€32,000,000.  A horror indeed for Colliers International UK (plc) (Colliers) as Mr Justice Blair awarded that amount to the issuer of the Titan Europe 2006-3 CMBS (Titan).  The judgment was for the loss suffered by Titan in relation to the negligent valuation by Colliers of a property in Nuremberg originally occupied by the (now bankrupt) German mail order giant Quelle (see judgment of Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation) [2014] EWHC 3106 (Comm) here).

Aside from questions that arose in relation to the valuation of the property itself, the case considered pertinent questions of loss and reliance in relation to securitisation issuers, namely whether:

  • Titan was the right entity to bring the claim; and
  • Titan could be said to have relied on the valuation provided by Colliers.

The judge rules in favour of Titan in both instances.  In relation to who was the correct claimant, while the judge agreed with Collier’s contention “viewed from an economic perspective…it is the investors in the Notes that suffer the loss” he then went on to state that “it does not follow that in law Titan has not suffered a loss in respect of which it can bring claim” and ultimately that Titan had suffered a loss the moment it acquired a chose in action worth less than the price paid for it.  The reasoning on this point appears to have been two fold.  Firstly, Mr Justice Blair was content to apply previous case law in Paratus AMC Ltd. v Countrywide Surveyors Ltd. [2012] PNLR 12 in which it has been established that the contractual spreading of loss did not affect that incident of the basic loss arising in itself and secondly, the court accepted that, in these types of transactions, “the distribution of loss can be difficult to pin down, and depends on when investments were acquired, market movements, and the performance of the rest of the transaction”.

Although, it should be borne in mind that Mr Justice Blair did caveat the findings on this point by stating “I note that a different answer to the “correct claimant” question might arise in a different case, depending upon the contractual documentation and the arguments in that case”.  Given that the Titan Europe 2006-3 structure is quite a common one for CMBS transactions, one could imagine that this would most likely be tested in other, perhaps simpler structures, e.g. single asset, single tranche and single noteholder deals, where the loss to the noteholder would correspond in timing and value directly and demonstrably to the negligent valuation.

In relation to arguments relating to reliance, the judge sensibly ruled that establishing reliance by Titan on the valuation provided by the Colliers did not require the directors of Titan to have read the valuation report itself.  It was enough that the directors had reviewed the preliminary offering circular which contained the valuation of the property (and in particular the loan to value of the of the Quelle loan) which backed up the corresponding warranty from the originator, Credit Suisse, contained in the sale agreement relating the loan.

Overall, the case demonstrates the willingness of the court to recognise the complex nature of the securitisations and at the same time not allow that to hinder recoveries where a loss has been suffered by an SPV issuer and, ultimately, by the noteholders.