England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/09/2014

1. Introduction	1
2. The proceedings	5
The expert evidence	9
3. The facts	26
The securitisation	73
The loan goes into default	82
The notice of 18 July 2014 from the Note Trustee	85
4. Colliers' contention that Titan as issuer of the securities is the wrong claimant	86
The parties' contentions	86
Discussion and conclusion	93
(1) The correct claimants to bring the claim under the contractual scheme of the securitisation	93
(2) Colliers case that the Noteholders were the correct claimants to bring the claim	99
(3) The applicable legal principles	105
(4) Did Titan suffer any loss?	115
(5) The Albazero point	126
5. Whether or not Colliers' valuation of the property was negligent	127
Legal principles	127
Valuation issues: overview	138
Sales and valuations of the property between 2000 and 2005	148
(1) 26 October 2000: sale and leaseback: €102m	149
(2) 27 August 2003 sale at €91m	152
(3) September 2003 Weatherall valuation at €114m	155
(4) January 2005 Weatherall valuation at €125m	160
(5) 5 March 2005 Meeùs valuation at €134m	163
(6) 1 June 2005 sale of shares in Valbonne at a stated value of €127m	166
Discussion and conclusion as regards sales and valuations of the property	174
6. Valuation issues raised by the parties:	178
(1) Investment market 2004-5	178
(2) Classification of the property	181
(3) Refurbished offices	183
(4) Petrol station and carwash	188
(5) Potential for land development	189
(6) Estimated rental value	192
(7) Quelle's covenant	206
(8) Obsolescence	215
(9) Monumental protection/planning	222
(10) Valuation methodology	226
(11) Reversion to vacant possession/the perpetuity assumption	227
(12) Ability to re-let upon Quelle vacating	236
(13) Conversion issues	246
(14) Property valuations	253
(15) Property sales	254
(16) Comparables	255
(17) Retail potential	263
(18) Yield	264
(19) Acquisition costs	277
(20) Vacant possession value	278
(21) True market value	279
(22) Bracket	286
7. Findings as to negligence	287
8. Causation	289
9. Reliance	300
10. Loss	304
11. Interest	305
12. Overall conclusion	306




Mr Justice Blair :

1. Introduction

1. This is a claim by Titan Europe 2006-3 plc, an Irish company, against Colliers International UK plc ("Colliers"), an English company which went into liquidation on 28 March 2012. At the relevant time, Colliers was part of a global real estate services organisation whose expertise included the valuation of commercial properties. The proceedings are a claim for professional negligence in which Titan claims that it relied upon an overvaluation given by Colliers on 15 December 2005 of a commercial property in Nürnberg (Nuremberg), Germany. Titan seeks judgment for €58,400,000, being the difference between the Colliers' valuation of the property at €135m and what Titan says was its true market value at €76.6m.
2. Although the Nürnberg property was security for a loan, the loan was not made by Titan. It was made by Credit Suisse and transferred to Titan as part of a securitisation in respect of which Credit Suisse was arranger and lead-manager. Titan is a special purpose vehicle incorporated as the issuer of the securities, which are called commercial mortgage backed securities (or CMBS). Essentially, the securitisation transaction packaged into transferable securities eighteen loans in all together with the security for the loans which was in the form of mortgages over commercial property in Europe. The securities were issued by Titan on 27 June 2006 to a value of just short of a billion euros, and the subscription by investors in the securities funded the acquisition of the loans by Titan from Credit Suisse. The market for such securities dried up in the wake of the 2007-8 financial crisis, but the principal cause of the present litigation is the insolvency of the tenant of the Nürnberg property in 2009. The property is currently in the process of being sold for about €22.5m, which is far below the valuation.
3. This case is concerned therefore with only one of the loans that was securitised, namely the loan secured on the Nürnberg property, and concerned specifically with the allegedly negligent valuation of that property by Colliers. There are two main questions for decision. The first is Colliers' contention that Titan as issuer of the securities is the wrong claimant on the basis that it has not suffered any loss. Colliers contends that it is the holders of the securities who sustained the loss, and who relied directly or indirectly on the valuation, and who could have sued the allegedly negligent valuer, but have not done so. This question is potentially capable of arising in respect of other securities issues, including some concerning CMBS which I understand are presently in course of litigation. However, I state at the outset that the answer to the question will depend upon the structure of the particular transaction, and the court has to answer it on the facts of the particular transaction and the contentions of the parties.
4. The second question does not raise any particular legal disputes, but is a complex one on the facts, namely whether or not the valuation of the property was negligent. This is disputed by Colliers, and potentially raises a causation issue should the court decide that the value fell between the opinions expressed by the parties' respective experts.

2. The proceedings

5. These proceedings were begun on 26 June 2012 when the Claim Form was issued. Companies within the Credit Suisse Group were instrumental in the loan and valuation underlying the claim, but are not parties to the litigation. Colliers has however obtained documents from Credit Suisse, both voluntarily, and pursuant to an order I made pursuant to an application by Colliers the day before trial. Colliers says that Credit Suisse has not been particularly helpful in providing documents, and there may be force in this. I should make it clear that the defendants' legal advisers did everything in their power to obtain what they felt were relevant documents. However, I believe that all documents volunteered or ordered to be disclosed were produced by the end of trial.
6. Factual witness evidence was given for Titan by Mr Alan Geraghty, a director of Titan, Mr Stephen Yankauer (by video link with New York), a senior Credit Risk Manager within the Credit Suisse Group's real estate finance and securitisation business, and Ms Katja Lennig, who is a Vice-President of Hatfield Philips Deutschland GmbH, and responsible for the day-to-day management of the loan which was securitised.
7. For Colliers, the factual witnesses were Mr Robert Mayhew, the valuer employed at the time by Colliers who valued the property, and Mr Nicholas Harris, also a valuer employed at the time by Colliers, who assisted Mr Mayhew. Titan described Mr Mayhew as an evasive and argumentative witness, but I reject this criticism. He gave his evidence in a professional manner, and in the light of the findings I am obliged to make in this judgment, I record that it is common ground between the parties that the property in question was particularly difficult to value.
8. As well as written submissions, junior counsel for Titan prepared a document summarising the facts and legal terms of the securitisation on which junior counsel for Colliers commented, and junior counsel for Colliers prepared a document analysing the expert valuation evidence on which junior counsel for Titan commented, and I express my appreciation in that regard. Finally, the court was not asked to make findings on quantum issues, the principles under SAAMCO (see below) being common ground.

The expert evidence

9. The court received expert evidence from Ms Solveig Loretz for Titan, and Mr John Deacon for Colliers. Both have extensive experience in the field, though in the event there are few differences between them which it is necessary to resolve. There was also written evidence of German law, but I was not taken to it by either side during the trial, and so far as any issues arise, I am not asked to resolve them.
10. The position as regards the valuation evidence is different, and each side raises fundamental objections as regards the other side's expert witness. These were Mr Duncan Preston, for Titan, and Mr Jonathan Manley, for Colliers. Both are valuers currently in practice.
11. Colliers submits that since Mr Preston has no experience of valuing property in Germany, Titan has not adduced any evidence from the valuer with appropriate expertise. Titan submits that Mr Manley has a conflict of interest, since his valuation of another commercial property in Germany is the subject of a similar claim to the one made in these proceedings against the firm which employed him at the time.
12. I begin by considering the position of Mr Preston. He is a chartered surveyor, and a former Vice-President of the Royal Institution of Chartered Surveyors. He gave his evidence in a thoughtful and careful way. He has extensive experience of the valuation of commercial property throughout the United Kingdom but, as Colliers say, he has no experience of valuing property in Germany.
13. On that basis, Colliers submits that Mr Preston lacks the necessary expertise to give evidence in this case. As someone without experience of Germany, he was ignorant of market conditions, and the rules relating to planning permission. It was common ground that obtaining information about commercial property is less easy in the German market by comparison with the English market. Mr Preston is not an expert in the relevant field, Colliers submitted, should not have accepted instructions to express an opinion as the value of a property in Nürnberg, and has produced a valuation which is not only much less than that of Mr Manley, but is far out of line with the market evidence as to the value of property at the time.
14. There was a further feature of Mr Preston's evidence upon which Colliers place considerable reliance. In his report, Mr Preston opines that the market value of the property in December 2005 was €76.6m. However, Titan's letter of claim dated 6 October 2010 asserts (on the basis of Mr Preston's then opinion) that the market value was €61m. Based on his cross-examination, Colliers say that when Mr Preston was first instructed in 2010 to provide a valuation of the property, he did not consider himself to be appropriately qualified to undertake the instruction. That led to the instruction of a Mr Paul, as an expert valuer, jointly with Mr Preston, and they were jointly responsible for the €61m valuation. There was later a report obtained by Titan from a Mr Widmann, who Colliers describe as "experienced in the valuation of commercial property in Germany", and who valued the property at €81.1m, which was the number Titan originally pleaded. This latter report, which has not been disclosed, does not seem to me to advance matters, though as a matter of comment, it comes out much lower that the Colliers valuation.
15. Colliers sought disclosure of the report which gave rise to Mr Preston's first figure. Titan objected on the basis that privilege in the document had not been waived, an objection which I upheld. However, the result is that the court is left with the explanations that Mr Preston has advanced for the difference in his valuations. In his report, he said that when he gave his original valuation he thought that the fact that the property was a "protected monument" (roughly equivalent to being a listed building) meant that the buildings could not be demolished. He explains that he now believes that there is the potential to demolish the buildings and revert to site value.
16. Titan points out that it was put to Mr Preston in cross-examination that his valuation was much lower than Mr Manley's by reference to four specific reasons, and in particular his assumption that the tenant would quit at the end of the term, and none of these turns on a special feature of the German property market. Its position therefore is that Mr Preston has the expertise necessary, and that he was a more rigorous expert than Mr Manley, and that his evidence should be preferred.
17. My conclusion as to whether Mr Preston has the necessary expertise to give an opinion as to the value of the property in question is as follows. The evidence suggests that banks which were lending on the security of commercial properties in Europe for securitisation purposes obtained valuations from firms with international valuation expertise. Mr Manley has such expertise (as did Mr Mayhew at the time of the valuation). However, the limitations of such expertise also need to be noted. Mr Manley does not purport to be an expert in the valuation of commercial property in Germany generally, or in Bavaria (where Nürnberg is situated). The evidence suggests that where international valuers based in London are instructed to undertake such a task, the valuation would be undertaken on the basis of the RICS Red Book (the RICS Appraisal and Valuation Standards), with the help of local expertise. This is what happened in the case of the impugned Colliers' valuation. As Titan points out, Mr Manley himself appeared to support this approach.
18. The case law indicates that a valuer, if of proper professional qualification and experience, does not need pre-existing local knowledge to be "expert" for the purpose of giving an expert opinion to the court. In Abbey National Mortgages plc v Key Surveyors Nationwide Ltd [1996] PNLR 120, objection was taken to an expert on the grounds that an expert valuer needs to have intimate first-hand knowledge of property values and market conditions in the area of the property to be valued. At p. 127, it was said (by Sir Thomas Bingham MR) that:

