The English High Court has held for the first time that a securitisation issuer was able to bring a claim against a valuer who had been negligent when it provided a valuation for a property that was used as collateral for a loan which was subsequently securitised. The judgment in Titan Europe v Colliers1 will be of interest to investors, issuers and other participants in the CMBS industry that may be contemplating or are currently bringing negligence claims against valuers.
Proper claimant and "no loss" arguments
Colliers had argued that Titan was not the correct claimant because, as a non-recourse issuer of the CMBS Notes, it had not suffered any loss itself. They submitted that the loss had in fact been suffered by the Noteholders and that they were therefore the right party to bring the action (but had not done so).
The court concluded that Titan was the proper claimant, based on the contractual terms of the transaction documents. Under the Deed of Charge and Assignment and the Cash Management Agreement, Titan was contractually obliged to distribute the proceeds of any successful claim in accordance with the applicable payments waterfall, whereas the Noteholders did not have any such obligation. The proceeds would be applied according to the contractual structure to which the Noteholders had subscribed when they made their investments and, as such, they would be getting what they bargained for. The contractual terms of the transaction documents that the judge relied on are present in most securitisations in the market.
In relation to the "no loss" argument, the judge concluded that it was irrelevant that Titan was an economically neutral conduit for Noteholder receipts and payments. Instead, he held that Titan had suffered a loss from the moment it purchased the loan, for the simple reason that it acquired an asset (the debt instrument) worth less than the price paid for it.
Basis for negligence
The case highlights that, in order to establish negligence, it must be proved that the disputed valuation was one which no reasonable valuer would have reached and was outside the permissible margin of error. He held that, by reference to previous case law, the appropriate margin of error was 15 per cent. and that Colliers' valuation fell outside this tolerance level.
It was held that Colliers had been negligent, as a reasonably competent valuer would have concluded that there was a real risk that the tenant of the property in question might...