The Court of Appeal has overturned an award of €32 million damages against valuation surveyor, Colliers International. The Court decided that Collier’s valuation of a commercial property was not negligent. The case has, however, left the door open for future negligent valuation claims against surveyors by issuers of commercial mortgage backed securities (CMBS).
Colliers was instructed to value a commercial property in Nuremberg, Germany by Credit Suisse in 2005. The bank advanced €110 million to the freeholder of the property on the basis of Colliers’ valuation of €135 million. The majority of the loan was transferred to a securitised loan packager, Titan, who issued CMBS of around €1 billion. The securities were secured against a number of properties including the Nuremberg property.
The freeholder of the Nuremberg property defaulted on the loan and the tenant became insolvent. The property was repossessed and subsequently valued at just over €12 million. It eventually sold for around €22 million.
In the first case Colliers argued that Titan could not bring a claim as it was the securitised loan note holders rather than Titan who had suffered the loss. Colliers also argued that it did not owe a duty of care to Titan as it had not been instructed by Titan to provide the valuation. In the Commercial Court, Mr Justice Blair decided that Titan had in fact suffered a loss and was entitled to bring a claim. He also ruled that Colliers’ valuation was negligent. He concluded that the property had been worth €103 million at the time Colliers valued it at €135 million. He awarded damages to Titian of €32 million.
Colliers appealed the decision on two principal grounds. First, it argued that the Property had been worth substantially more than €103 million. Second, it claimed that Titan was not entitled to sue and even if it was, that it had suffered no loss.
The Court of Appeal considered the negligent valuation first and decided for Colliers. It concluded that the Commercial Court’s valuation had been too low and that it had not taken into account the fact that the property had sold for €127.1 million just six months before Colliers’ valuation.
The Court did however conclude that Titan had been entitled to bring the claim, as it was the owner of the securities and loans and had suffered a real loss.
“Valuation Surveyors will breathe a sigh of relief that property valuations made at the top of the property boom will be backed by the Courts, and that the Courts are avoiding “hindsight” issues. However, the Appeal Court’s conclusion that Titan had the right to sue Colliers will worry insurers,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “It means that claims for negligent valuation could still be brought by issuers of securitised loans. Fortunately the judge’s observations in this case are not binding on the lower courts, so surveyors will still have grounds for defence.”