"There is no doubt a measure of force in this: a locally based valuer will know that certain parts of an area are more favoured than others; and will know of local factors (such as the threat of a bypass or the presence of a railway) which may serve to depress prices within a given district. But even a locally based valuer, asked for an opinion on the appropriate range of prices for a given property some years before, will be most unlikely to have this information at his fingertips. He will have to consult the records, and refresh his memory of prevailing conditions at the relevant time. This is not very different from the task which a valuer who is not locally based will have to undertake. It is not in our judgment self-evident that a valuer cannot, having made appropriate inquiries and investigations, express a reliable opinion on values within an area where he has not himself worked."

19. The court in that case was concerned with a valuation within the United Kingdom, and I accept that the required professional skills are more easily deployed within parts of the same country. But I consider that the same in principle should apply to an international valuation such as that at issue in the present case. This is particularly so where, as here, the valuers were expressly instructed to prepare the valuation in accordance with the Red Book. In any case, this field of economic activity like so many others is subject to increasing international standardisation.
20. On the other hand, part of ascribing a market value to commercial property involves a feel for the market in question. A careful technical analysis may be seriously flawed if it does not take account of market sentiment when the allegedly negligent valuation was made. The dynamics of the market for large lots such as this one, as the evidence shows, was that falling interest rates, combined with incoming investment not least for the purposes of securitisations such as the present, was resulting in yield compression, by which valuers mean rising prices. As I shall explain, it is a fact that Mr Preston's valuation is much lower than any other relevant valuations, including valuations or sale prices at, or relatively close to, the relevant time. This may reflect his lack of experience of the German market in commercial property. But the immediate reason is his fact-based assumption that the tenant would quit at the end of the lease. Clearly an important issue for the court is whether his valuation can be accepted given the other evidence of market value, but his lack of experience of the market does not, in my view, disqualify Mr Preston from giving an expert opinion in this case.
21. Now I come to Titan's objection to Mr Manley, who does have experience of this market. One of the comparables cited by Mr Manley in his report is a Woolworths' distribution centre at Bönen, in Germany. In his report, Mr Manley refers to the fact that the valuation of the property prepared in late 2005 by King Sturge, the firm he was with at the time, is currently the subject of litigation.
22. However, not only did his firm perform the valuation, but Mr Manley signed it. This is not disclosed in his report, and Colliers in closing rightly (though belatedly) accepted that this should have been disclosed. It is not suggested that there was any deception in this respect. The proceedings in respect of Bönen had not been commenced at the time when Mr Manley was retained as an expert by Colliers, and a decision was taken to retain him. Titan was well aware of the facts, since the same lawyers as represent it in these proceedings represent the claimant in the Bönen proceedings.
23. Titan does however submit that Mr Manley is subject to a substantial conflict of interest in respect of his ability to provide the court with independent evidence. This is because the proceedings in relation to the Bönen valuation which he counter-signed raise similar issues to those in the present case. Further, Mr Preston is the nominated expert for the claimant in those proceedings. It is therefore, Titan submits, to Mr Manley's personal advantage if Titan loses the present proceedings and Mr Preston is discredited as a witness. It submits that the conflict is so deep that the court cannot trust any of Mr Manley's evidence to be independent.
24. My conclusions in this respect are as follows. It is unfortunate that these proceedings were underway with Mr Manley retained as an expert by Colliers at the time the Bönen proceedings were started. It was a matter for the defendants whether he was retained as an expert in those circumstances, but if he was, it was clearly not sufficient to disclose in his report the fact that a claim had been made in respect of the valuation of the Bönen property. It should have been disclosed that he was himself a signatory to the valuation. It may be unfair to criticise him personally in this regard, and I do not know what advice, if any, he received, and nothing was volunteered to the court. As I have explained, Titan itself was well aware of the facts because of the common representation of the claimants in both cases, but that does not excuse the non-disclosure to the court.
25. Though Mr Manley has no personal financial interest in the outcome of the Bönen litigation, he does have a reputational interest. The principle is that this kind of conflict does not usually disqualify the expert witness, but goes to the weight of the evidence (R (Ex p. Factortame) v Secretary of State for Transport (No 8) [2003] QB 381 at [70], Lord Phillips MR). I certainly do not consider that Mr Manley should be treated as a discredited expert witness. However, I do accept Titan's submission that in considering his evidence, I have to bear in mind that he has a personal stake in maintaining the credibility of the impugned Colliers valuation. That may have a significant impact on how I view his figures. That aside, I considered that he was very competent in the field in which he was testifying.

