In November of last year the Court of Appeal in the UK delivered judgment in Titan Europe 2006-3 Plc v Colliers International UK Plc (In Liquidation). The proceedings related to a negligence action against Colliers International (UK) Plc (now in liquidation) (“Colliers”) for its overvaluing of a property in 2005.
The background to the case involved Colliers preparing a valuation of a commercial property in Germany in December 2005. At the time Colliers valued the property at €135 million. On foot of that valuation a loan of €110 million was advanced by Credit Suisse to the owner of the property. Subsequently, the loan provided to the German property owner, together with multiple other loans provided by Credit Suisse against other European properties, was securitised and were transferred to Titan Europe 2006 Plc, a Special Purpose Vehicle (“SPV”).
In the meantime, the property valued by Colliers was leased to a tenant. The tenant became insolvent and vacated the property. Consequently, without rent coming in, the owner of the property defaulted on the loan and became insolvent. The property was subsequently sold for €22.5 million.
Titan issued proceedings against Colliers for negligence on the grounds that it had overvalued the property by almost €60 million. In considering the facts, the Commercial Court determined that the correct value of the property in 2005 was €103 million. Colliers valuation was over 15% above the Court’s ‘correct’ calculation and they were held to be negligent. The Court awarded €32 million in damages, representing the difference between Colliers’ valuation and the Court’s estimation.
Colliers appealed the Commercial Court decision to the UK Court of Appeal.
Court of Appeal Decision
On appeal, Colliers did not challenge the Commercial Court’s finding that the permissible margin of error was 15% but did challenge the Court’s valuation of the property. In making its own assessment the Court of Appeal gave weight to the fact that the property had been sold six months prior to Colliers’ valuation (a fact the Commercial Court did not appear to consider). The previous sale price together with evidence of upward market trends resulted in the Court of Appeal determining that the Commercial Court’s valuation was incorrect and that the true value of the property was in fact €118.3 million. This brought Colliers’ valuation within the 15% margin of error. The Court therefore granted the appeal, finding that Colliers’ valuation had not been negligent.
In Ireland, the recent case of Brownrigg v. Leacy (2014) demonstrated that valuers’ have a duty to prepare a valuation with due care, skill and in compliance with professionally recognised practices and guidelines. A client is entitled to rely on a valuation assumed to have been prepared with such due care and skill. In the High Court, Judge Hedigan considered four factors when assessing an auctioneers’ negligence:
- Reliance – the Plaintiff’s actions indicated reliance on the valuation.
- Valuation – the valuation was intended to express a professional opinion on the value of the subject property.
- Negligence – the valuation was not prepared in compliance with the “red book” (i.e. the internationally accepted standards).
- Contributorily negligence – the Plaintiff, as an experienced and knowledgeable farmer, was aware of the risks involved and was therefore partly responsible for his own loss.
In Brownrigg, the valuers were held to be liable and damages were awarded to the Plaintiff. However, the Court found that the Plaintiff had also contributed to the loss and so reduced the damages by 50%.
The above caselaw demonstrates that Courts in both Ireland and the UK valuers must employ a duty of care when conducting valuations and that compliance with the internationally recognised standards for such calculations is essential. Furthermore, Titan is persuasive in indicating that a permissible range of error could be within 15% of the subject valuation.