Did the valuers owe the claimant a duty of care?
Where a lender is bringing a claim again valuers there is usually no issue in establishing a duty of care. However, where the loan is sold onto a third party, as in a CMBS, the question arises whether or not the CMBS issuer is owed a duty of care by the defendant valuers. This may depend on how the valuers’ instructions were framed, the wording of the valuation report and the wording of the other securitisation documents. In Gemini, the definition of ‘addressee’ in the valuation report included not only Barclays but also ‘any of its transferees, assignees or successors in title to the Facility Agreement’. It was therefore perhaps more difficult for the valuers to argue that Gemini (as assignee) was not owed a duty of care by the valuers, particularly as a securitisation was plainly envisaged before the loan was advanced. The position in other CMBS valuation cases has not been so straightforward
In addition to a direct claim against the valuers, Gemini also brought a claim as Barclays’ assignee, relying upon the Loan Sale Agreement, which provided that, together with the loan, Gemini had purchased ‘the benefit of all reports, valuations, opinions … given to or held on behalf of [Barclays]’. Again, however, not all CMBS transactions provide expressly for assigned claims, and it is therefore necessary to consider the question of duty of care on a case-by-case basis with regard to the relevant transaction wording.
Who is the correct claimant?
In a straightforward property loan, it will be the lender who brings a claim against the valuer for negligent overvaluation of the security (as it is the lender who will suffer loss following default and realisation of the security for less than the outstanding loan). In a CMBS claim, it is more complicated to identify the correct claimant because the bank has sold the loan to an SPV issuer which has funded the purchase by issuing debt to the capital markets on a non-recourse basis. Arguably, in economic terms, it is noteholders rather than the issuer who suffer any loss
as a result of the declining value of their notes.
The Court of Appeal considered this question in Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation)  EWCA Civ 1083 (Titan v Colliers). A CMBS issuer (Titan) claimed against a valuer (Colliers) for negligent overvaluation of the commercial property which secured the transaction. The Court of Appeal held that Titan was the correct claimant because, even though it had parted with the risk, it had retained the property in the loans and the securities and therefore had sufficient title to sue the valuer for negligence.
The Court of Appeal also held that Titan, as issuer, had suffered loss immediately upon the purchase of the loan for more than its true value. It was irrelevant that it had subsequently securitised the debt on a non-recourse basis, because the securitisation was an arrangement with third parties which should not benefit the defendant valuer. Titan’s relationship with the noteholders was analogous to that of a company with its shareholders: per Longmore LJ "no-one suggests that, because the shareholders may be the ultimate losers in a case of this kind, the company has not suffered a loss" (paragraph 38).
The decision in Titan v Colliers effectively extinguished similar arguments as to the correct claimant in Gemini. As an alternative, the defendant valuers sought to argue that Gemini had assigned all of its interest in the loan and security and any cause of action to the Trustee (Bank of New York Mellon) under the Issuer Deed of Charge. Gemini’s response was that it had assigned that interest in equity only and by way of a charge that crystallised only upon default of the notes (which had not occurred). Gemini’s position accords more readily with securitisation practice, and the relative autonomy allowed to issuers in relation to their assets in the absence of a note event of default; but ultimately, of course, this question was not tested in court.