3. The facts

26. The facts as I find them are as follows. The claim relates to a property on Fürther Strasse, Nürnberg, Germany. There is a description of the property agreed by the expert valuers, and there are numerous pictures in the evidence. It is situated just to the west of the centre of the city, in an established industrial and commercial area. It lies directly opposite a tram or subway station. It was constructed in five phases, the first from the early 1950s and the last from the late 1960s. Although the property is spread out over a large site, the main section is arranged over a basement and five levels.
27. The property is very large, with a total floor area of 242,195 square metres, that is some 2.5 million square feet. The size is only really appreciated when looking at the pictures. At the time of the valuation, it was mainly given over to warehousing, together with offices and a department store. It was occupied by a German company called Quelle Aktiengesellschaft ("Quelle"), which according to a Credit Suisse credit report of 16 December 2005, was the biggest mail order company in Germany. It seems that the building was built for Quelle, and that it developed with its mail order business. In 1999, a company called Karstadt, which at the time was Germany's biggest department store group (according to the same report), purchased Quelle, and the combined company became known as Karstadt-Quelle.
28. On 25 October 2000, Quelle entered into a sale and leaseback transaction with Thesaurus GmbH, presumably to raise money after the merger. The lease, which was the current lease at the time of the impugned valuation, was for 15 years from 1 January 2001, with three options to extend for a further period of 5 years. The lease was drawn on a "triple net" basis, which meant that Quelle was responsible for repairs and maintenance (akin to a 'full repairing and insuring lease' in the UK). I was told that this provision was unusual in Germany, and favourable to the landlord. The purchase price was stated in the contract of sale as €102.3m net (or €118.9m gross). The rental (expressed in euro) was I was told €715,809 monthly, which is €8,589,703 annually. There was provision for increases by reference to a German price index, but I was told that this did not happen (it may have happened in 2008 but this was after the events with which the case is primarily concerned).
29. The transactions regarding, and the valuations of, the property from 2000 onwards are significant in this case. For the present, it is sufficient to note that in August 2003 Thesaurus sold the property to a company called Valbonne Real Estate BV, which is a Netherlands company.
30. The evidence is that at this time, investment banks were actively looking for opportunities to make substantial loans secured on substantial commercial property in Europe with the intention of packaging a number of loans together and securitising them. The evidence is also that this was profitable business for the banks.
31. At some point, Credit Suisse turned its attention to the Nürnberg property. The individual at Credit Suisse who appears to have had conduct of the matter was Mr Patrick Donovan, in European Real Estate Finance & Securitisation. He did not give evidence, and I understand that he no longer works for Credit Suisse.
32. There is in evidence a letter dated 30 May 3005 to Credit Suisse from a company that may have provided loan broking services requesting a loan of €92.5m secured on the property. I think this was probably part of an ongoing process. In any case, there is also in evidence a term sheet dated 17 June 2005 which indicates that the terms proposed by Credit Suisse at this stage were for a loan expressed as 'an amount equal to the lower of €95m and 75% of the market value of the Property'.
33. By contract dated 1 June 2005, a company called Homberg Invest Inc (which is a Canadian property investment fund) bought Valbonne's shares through a subsidiary, and thereby, as explained below, effectively bought the property. The seller warranted in the contract that by 31 May 2006 Quelle would execute a new 15 year lease with a rent of €9.28m, as opposed to the unexpired 10 years term at the rental of €8.589m which Quelle was currently paying. As at the time of the impugned valuation in December 2005, this had not happened, and it appears that it never happened.
34. On 25 October 2005, Credit Suisse produced a loan term sheet in respect of a proposed €110 million loan to Valbonne as borrower. This was the loan that was ultimately approved.
35. In November 2005, it appears that a number of valuation firms were approached (in effect) to bid for the valuation contract. The process was handled (at least initially) by a firm called Situs, who are described in the evidence as "due diligence consultants engaged by Credit Suisse".
36. At that time, Mr Mayhew had become Director of International Valuation at Colliers. He was concerned to build the business by developing the company's pan-European capability. He said in evidence that Colliers had five offices in Germany at the time, and that he himself had valued a number of other properties in Germany.
37. On 3 November 2005, Situs sent an email to Mr Mayhew providing basic information regarding the property with a view to the production of a "desktop" valuation. Among other information, it stated "Net rental: to be revised to EUR9,280,000 … Triple Net Lease until 31.12.15 with 3 x 5 year option". The reference to the revision of the rental was presumably a reference to the rental under the new lease envisaged in the sale of the property on 1 June 2005.
38. Mr Mayhew discussed this email with Dr Hartwig Heyser, who was a researcher based in an office of Colliers (or an associated company) in Munich, and who generally assisted him in relation to German valuations. On 4 November 2005, he produced a desktop valuation of €140m net of costs at 7%. It assumed a very strong covenant, and a 15 year lease on a triple net basis. (At this time Mr Mayhew was unaware that the property was subject to "monument protection".) He emailed the desktop valuation to Dr Heyser.
39. Dr Heyser responded that the property location was good, the rents looked realistic, but that the multiplier seemed "pretty optimistic" because of the question of the use of the property after the lease: "… what if Quelle is going broke after 4 years? Who can occupy this site then? … After Quelle, there may be only the land price minus demolition costs".
40. Mr Mayhew responded to the effect that he accepted Dr Heyser's views, but that for the desktop "we are instructed to assume Quelle will not go broke. … I suggest that I report to [Credit Suisse] that we can support €140m, on the basis that Quelle AG are very strong but that this is a point we are concerned about".
41. Dr Heyser responded, "I am totally with you, Robert. In a today-bidding prozess, we probably see a prize about 140 Mio". It was put to Mr Mayhew in cross-examination that this referred to the bidding process to obtain the valuation work, but Mr Mayhew did not accept this, and I agree that it is more likely that it refers to the sale price of the property.
42. Mr Mayhew then sent the desktop valuation to Mr Donovan of Credit Suisse and expressed concerns as to the strength of Quelle. The email was not shown to the court, but I think that this (and the subsequent exchanges between them) was all happening on the same day, namely 4 November 2005.
43. Also the same day, Mr Donovan proposed a fee of €100,000 excluding VAT for the assignment. Mr Donovan said in his email, "we really need every Euro cent of the €140M value, please let me know as soon as possible if you encounter any problems. We look forward to working with you on another deal."
44. Mr Mayhew responded that he agreed the proposed fee on the basis that he hoped that they could do more work together across Europe. Mr Donovan responded, "Future business? After looking at our pipeline, I am sure you will have your fill of [Credit Suisse] deals. We are looking to double our production next year and are in desperate need of good appraisers who can deliver on time with valuations consistent with their initial quote". The reference to valuations consistent with the initial quote was obviously a reference to the desktop valuation of €140m.
45. By letter dated 3 November 2005 (though probably prepared and signed shortly afterwards). Credit Suisse duly instructed Colliers to carry out the valuation. Mr Mayhew says that he was not told at this stage that Credit Suisse intended to securitise the loan that was proposed on the property.
46. On 10 November 2005, Mr Donovan emailed Mr Mayhew saying that, "We have recently gone to credit committee on a large portfolio of Quelle assets. [This was a reference to another deal the bank was doing, the details of which were not available at trial.] This said, they are going to be very sceptical and ask many of the same questions on this property". He set out a list of questions upon which he wanted to have "strong arguments". The list included "As high as possible VP [vacant possession] value" and "Can the space be subdivided?".
47. On 14 November 2005 Mr Mayhew, Mr Harris and Dr Heyser inspected the property accompanied by Mr Donovan and someone from Quelle. They spent a day walking around the property. Afterwards, Mr Mayhew emailed Dr Heyser to the effect that Credit Suisse was "very focused on what could be done with the property if Quelle was not in occupation". The bank was right to be—this has featured as a major issue in this litigation.
48. On 17 November 2005, Mr Donovan sent an email to Mr Mayhew and Mr Harris which he said followed a conversation with the finance department of Homberg, a reference to Homberg Invest Inc, the property investment fund which bought Valbonne's shares on 1 June 2005. The conversation was about the purchase price of the Quelle property "in 2001". He said "the all-in cost of the transaction was c. EUR 130.1M. This included over EUR30M equity from Homburg". Despite the reference in the email to 2001 rather than 2005, and the fact that the details of the transaction (which I describe below) do not appear to be correct, I agree with Colliers that this must be a reference to the 1 June 2005 sale. Mr Donovan said, "I do not know if this helps, but hopefully it will".
49. It seems reasonably clear that Mr Donovan meant that he hoped that this information as to the sale price would help Colliers maintain the desktop valuation. Mr Mayhew said he took this into account, in that it is helpful for a valuer to understand the transactional history of a property, but that it did not affect the calculations which were undertaken in arriving at a the valuation of the property in 2005. I regard that evidence with some scepticism, because if Mr Donovan was correct, it was current market evidence as to the value to the property which the bank was encouraging Mr Mayhew to use to support the desktop valuation.
50. On 18 November 2005, Dr Heyser sent an email to Mr Mayhew which commented upon a 2003 valuation by a firm of valuers in the Netherlands called Weatherall Vastgoed Adviseurs which valued the property at €114.72m. I deal with this valuation below. He also sent the Quelle lease contract, which of course was a critical document. In his comments, Dr Heyser considered it an "open question" as to what use the property would be put at the end of the lease term, and Mr Mayhew accepted in evidence that he and his team were concerned as to this issue.
51. There are a number of emails sent by Dr Heyser to Mr Mayhew which Titan places reliance upon as showing doubts within Colliers about the Quelle covenant, and whether Quelle would remain in the property at the end of the term. In an email of 22 November 2005, he says that if Quelle "… are going to leave or going broke (they where close to chapter eleven in 2004!), it can be not very funny, blowing money in a peace of land with now use. It hast to be proved, if the premises can be developed with a mix of shopping mall and residential. … Important is therefore more the quality of the lease than of the premises. This hast to be checked by a qualified advisor". He also indicated that he thought a multiplier of 12.5 (an equivalent yield of 8%) was appropriate for the property assuming a 10 year lease, and a multiplier of 13.7 assuming a 15 year lease. He said, "the main question is still, how to calculate the cost for development of the site. As well as costs for abolishment".
52. Colliers says that this email has to be read together with the fact that the figures given by Dr Heyser in it as representing market rents are the same as those in the impugned valuation (€3 for warehousing, €5 for office space, and €12 for retail, all per square metre), though it points out that Dr Heyser was not a valuer.
53. Dr Heyser spoke to a Mr Weinmann, a facilities manager at Quelle, whose name had been given to Colliers by Mr Donovan. On 25 November 2005, he sent an email to Mr Mayhew which set out the information he had obtained. He noted that Quelle had taken a lease for another 13,000m² of storage space at Kongresshalle, Nürnberg, which was further warehousing in the same city. Quelle was required under the lease (that is the lease of the subject property), he said, to invest a "huge amount" in roofing. (This may be a reference to €3-3.5m which a LandAmerica Report of 23 November 2005 also obtained by Credit Suisse at this time states would need to be spent.) He said, "Quelle still struggles and plan to reduce employees", even though the official statement said that the company had successfully finished its re-capitalisation phase.
54. Strikingly, and Titan places great emphasis on this, Dr Heyser said that Quelle was "captured in a lease contract they don't want and need". If it recovered financially, Quelle would be able to re-negotiate the lease to obtain better terms. If it did not recover, the landlord (as Dr Heyser put it) "needs a good idea". (Mr Heyser did not give evidence at trial. I was told that there were proceedings in Germany to obtain evidence by way of judicial assistance from the German courts, but that nothing relevant transpired.)
55. Meanwhile, on 21 November 2005, the first of a number of draft reports was created by Colliers, followed by drafts on 26 November and 2 December 2005. By 6 December 2005, a draft report had been sent to Mr Donovan for comment, seemingly still with the valuation of €140m as in the desktop.
56. Monument protection is a form of planning control exercised by German authorities which has some similarities to the listing of buildings in UK practice. In an email of 7 December 2005, Dr Heyser emailed Mr Mayhew explaining that "Monumental protection is one of the worst for an owner, what can occur" because it limited what could be changed.
57. The method of finding out about this aspect of planning control was not entirely clear on the evidence, and different views as to the extent of protection appear to have been held by different people. There is however evidence that Quelle wished to make changes to the property and needed permission to do so. The Bavarian State office for the Preservation of Monuments produced a memorandum dated 10 June 2005 which appears to give permission for alterations subject to elevations and staircases remaining as they were. Colliers' valuation recorded that only the Quelle Tower was listed (this was a tower with the Quelle name on it and a prominent feature of the property), but on the basis of this memorandum, protection status existed for the entire complex. Titan says that Colliers should have found this out, whilst Colliers says that it may be inferred that Credit Suisse would have been aware of the extent of the monumental protection, but did not pass to Colliers the report on title which it would have received from its German lawyers. I need not explore this further.
58. At this point in time, Colliers appears to have been assuming a 15 year lease. If this is so, it is unclear how this confusion arose, because the existing lease had an unexpired term of only 10 years, though the 1 June 2005 sale contract envisaged a new 15 year lease by 31 May 2006. On 21 November 2005, Mr Mayhew said that it should be confirmed with Mr Donovan that Colliers was valuing a 15 year unexpired term.
59. He obviously did not get that confirmation. After a conference call on 9 December 2005, Mr Mayhew sent a revised valuation figure of €135m on 10 December 2005. In his email, Mr Mayhew explained that the "primary attraction of this investment is its long lease to Quelle hence the difference in value between a 10 and 15 year unexpired term". The assumption behind the revised valuation "reflects the latent value which exists with this property as a result of its adaptability from its current use to potentially more valuable uses such as retail". This has given rise to a substantial dispute between the parties.
60. As a factual matter, on 15 December 2005, which was the same day that the final valuation report was produced and sent to the bank, Mr Mayhew emailed Mr Donovan and said that he would amend the report to reflect the conversion of 40,000 m² of accommodation to retail space at €8 per m². Titan says that the extra retail came into the equation to bolster the yield once Mr Mayhew appreciated the lease had 10 years to run rather than 15. The reduction in the term would increase the yield by at least ½% which would have been sufficient to take the valuation below €130m. (This latter point is based on the evidence of Mr Preston which I accept in this respect. It was put to Mr Mayhew in cross-examination that on Dr Heyser's figures, it would reduce the desktop from €140m by some €11m, with which I think Mr Mayhew agreed, though making the point that the figures were fairly simplistic.)
61. Colliers says that the possibility of expansion of the retail development in particular to add 40,000m² was simply a late development, which did not have any impact on the actual valuation produced. It was merely an addition, in the narrative of the report, to the potential upside.
62. Although this does reflect the evidence of Mr Mayhew, I do not accept that there was no impact on the valuation. Immediately after the passage in the report that states the opinion of value of €135m, the report contains the wording from Mr Mayhew's email of 10 December 2005 to Mr Donovan that I have referred to above. This makes it clear that the potential of approximately 40,000 m² of retail use referred to earlier in the report is reflected in the initial yield adopted in capitalising the current income.
63. Further, I think that there is force in Titan's case that the extra 40,000 m² only came into the equation to help make up for the drop in the valuation that would otherwise have resulted from the adjustment of the term of the lease from 15 to 10 years. Given that the existing retail element of the property was about 17,500m², this clearly implied a major increase. As Titan pointed out, there was no appraisal of the cost of conversion, or whether planning permission would have been granted. Neither valuation expert adopts the 40,000 m² assumption. At the least, the late emergence of this added element of retail space is of some relevance, in my view, when taking an overall view of the competence of the Colliers valuation.
64. On 15 December 2005, Mr Mayhew on behalf of Colliers signed off the valuation report in which it provided an open market valuation of the property of €135m (net of costs at 6%). The market value of the property on the assumption of vacant possession was stated as €102,350,000. The report was based on the assumption as to rent that Colliers had been instructed by Credit Suisse to make, namely €9.28m pa. I should note that each of the other two 2005 valuations of the property by different valuers described below proceeded on the same assumption. However, the body of the report refers to the "… current rent of €9,280,000 per annum which was set in 2001", which was wrong as a statement of fact.
65. A lengthy credit report was prepared, presumably by the credit function of Credit Suisse, the pages of which are dated 15 December 2005, for a meeting of the Credit Committee on 16 December 2005. The proposed loan is called "Quelle Nuernberg", no doubt because all concerned recognised that repayment was dependent on Quelle's payment of rental under its lease. The rent is stated as €9.28m per annum, which as I have said was wrong.
66. As a matter of fact therefore, this loan was put before the credit committee of the bank on the basis of the wrong rent. Though a rent of €9.28m was envisaged under the 1 June 2005 sale contract, the current rent as set in 2001 was still only €8.589m, and while it seems not improbable that the parties may have been expecting an increase, and that there may well have been discussions in that regard over a substantial period of time, the increase did not happen.
67. At the meeting of the Credit Committee on 16 December 2005, the loan to Valbonne of €110m maturing on 18 January 2013 was approved by the Credit Committee, consisting of Mr Yankauer (who does not recall the meeting) and one other member of the Committee. On 22 December 2005, Mr Ken McGloin (who was Mr Yankauer's boss at the time) approved the loan.
68. On 22 December 2005, Credit Suisse International (then called Credit Suisse First Boston International) made available the €110m loan to Valbonne. This was pursuant to the terms of a Facility Agreement governed by German law in which Credit Suisse was Lender and Security Agent. As Security Agent, it had responsibility for the security over the property for the loan. The loan to Valbonne was one of the loans which in due course would be securitised. On or around 29 December 2005, Valbonne drew down the loan.
69. Colliers say, I think rightly, that Valbonne's existing indebtedness charged on the property stood at €83,632,500 as at 16 December 2005. The making of the Credit Suisse loan to Valbonne would have led to it receiving about €26,042,695 (less a retention of €4m by Credit Suisse) after paying off the existing debt.
70. There was at about this time an odd development, and one which is not fully explained on the evidence. On 21 December 2005, Mr Donovan sent an email to Mr Harris saying, "The rent of Quelle is EUR8,690,000, can you also factor the first 1.25 years of the rent to be EUR9,280,000 … will this get us to EUR130m?" (the dots are in the email).
71. Mr Harris said that on 4 January 2006, Colliers had drafted a letter valuing the property at €130m, and raising certain queries. A letter was issued by Mr Mayhew giving a valuation of €130m on the basis of the revised rent assumptions given by Mr Donovan. It is dated 20 December 2005, but as Titan says, it must have been signed off later, probably on or after 4 January 2006. However, as Colliers points out, the valuation noted in the table of property characteristics in the Offering Circular that was in due course issued by Credit Suisse in respect of the securitisation records the valuation as €135m. Again, this is unexplained on the material I have seen, and Colliers was entitled in my view to draw attention to what appears on its face to be a peculiar discrepancy.
72. In their reports for this case, however, the experts have adopted the same assumption as to rent that Colliers was instructed to assume in its 15 December 2005 valuation, namely €9.28m, and that was the figure which the parties have treated as relevant to quantum of damages, in the event that Colliers is found to be negligent.

