabi would have said it was too low and would have complained to the bank.”
The case continues.