The securitisation

73. Credit Suisse had always intended that the loan to Valbonne would be securitised, though Mr Mayhew suggested that he did not know this until he was asked to issue a "Third Party Consent Letter" dated 25 May 2006 in connection with the securitisation. This may be right, but I need not make a finding.
74. The securitisation was a particularly complicated financial transaction. As the name of the claimant (Titan Europe 2006-3) suggests, it was one of a number of securitisations arranged by Credit Suisse during this period. A member of the group called Credit Suisse Securities (Europe) Ltd (formerly Credit Suisse First Boston (Europe) Ltd) was the arranger and lead manager.
75. On 24 April 2006, Titan was incorporated as a special purchase vehicle in order to act as the issuer of securities in the form of floating rate notes. Administrative functions were (and are) provided for the company by Wilmington Trust SP Services (Dublin) Ltd, which is a corporate services provider of which Mr Geraghty is managing director. Colliers submits, and I accept, that it was Credit Suisse's nominee SPV, and that the work required to put in place the securitisation was done by Credit Suisse.
76. The steps required by Titan to complete the transaction were in outline as follows. On 2 June 2006, Titan held a board meeting and resolved to participate in the proposed CMBS transaction. On 5 June 2006, it issued a Note Term Sheet. On 6 June 2006 a preliminary offering circular was produced. On 19 June 2006, the directors of Titan approved among other documents a draft offering circular, and a draft Asset Sale Agreement whereby Titan would acquire the loans.
77. The final Offering Circular was issued on 26 June 2006, offering "Commercial Mortgage Backed Floating Rate Notes due 2016" with a total value of €943,750,559. There were 10 classes of floating rate notes secured against a pool of commercial mortgages relating to 18 properties situated in France, Germany, the Netherlands, Belgium and Luxembourg. The loan with which this action is concerned represented 10.5% of the pool. The Notes were to be rated by credit rating agencies from AAA in respect of the classes bearing the lowest interest rates, to BBB or less for the notes bearing the highest interest rates, which also ranked lowest in priority.
78. The securitisation completed on 27 June 2006. Among the steps that happened that day, Titan purchased the 18 loans which made up the asset base for the securitisation pursuant to an Asset Sale Agreement. At the same time, Titan received funds from the subscribers of the floating rate notes (which were fully subscribed), and issued the Notes. The proceeds from the investors were transferred as to €759,475,365 to Credit Suisse International and as to €182,175,855 to Credit Suisse AG to pay for the purchase of the loans forming part of the securitised pool. The remainder of €28,915,000 was applied towards fees, expenses and reserves.
79. Under the contractual scheme, the loans and securities are administered by Hatfield Philips International Ltd as Titan's agent. The loan in respect of the Nürnberg property is administered by Hatfield Philips Deutschland GmbH. As I understand it, the claimant's instructions in this case to their legal team essentially come from Hatfield Philips.
80. A Cash Management Agreement (the Cash Manager was ABN Amro Bank NV) dated 27 June 2006 to which Titan and others were party contained in Schedule 5 the Priority of Payments. Priority has been referred to at trial as the payments "waterfall".
81. Finally, not all the €110m loan by Credit Suisse to Valbonne was transferred to Titan in the securitisation, but only €99,358,333 which is described as "the Senior Tranche". (An explanation was not available at trial as to why the deal was structured in this way, but in closing Titan suggested that it may have had to do with credit ratings.) An Intercreditor Deed was entered into to regulate priorities between the senior and junior tranches, but nothing turns on it.

The loan goes into default

82. Following instructions on 22 December 2008 from Hatfield Philips, on 30 January 2009 Colliers re-valued the property at €105,250,000. Neither of the original valuers was involved. The report refers to the "slump" in volumes of commercial property transactions in Germany in 2008 compared with 2007. This presumably was connected with the financial crisis which peaked in September-October 2008. The report says that the majority of potential investors would regard the covenant status of the tenant Quelle as good. In accordance with Hatfield Philips' instructions, the report was addressed to Titan which of course was now in the position of lender to Valbonne following the securitisation.
83. However, matters did not turn out well. In June 2009, Arcandor which was the Karstadt Quelle group's parent company filed to open bankruptcy proceedings. Valbonne defaulted under the Facility Agreement, and on 28 August 2008 the loan was placed into special servicing. On 1 September 2009, Quelle entered into insolvency proceedings, and on 23 September 2009, the insolvency administrator terminated the lease as of the year end. Jones Lang Lasalle valued the property as at 1 January 2010 at €12,470,000.
84. In fact, it looks as though a considerably higher value than that will be achieved. On 11 September 2013, Valbonne's insolvency administrator agreed to sell the property for €22.5 million. That sale is subject to a number of conditions which are not yet fulfilled but for the purposes of these proceedings the sale price of €22.5m is adopted by Titan as showing the current value of the property.

The notice of 18 July 2014 from the Note Trustee

85. On 18 July 2014, which was the last day of evidence at trial, the Note Trustee (originally ABN AMRO Trustees Ltd now U.S. Bank Trustees Ltd) issued a "Note Enforcement Notice" declaring that the Notes were immediately due and payable. The court was provided with the document just before closings without any explanation. In closing, Titan suggested that the timing was coincidental, which seems improbable. This has the hallmarks of a tactical move. However, since Colliers made no submissions on it, I need consider it no further.

4. Colliers' contention that Titan as issuer of the securities is the wrong claimant

The parties' contentions

86. In brief, Colliers submits that Titan is the wrong claimant, because as a non-recourse issuer of the Notes, it has suffered no loss. Titan submits that it suffered loss the moment it purchased from Credit Suisse the Senior Tranche of the loan to Valbonne because it acquired a chose in action worth less than the price it paid for it. The fact that the issue was non-recourse is res inter alios acta in respect of a negligence claim against a valuer. Colliers says that the contractual structure in this case was that the Noteholders were the appropriate claimants to bring this claim. Titan disputes this, and submits that if (contrary to its case), the court finds that it suffered no loss upon the acquisition of the Senior Tranche, then a "legal black hole" would arise and the court should recognise Titan as the only entity that can bring a claim in respect of the alleged negligent valuation, applying the principle in cases such as The Albazero [1977] AC 744 at p.847B, Lord Diplock.
87. In more detail, the gist of Colliers' contentions is as follows. It accepts that it owed Credit Suisse contractual and tortious duties. If Mr Preston is correct, Colliers was in breach of those duties and it could be said that Credit Suisse sustained loss at the point at which it lent to Valbonne. However, Credit Suisse has not brought any claim. Further, Titan does not sue as assignee of any cause of action originally vested in Credit Suisse. Noteholders who sustained loss, and who relied directly or indirectly on the valuation, could have sued. They have not done so. Although in 2012 Titan took assignments of causes of action against Colliers held by two Noteholders, it does not sue as assignee of Noteholders' claims. Instead, Titan sues in its own name. It seeks to contend (i) that in some sense it sustained loss or (ii) that the Albazero principle entitles it to recover damages in respect of Noteholder loss. In fact, Titan plainly has not sustained loss in any real sense. As a matter of law, Colliers submits, the Albazero principle is not engaged.
88. As developed in closing submissions, Colliers submits that the securitisation could have been structured so as to give a particular party the right to bring a claim against negligent valuers, but it was not. An alternative way of constituting the proceedings would have been as assignee of Noteholders' causes of action, and although Titan did take two assignments, it does not sue as assignee.
89. In fact, Colliers submits, the securitisation was structured so that Noteholders which were the parties that in fact suffered the loss were the parties with the right to sue for it. It relies on the terms of the valuation, and the Third Party Consent Letter issued by Colliers dated 25 May 2006. In those circumstances, it submits that Titan is the wrong claimant and cannot recover.
90. The Noteholders can sue, and are the right parties to do so. The consequence of any other finding, it was submitted, was that Colliers might be exposed to double liability, that is, liability to Titan, and liability to ex-Noteholders which had disposed of their Notes but which could prove loss based on the allegedly negligent valuation, and would be entitled to bring a personal claim in their own right.
91. Colliers submits that the non-recourse provisions as regards Titan as issuer are fatal to any attempt to show that Titan suffered loss. It is "loss proof", and never suffers any loss. In response to Titan's case that it suffered loss at the time of the transfer to it of the loan assets, it submits that everything happened at the same time. The issuer obtained funding from the investors, acquired the loans, and issued the Notes on a non-recourse basis. The transaction has to be seen as a single transaction.
92. On Titan's alternative case, Colliers submits that no Albazero type claim arises for the simple reason that there is no legal black hole.

Discussion and conclusion

(1) The correct claimants to bring the claim under the contractual scheme of the securitisation

93. Under the contractual scheme of the Titan 2006-3 securitisation, there is a Note Trustee which according to the Offering Circular is charged with representing the interests of the Noteholders. As I shall explain, neither party in this case argues that the Note Trustee is the correct claimant. The position as to the security, that is, the charge over the Nürnberg property securing the loan made by Credit Suisse to Valbonne in December 2005, was the subject of German law evidence which was not adduced at trial, since it did not give rise to issues between the parties.
94. In brief, as part of the Valbonne loan, the security rights in the Nürnberg property became vested in the Security Agent (which was Credit Suisse). As part of the securitisation arrangements, a Deed of Charge and Assignment dated 27 June 2006 governed by English law was entered into between, amongst others, Titan and the Note Trustee. There was also a German Loan and Security Assignment of the same date which recites that after execution Titan as issuer owned the loan, and the Security Agent owned the security as trustee for, amongst others, Titan as issuer. I was told that this assignment had to do with German law insolvency considerations, but was not taken to the detail of these agreements, or how they related to each other.
95. Titan's case (which was not disputed at trial) is that under English law it remains the legal and beneficial owner of its rights relating to the Senior Tranche. This is because, whilst it has assigned security rights to the Note Trustee, it says that these are not legal assignments as they concern part of a debt (the whole debt being the whole loan to Valbonne) and no notice has been given to Valbonne. They were equitable assignments by way of charge only, with no obligation to give notice of the assignment (see clause 3.2 of the Deed of Charge and Assignment). It is not in dispute that Titan's interest in the Senior Tranche was only to be charged or assigned by way of security to the Note Trustee. In so far as Colliers suggests that the fact that Titan assigned all of its rights in the Senior Tranche to the Note Trustee supports the view that it did not suffer a loss, I reject that submission, and no case has been developed in that respect.
96. Colliers positively asserts that there is no provision in the contractual documents which contemplates the Note Trustee bringing a claim against a third party like the valuers on behalf of the Noteholders, and says that the Note Trustee is not the correct claimant to bring this claim. Its case is that the contractual documents contemplate that an action against a valuer will be brought by individual Noteholders, and that these are the correct claimants to bring this claim.
97. Titan's case is that as the party to which the loan and the Nürnberg property as security for the loan were transferred at the time of the securitisation, it incurred the loss, and it is the correct party to bring this claim.
98. The candidates for correct claimant which have been argued for by the parties are therefore, (by Colliers) the Noteholders, and (by Titan) itself as issuer, and no other party. 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.

(2) Colliers case that the Noteholders were the correct claimants to bring the claim

99. Colliers bases its case that the Noteholders are the correct claimants on the following. The valuation of 15 December 2005 states to whom the certificate was addressed, and who may rely on it. As well as Credit Suisse and others, this included, "Any actual or prospective purchaser, transferee, assignee, or servicer of the loan, any actual or prospective investor (including agent or advisor) in any securities evidencing a beneficial interest in or backed by the loan". Colliers says, and it is not in dispute, that this formulation is wide enough to include Noteholders who acquired notes in the securitisation that took place the following year.
100. Colliers also relies on the terms of the Third Party Consent Letter of 25 May 2006 mentioned above, by which it consented to "the delivery, in the form of an electronic file … to any investor or potential investor in the Notes of a copy of our Final Valuation dated 15 December 2005 …". It also consented to the inclusion of references to the firm's name and certain information contained in its report in the Offering Circular and term sheet. It is not in dispute that this letter was issued at the request of Credit Suisse in connection with the upcoming securitisation, nor that as Colliers says, clause 3.5(w) of the Subscription Agreement required Titan to deliver to Managers representing the interests of potential investors letters from each of the relevant valuers, including the Third Party Consent Letter of 25 May 2006. Taken together, Colliers submits that these provisions show that this securitisation was structured so as to confer rights of action against Colliers on the Noteholders.
101. Colliers further submitted that to give Titan a claim would expose the valuers to double liability. In closing, it posited the example of a Noteholder which sold its Notes. An ex-Noteholder, it submitted, would maintain its cause of action in respect of a negligent valuation after selling its Notes, and would be entitled to retain the proceeds, free of the contractual scheme of payments contained in the waterfall.
102. On its side, Titan accepts that the terms of the Colliers valuation show that it was intended that potential investors in Notes could rely upon the report, and that this would prima facie give rise to a duty of care to the Noteholders as a class. However, it submits that the prima facie duty of care was negated by the structure of the securitisation and specifically the warnings and disclaimers set out in the Term Sheet, Offering Circular and CD ROM as follows.

(1) The section entitled in the Offering Circular states under "Limitations of Valuations" that:

"The CD-ROM that is attached to this Offering Circular contains copies of the Valuation Reports…In general, valuations represent the analysis and opinion of qualified valuers and are not guarantees of present or future value. One valuer may reach a different conclusion than the conclusion that would be reached if a different valuer were appraising such property. Moreover, valuation reports seek to establish the amount a typically motivated buyer would pay a typically motivated seller and, in certain cases, may have taken into consideration the purchase price paid by the related borrower. However, there can be no assurance that the market value of the Properties will continue to equal or exceed such valuation. As the market value of the Properties fluctuates, there can be no assurance that the market value of the Properties will be equal to or greater than the unpaid principal and accrued interest and any other amounts due under the related Loan Documents. If the Properties with respect to a Loan are sold following a Loan Event of Default, there can be no assurance that the net proceeds of such sale will be sufficient to pay in full all amounts due under the Loan Documents. The valuations may be based on certain assumptions made by the valuer."

(2) The CD-ROM made clear that its contents were not part of the Offering Circular and contained the following statement:

"The CD-Rom distributed contemporaneously with this Offering Circular contains the reports compiled for the purposes of ascertaining the Valuations in respect of the Properties (the "Valuation Reports"). Prospective investors should be aware that the Origination Valuation Reports were prepared prior to, and in some cases significantly earlier than, to (sic) the date of this Offering Circular. None of the firms that produced the Origination Valuation Reports have been requested to update or revise any of the information contained in the Origination Valuation Reports nor to review, update or comment on the information contained in the summary provided in the enclosed CD-ROM, nor will they be requested to do so prior to the issue of the Notes. Accordingly, the information included in the Valuation Reports may not reflect the current physical, economic, competitive, market and other conditions with respect to the Properties. …

The information contained in the CD-ROM does not form part of the information provided for the purposes of this Offering Circular."

(3) The Offering Circular in the section entitled "Valuations" stated:

"Valuations: Prior to the origination of each Loan, an independent valuer conducted a valuation of each of the Properties in order to establish the approximate value of the property. The Valuations are the basis for the valuation figures contained within this Offering Circular.

The Valuations represent the analysis and opinions of the respective valuers at the respective dates of their reports, have not been updated following origination and are not guarantees of, and may not be indicative of, present or future value. In each case there can be no assurance that another valuer would not have arrived at a different Valuation, even if such valuer used the same general approach to and same method of valuing the property. In addition, Valuations seek to establish the amount a typically motivated buyer would pay a typically motived seller. Such amount could be significantly higher than the amount obtained from the sale of a Property under distress or liquidation sale. …"

103. The effect of these warnings, Titan submits, was to render it unreasonable for Noteholders to rely upon the valuation in deciding to purchase the Notes. In fact until the re-amendment of the defence, it points out that Colliers had pleaded, "No investor can reasonably have relied upon the Report". There is no evidence (Titan says) that Noteholders relied in fact upon the valuation. The likelihood is that they would not have relied on it because they would have heeded the warnings and disclaimers and in any case at the time of the securitisation the valuation was over 6 months old and so may not have been an up to date guide as to the value of the security.
104. Titan's main contentions go to the practical difficulties in the way of Noteholders making good a claim, and this was an extensive part of Titan's closing submissions. In summary, it submitted that it would be difficult for Noteholders to form a class because there is no mechanism to ascertain who they are. Also, membership of the class would likely change because the Notes are tradable securities. Quantifying loss, and demonstrating the causation of that loss, would present an "intractable obstacle". Reference to a mark-to-market value would not assist, since the decline in value of Notes would be due to a variety of factors. The majority of the loss of value would be likely to be due to factors other than the performance of the loan to Valbonne. Subsequent purchasers of Notes may have suffered no loss depending on the price at which they acquired the notes. Seeking to quantify Noteholder loss by reference to loss of cashflow, Titan submits, suffers from similar difficulties of causation and quantification. Again, loss of cashflow will be due to the interaction of several factors. Further, the Notes have not yet reached maturity, nor have all the secured properties been sold, so that a projection would be required of actual receipts. The sale price of the Nürnberg property is only one security in the securitised pool. There is further the issue as to the difference classes of Noteholders, and the different priorities in relation to Noteholders' claims.

(3) The applicable legal principles

105. In the case of a complex structured financial transaction of this kind, the circumstances in which legal claims may, or must, be brought, depends upon the contractual terms, typically contained in a number of different agreements. If, for example, the effect of the contractual terms is that the realisation of security held for the relevant indebtedness is the duty of a trustee, whether pursuant to the mandate of a percentage of noteholders, or exercisable on some other condition, then realisation is a matter for that party upon those terms. The present case concerns not the realisation of security, but a claim in negligence against the valuers who appraised the security. However, the claim in essence is a realisation claim. If Titan is right, the effect of a successful claim will be to "top up" the amount received on realisation of the Nürnberg property. However, as I have said, neither party argues that a trustee is the correct claimant.
106. In support of its contention that the Noteholders are the correct claimants, Colliers submits that a Noteholder transferring a Note nevertheless retains any cause of action it may have against valuers in respect of the allegedly negligent valuation. I do not accept this proposition. As a matter of principle, rights arising out of debt instruments like the Titan floating rate notes attach to the notes themselves for the benefit of the holder for the time being. This follows from the nature of such notes as transferable instruments, encapsulating within them a bundle of rights in favour of the holder, the concept of holder being central (e.g. Chalmers and Guest on Bills of Exchange, 17^th ed, paragraph 1-022). It makes no difference that in accordance with modern practice, the instruments are not in paper form. A negligence claim against valuers who appraised the security for the notes is essentially an aspect of recovery on non-repayment of the loan in question, and in my view it goes with the notes.
107. I further agree with Titan that this also follows from the terms and conditions of the Notes, in particular the term by which the Noteholder is to be treated as its absolute owner for all purposes. As Titan says, otherwise the payments waterfall would be unworkable, among other things. Thus I do not accept the validity of the objections as to double liability (upon which Colliers placed considerable weight in its closing submissions) in relation to supposedly surviving claims by ex-Noteholders to sue the valuers, since an ex-Noteholder retains no such claim in my view.
108. Colliers also submitted that there was no contractual obligation on Noteholders (in other words existing holders) to turn over the proceeds of their claims against the valuers to be dealt with in accordance with the payments waterfall, and that there was no contractual basis for Titan's submission that any Noteholder would only be entitled to recover in accordance with the priority of payments established by the Cash Management Agreement.
109. As Titan says, allowing Noteholders to recover sums in breach of the agreed priorities would violate the carefully arranged contractual structure, which represents the commercial bargain to which all Noteholders have subscribed (whether as original or subsequent purchasers). But I do not consider that I am in a position to determine this issue, which as Mr Deacon said, would require examination of the contractual documentation to see if there was a "turnover trust" or similar (in other words whether the noteholders were obligated to turn over any recoveries to be dealt with in accordance with the contractual priorities), nor do I need to.
110. It does however touch on a further point made by Colliers based on the fact that it is common ground that Titan would be contractually obliged to pay out the proceeds of a successful claim pursuant to the payments waterfall established by the Cash Management Agreement. Colliers says that this would be wrong because the recipients of such payments would not be the parties who sustained loss as a result of the alleged over-valuation of the property. It describes this as a "misallocation" point. However, I do not accept the point, because there is no misallocation where payments are made in accordance with the contractual scheme, which the Noteholders accept when investing in the Notes.
111. It is significant in my view that Colliers was not able to rebut the difficulties identified by Titan in bringing and valuing a claim by Noteholders. As Mr Patrick Lawrence QC diplomatically put it, he did "… not submit that the exercise would be free of forensic complication". When one considers that the loan at issue in this case was one of 18 loans in the securitisation, and that (according to Titan) some 40 properties made up the security, in respect of each of which there was presumably a valuation, and that the valuation at issue is only one of these, it is obvious that the difficulties in the way of Noteholders proving the reliance and loss necessary to bring a claim based on the negligent valuation by Colliers of the Nürnberg property would be considerable. I am satisfied that it would be difficult to show loss on either of the two routes proposed in Colliers' expert evidence, which are quantification by reference to the mark-to-market loss or loss on disposal of the Notes, or loss of cashflow on the Notes. The difficulty in both cases would come from ascribing any particular value to the negligent valuation of the Nürnberg property.
112. I am told that there are other extant claims brought in the context of different securitisations, and I do not know whether any are brought by Noteholders, or by way of assignment of the causes of action of Noteholders. The conclusion I have reached in this respect is limited to the facts of this particular case. On the facts, I am satisfied that Colliers is wrong to contend that the securitisation was structured so that the Noteholders were the parties with the right to sue in respect of the allegedly negligent valuation. The basis for this contention is in my view flimsy, depending on statements made by Colliers in the valuation and Third Party Consent Letter without proper regard to their overall place in the securitisation. The contention that such claims would not be subject to the contractual priorities is commercially unattractive. On the facts, I also accept Titan's submission that practical difficulties in valuing claims make it more likely than not in the present case that Noteholders would not be able to bring a claim.
113. I also consider that Titan is right to say that the fact that it took assignments from two Noteholders in 2012 is irrelevant. It has chosen to sue in its own right, and not as assignee.
114. I do not however accept a brief submission made by Titan in written closings that the court should also find that it is unlikely that the Note Trustee would bring an action against Colliers because the Note Trustee can only be compelled to institute proceedings by resolutions of certain classes of Noteholders or a notice in writing by Noteholders of at least 25 per cent of the principal amounts outstanding on Notes (subject to protection for higher ranking classes) and only if indemnified and/or secured to its satisfaction against all liabilities. As stated, the position of the Note Trustee was not explored at trial, because neither party is contending that it is the correct claimant. Titan also made reference to the Note Trustee's 18 July 2014 notice which I have referred to above, but I make no findings in relation to this notice which as stated appeared after the close of evidence without any explanation.

(4) Did Titan suffer any loss?

115. Titan says that it suffered a loss at the moment it purchased from Credit Suisse the Senior Tranche of the loan to Valbonne because it acquired a chose in action worth less than the price it paid for it. The fact that the purchase of the Senior Tranche was funded entirely by selling the Notes is a res inter alios acta and not a collateral benefit to be taken into account, and the non-recourse structure of the securitisation is irrelevant to Titan's loss and res inter alios acta in respect of a negligence claim against a valuer.
116. Colliers' response is that it is necessary to distinguish between two different types of case, namely, cases in which a claimant has not sustained any loss, and cases in which a claimant has sustained a loss, which is subsequently reduced or extinguished by the claimant's own subsequent acts, or by the generosity of third parties, or some other development (see McGregor on Damages 18^th Ed. 7-105: the relevant passage is at 9-111 in the 19^th edition).
117. In cases in the first category, Colliers submits, no question arises as to the application of the rule that there shall be no recovery for loss which has been avoided, unless the matter is collateral (Kennedy v Van Emden [1996] PNLR 409; Dimond v Lovell [2012] 1 AC 384; Murfin v Campbell [2011] EWHC 1475). The present case is within this category. It is erroneous to seek to analyse Titan's claim on the footing that Titan sustained loss when it acquired the Valbonne loan; and then to ask whether the non-recourse provisions between Titan and the Noteholders are to be treated as extinguishing a prior loss, or alternatively are to be regarded as collateral (or res inter alios acta).
118. The correct analysis, Colliers submits, is that on 27 June 2006 Titan entered into a single (albeit complex) transaction which was made up of the numerous agreements made on that day. Pursuant to that transaction Titan raised money from the Noteholders (as arranged in advance by Credit Suisse); agreed to use that money to purchase the portfolio of loans; and agreed (to its advantage) that the Noteholders should have no recourse against its assets save in respect of the net proceeds of the loans and the assets securing the loans themselves. The non-recourse provision is fatal to any attempt to present this transaction as causing Titan to sustain loss.
119. My conclusion on this issue is as follows. Viewed from an economic perspective, I accept Colliers' general point that it is the investors in the Notes that suffer the loss, and this was not in dispute. It is sufficient to quote from the Offering Circular, "Any reduction in the value of the mortgage receivables will be matched by a reduction in the repayment obligations of the notes". As Colliers put it, the structure was designed to ensure that Titan is immune from any insolvency process, and that its activities are essentially limited to acting as an economically neutral conduit between the investing Noteholders and the debt in which they are investing. Its shares are held on charitable trust, and its affairs are arranged so that it will always make a modest profit of about €1500 per annum.
120. However, though the investors may suffer loss when the investment goes wrong, it does not follow that in law Titan has not suffered a loss in respect of which it can bring a claim, the proceeds to be paid in accordance with its contractual duties.
121. In order to bring such a claim, however, it is essential in my view that Titan is able to show that it is contractually obliged to distribute any sums received in this action to Noteholders in accordance with the payments waterfall established by the Cash Management Agreement. I do not think it would be sufficient (for example) that Titan undertook to so, if it was not contractually obliged to do so. In fact, it is common ground between the parties that it was contractually obliged to do so. The securitisation experts also agreed in principle that any recovery made through the claim will have the nature of a principal payment. Though it is not in dispute, it is important to set out how Titan says that the obligation arises from the transaction documents:

(1) Pursuant to clause 5.5 of the Deed of Charge and Assignment, Titan is obliged to credit the Issuer Accounts with all amounts falling within designated categories, including: "such other payments received by the Issuer as are, or ought in accordance with this Deed to be, comprised in the Charged Property". The Charged Property, as defined in the Master Definitions Schedule, comprises all assets, rights and undertakings of Titan held as security for the Secured Amounts under the Deed of Charge and Assignment. Clause 3.5 of that Deed charges as security for the Secured Amounts (being "the monies and liabilities which the Issuer [i.e. Titan] covenants and undertakes in the Issuer Security to pay or discharge to the Note Trustee for itself and the other Secured Parties") the whole of Titan's undertaking and all of Titan's property and assets wherever located. Accordingly, any payment made to Titan pursuant to this claim will be credited to the Issuer Accounts. The monies in these accounts are in turn charged to the Note Trustee by clause 3.3 of the Deed of Charge and Assignment.

(2) Clause 10.3 of the Cash Management Agreement directs the Cash Manager to deposit or transfer "any other amount received with respect to the Issuer Loans" into the Collection Account (which is one of the Issuer Accounts). Also by clause 10.3, payments from the Collection Account are to be made in accordance with Schedule 5 to that Agreement, which provides for the priority of payments to Noteholders and other parties (i.e. the waterfall).

(3) Under the German Assignment Agreement, Titan assigned to the Note Trustee by way of security for the payment of the Secured Amounts, all its rights and claims arising out of or in connection with the Senior Tranche.

122. Accordingly it is common ground that if Titan is successful in this claim, the sums received will be paid into the Collection Account where they will stand as security for Titan's covenant to pay the Secured Amounts and will ultimately be paid out through the Schedule 5 payments waterfall. Although Colliers objects to this on the basis that it will not reflect the loss suffered by Noteholders, for reasons explained elsewhere I consider that the opposite is true, since the money will be applied according the contractual structure to which Noteholders subscribed when they made their investments.
123. As to the points of law raised by Colliers:

(1) I do not think that it is right to conclude from the transaction as a whole that Titan suffered no loss. I agree with Titan that, on the premise that it can show reliance on a valuation which negligently valued the security as more than it was worth, and make good its case in causation, it suffered a loss the moment it purchased the Senior Tranche of the Valbonne loan because it acquired a chose in action worth less than the price it paid for it. As a general rule, a cause of action in tort accrues when damage is suffered (Forster v Outred & Co [1982] 1 WLR 86).

(2) The amount of the loss would become crystallised at a later stage, once the insufficiency of the security was known (VTB Capital Plc v Nutritek International Corp [2012] 2 BCLC 437 at [110], Lloyd LJ, applying Forster v Outred).

(3) The fact that Titan received funds from the investors which was used to fund the purchase of the loan assets is irrelevant (VTB Capital (ibid) at [112]). I do not think that this point was pressed by Colliers in closings.

(4) The fact that the securities were issued by Titan on a non-recourse basis is also irrelevant, and falls within the principle of res inter alios acta, because the non-recourse nature of the notes issue arises out of contractual arrangements with third parties (see Anthracite Rated Investments (Jersey) Ltd v Lehman Bros [2011] 2 Lloyd's Rep 538 at [122], Briggs J): a similar argument was rejected in VTB Capital (ibid) at [108] and [111], and also in Interallianz Finance AG v Independent Insurance Co Ltd (4 June 1997, unreported, Thomas J).

(5) It has been held in the context of a securitisation, albeit obiter and on different facts, that the "fact that the finance scheme relating to the mortgage pool has the effect of spreading [the] loss, imposing it on one party more than on another party according to an order of priorities, does not affect the incidence of the basic loss but is a consequence of contracts involving third parties" (Paratus AMC Ltd v Countrywide Surveyors Ltd [2012] PNLR 12 at [62(4)], Judge Keyser QC). As Colliers says, the point was considered in the context of the originator of the loans, but the principle was stated more widely, and I would apply it here.

124. A securitisation like this one is neither a conventional loan, nor a conventional issue of securities in which investors look to the issuer (corporate or sovereign) to repay the debt. In complex structured financial transactions of this kind, the developing case law shows that the courts are reluctant to accept "no loss" arguments. As this case shows, 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. The important points are that (1) where the contractual structure allocates the bringing of a type of claim to a particular party, that party brings the claim, complying with any conditions for doing so, and (2) that the proceeds are dealt with according to the contractual requirements. Provided this happens, all parties will get what they bargained for.
125. Applying these principles, I conclude that Colliers is wrong to submit that Titan was the wrong claimant because it suffered no loss, and conclude that it is entitled to bring this claim.

(5) The Albazero point

126. Having decided that if the valuation was negligent, Titan can bring a claim for loss in its own right, I need not consider its alternative Albazero point. It would, in any case, be an unfortunate, though not impossible, legal conclusion in a multi-agreement transaction of this complexity that the court had to step in to fill a gap and find a party able to bring a claim (always an exceptional course: DRC Distribution Ltd v Ulva Ltd [2007] EWHC 1716 (QB) at [85], Flaux J.). I need only add that on the authorities cited to me (The Albazero (ibid), Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 and McAlpine Construction v Panatown [2001] 1 AC 518), had I been in Colliers' favour and found that Titan had suffered no loss, and that the contractual scheme was that the Noteholders were the correct parties to bring this claim, I would have ruled against Titan, for the simple reason (as Colliers says) that there would have been no "legal black hole".

5. Whether or not Colliers' valuation of the property was negligent

Legal principles

127. The legal principles were not in dispute:

(1) As has been said in the case law, the process of valuing real property has strong subjective elements (Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas [2012] EWCA Civ 1417 at [43], Gross LJ), and this was clear in the present case. If the valuation is complex, as it was in this case, a number of variables will go into the mix, including market information available about the property, but what emerges is ultimately an opinion as to the market value of the property on the basis on which it was valued.

(2) The competence or otherwise of a valuer cannot be judged as though this is a mechanistic process. For that reason it has also been said in the case law (ibid) that valuation is an art not a science, though surveyors themselves may describe it more aptly as an art and a science. In particular, the valuation (or "appraisal" in North American usage) of property applies standards set out by leading professional organisations such as those in the Red Book issued by the RICS (Royal Institution of Chartered Surveyors), and international standards developed by bodies such as the International Valuation Standards Council (IVSC). It should be noted, however, that there is no one approach to valuation which is universally acceptable, and the Red Book does not comment on which methodology to adopt.

(3) Not every error of judgment amounts to negligence. In order to establish negligence, a claimant must prove that the disputed valuation was one which no reasonable valuer would have reached and was outside the permissible margin of error (Singer & Friedlander Ltd v John D. Wood & Co [1977] PNLR 70 at p.4, Watkins J).

(4) The permissible margin of error, or the range within which a reasonably competent valuer could have valued the asset, is often referred to as the bracket. If the valuation is within the range, then the valuation will not be found to have been negligent even if some aspect of the valuation process can be criticised as having fallen below reasonably competent standards. In each case, the court must assess what it regards as being the competent valuation and what it regards as being the size of the permissible range. The assessment of range should not be approached mechanistically, and the court's findings will depend on the particular facts of the case. Whatever the range may be, the court must still form a view as to what the correct valuation would have been (i.e. the figure which it considers most likely that a competent valuer would have put forward). Even if the valuation is outside the range, the professional may escape liability if he can prove that he exercised reasonable skill and care (see Goldstein v Levy Gee [2003] PNLR 35, Lewison J, Dennard v PricewaterhouseCoopers LLP [2010] EWHC 812 (Ch), Vos J, and Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas [2011] EWHC 2336 (Comm) where at [145] the principles in this regard are distilled by Eder J from the authorities).

(5) The question of bracket is ultimately a question of law for the court's determination assisted by the views of expert valuers as to the degree of difficulty of the valuation under consideration. The case law suggests that for a standard residential property, the margin of error may be as low as plus or minus 5 per cent; for a valuation of a one-off property, the margin of error will usually be plus or minus 10 per cent; if there are exceptional features of the property in question, the margin of error could be plus or minus 15 per cent, or even higher in an appropriate case (See K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] PNLR 31 (TCC), Coulson J.)

128. The present case also raises questions of causation and reliance. In that regard the following submissions of Titan are not in dispute:

(1) The negligent valuation must have played a "real and substantial part" in inducing the claimant to enter into the transaction in question (Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1994] 2 EGLR 108). If the same loss would have been suffered without negligence causation is not established.

(2) Additionally, a claimant must show that he relied upon the valuation and believed it to be correct (BBL at p.127; §10-126 Jackson & Powell on Professional Liability 7^th ed).

(3) A valuer is only liable for the damage flowing from the valuation being wrong (South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191). Accordingly, damages are capped at the difference between the true market valuation and the actual valuation.

129. An issue in this case between the parties relates to the duties of a valuer in assessing the covenant of the tenant of commercial property. Where a commercial property is let at the time of valuation, particularly where the lease has a substantial time to run, the strength of the tenant's covenant will be an important factor in the valuation. In the present case, at the time of valuation there were approximately ten years unexpired on the lease of the property, so that an acquirer of the property would acquire a sure income stream for ten years (subject to contractual adjustments) on the assumption that the tenant was good to pay it for that period.
130. In its protocol for valuation and appraisal of land and buildings for commercial secured lending, the Red Book suggests that among matters that would normally be included in a report is, "Comment on the market's view of the quality, suitability and strength of the tenant's covenant". Credit Suisse's letter of instruction to Colliers was on the same lines, saying that, "You need not conduct any credit enquiries on the financial status of the tenant, but your valuation should take into account any assessment of the financial status of the tenant that is likely to be considered (positively or negatively) by prospective purchasers of the Property".
131. In this regard, the valuer's role is different from that of a bank lending on the security of the property. It is for the bank to conduct a credit analysis of the tenant, as happened in the present case. A valuer may need to take account of financial statements and other available financial information when commenting on the market's view of the strength of the tenant's covenant, but cannot be expected to, and does not necessarily have the expertise to, conduct the kind of analysis that would be expected of a lending institution.
132. A further point of principle arises in connection with the relationship between the valuer and the lending institution which instructs the valuation. Titan's case is that Colliers was influenced by a desire to substantiate the desktop valuation of €140m, and that this led to errors in valuation. It relies on the fact that Mr Mayhew's responsibility included business generation, and that in providing a desktop valuation he was "pitching" for work from Credit Suisse and was probably in competition with other valuers. There was, Titan submits, pressure placed upon Mr Mayhew by Credit Suisse to reach a valuation which matched as closely as possible the desktop valuation of €140m. I will have to make findings of fact in this respect later in this judgment.
133. As a matter of background, the Credit Suisse loan in respect of which the property was to be security was always intended for securitisation. The result of securitisation would be that the credit risk would pass from the bank to the investors in the notes. Colliers was asked to, and agreed to, its valuation report being made available to investors or potential investors in the notes. It was described by the bank as an "independent valuation".
134. In the Asset Sale Agreement of 27 June 2006 by which the loans were transferred by Credit Suisse to Titan, Credit Suisse warranted that prior to advancing the loans the properties charged as security were valued "by an independent qualified surveyor or Valuer". There was also a warranty that no valuation was fraudulently undertaken by the valuer, but it was clearly the independence of the valuer that was of importance.
135. When asked about this issue, Mr Yankauer said that he did not condone a bank encouraging a valuer to maximise a valuation. As to the legal principle, as Mr Christopher Symons QC (counsel for Titan) put it, the lender may be enthusiastic, but the valuer has to remain independent. In my view, it is wrong for a lending institution to act in a way which compromises the independence of a valuer in these circumstances. This clearly applies where (as in the present case) the loan in question is made with the intention of transferring it to other parties. More broadly, it is a feature of modern markets that financial assets are transferable, and where an independent valuation is an integral part of an asset, it is, in my view, wrong for a financial institution to act in a way that undermines such independence.
136. A further issue between the parties is as to the significance to be attached to earlier transactions and valuations concerned with the property itself. This arises in the present case because the valuation of Mr Preston, the claimant's expert, is out of line with the market evidence as to the value of the property for the period between 2000 and 2005.
137. Market evidence of this kind is likely to be important where the valuer is instructed to express an opinion as to the market value of the property in question. As Mr Preston wrote in a piece he published in 2010, "It is a brave valuer who concludes that the open market evidence should be set aside because it does not fit with his or her view of that market. If the market speaks, the valuer should heed the message". On the other hand, it cannot be conclusive, since on investigation the careful valuer may conclude for good reason that the market view is not justified. In any event, there may be, and are in this case, questions as to whether particular features of other valuations or sales of the property mean that they cannot be relied upon as providing proper comparisons.

Valuation issues: overview

138. Colliers' valuation report of 15 December 2005 valued the property at €135m (open market value, taking into account the Quelle lease), and at €102.35m (on the assumption of vacant possession). Titan's case supported by the evidence of Mr Preston is that the Colliers' valuation was much too high, contending that the market value of the property in December 2005 was €76.6m, and €34m (on the assumption of vacant possession). Colliers deny negligence. Supported by the evidence of Mr Manley, it submits that the true market value as at December 2005 was €125.9m, which was well within an acceptable bracket, and €82m on the assumption of vacant possession.
139. Mr Preston's valuation adopted a "term and reversion" methodology. It involves a valuation of the term by way of capitalisation of the (assumed) annual passing rent of €9.28m at a capitalisation yield of 8% over the remaining term of 10 years on the lease, which produces a figure of €62.2m. He proceeds on the basis that the only reasonable assumption a valuer could have made is that Quelle would not renew the lease. (This is in contrast to Colliers' assumption that the property could be valued "into perpetuity".)
140. To his figure of €62.2m, Mr Preston adds the value (in his opinion) of the reversion namely: land value of €330/m²; site area of 108,950 m²; producing a land value net of demolition costs of €34.45m. The PV (present value) discounted at the rate of 6% to reflect the fact that on this hypothesis this value is not available for ten years is €19.3m. After deduction of purchaser's costs at 6.4%, he arrives at a market value for the property of €76.6m. This produces a net initial yield of 11.38%. Titan accepts that Mr Preston's net initial yield is high, and that is because on his approach the value of the property falls dramatically once the Quelle lease is terminated. The property is then only worth its land value.
141. Mr Manley's valuation adopted a "yield and covenant" methodology. He values estimated rental value (ERV) at €10.36m p.a.. He has made an allowance for future contingencies and ongoing management costs, doubled for the period after expiry of the lease term, when a less favourable lease may be negotiated (a total deduction of €691,696). He considers that the mixed use of the property means that there are two approaches a valuer could have taken to the assessment of value, resulting in two final figures. In each approach a different yield is applied to the period of the unexpired lease (the "hardcore" yield where the rental income was considered secure) and the period following expiry of the lease (the "layer" yield where the rental income was less certain and so the yield is higher). In this respect, his methodology is different from that of Colliers, which as Mr Mayhew explained in re-examination, did not differentiate between the appropriate yield for capitalising the income on the unexpired term, and capitalising the reversionary income.
142. Mr Manley's first approach is the "blended yield" approach. This entails assessing the entire investment using a single blended yield, placing weight on the high degree of assurance as to receipt of rent for the unexpired term of the lease. An overall market rent of €3.5/m² per month is capitalised at a yield of 7.5% on the secure rental income and at a yield of 8.50% on any uplift. The result is a valuation of the property at €121.5m, with a net initial yield of 7.04%, and an equivalent yield of 7.54%. This reflects a 'German multiplier' of 13.09. The phrase 'German multiplier' refers to the fact that property valuation in Germany tends to involve the application of a multiplier to income streams (as opposed to the concept of yield, which is the inverse of a multiplier). However, he feels that this approach which results in a valuation of €121.5m is difficult to apply to the property, due to its mixed use nature.
143. Mr Manley's second approach involves apportioning rental income across the various components of the property. This is said by Mr Manley to be a more sophisticated approach which involves the allocation of rental values to the different component parts of the building, and capitalising each. He considers that this approach is preferable, and on this basis values the property at €125.9m, with a net initial yield of 6.77%, and an equivalent yield of 7.30% (it is 7.32% in his summary). This reflects a 'German multiplier' of 13.57.
144. As regards bracket, Titan submits Mr Preston's bracket of 15% should be adopted by the court as the appropriate bracket for the valuation of this unusual property. Colliers submits that this was a quite exceptionally difficult valuation for a large number of reasons, including the overheated state of the market, the opacity of the German property market, and the size of the property. However, Mr Manley did not suggest a bracket. Colliers submits that Mr Preston has accepted that the permissible margin of error should be as high as 20.3%., which follows from his evidence that his initial valuation of €61m sent with Titan's letter of claim (see above) was not negligent. The difference between 61 and 76.6 is 15.6, and 15.6/76.6 = 20.3%. Colliers invites the court to hold that the applicable bracket in this case is 20% above or below the 'true' value.
145. In closing submissions, the parties dealt with the same valuation issues in the same order, and I should express my appreciation for this assistance on a technical part of the case. I express my views on each of them, whilst making it clear that no one issue is conclusive, and that the court's conclusion on the correct valuation and bracket is an overall one, taking into account all the matters that have been raised.
146. The major differences between the experts are as to the use of the building by Quelle, its suitability for Quelle, and the reasonableness of regarding Quelle's covenant as strong, whether or not it should be assumed that Quelle would remain in the property when the lease terminated, and whether Mr Preston is right to regard the building as "functionally obsolete". This leads into the question whether Colliers' methodology used in its valuation was appropriate. Mr Preston says that Colliers was wrong to value passing rent into perpetuity, and that the correct approach is to value rent until the end of the lease and then assess the reversionary value. Mr Manley, on the other hand, supports Colliers' approach. Further issues in this respect arise as to whether, if Quelle vacated on the expiry of the lease, the reasonable assumption was that the property could only be re-let to multiple occupiers. There is an issue between the experts as to the impact of monumental protection. There are also issues as to the assistance given by comparables, which have not featured particularly prominently in this case.
147. A further issue between the parties is as to the significance to be attached to earlier transactions and valuations concerned with the property itself. Mr Preston is cautious as to the weight that can be attached to these, whereas Mr Manley considers that they are important, and they have featured at the forefront of Colliers' case. For that reason, it is convenient to take this evidence first.

Sales and valuations of the property between 2000 and 2005

148. It is convenient to consider the sales and valuations of the property chronologically.

(1) 26 October 2000: sale and leaseback: €102m

149. I have mentioned this transaction above. On 26 October 2000, Quelle sold the property to Thesaurus in a sale and leaseback. The price was DM200,060,000 which was equivalent to €102,258,000. The rent was €8,589,703 a year, and the lease was for 15 years commencing 1 January 2001 renewable for three further five year terms at Quelle's option.
150. Titan says that as well as the fact that there was 15 years on the lease, there was at that time a very strong covenant on the basis that Quelle's net profit for YE 1999 was €105m, there was no intention by Quelle to change the use of the property and the property was not listed. It is not known if there was marketing of the property or not.
151. As to the latter point, it seems unlikely that Quelle did not market the property, since it was in its interests to maximise the return on the sale. Whilst Titan is obviously right as to the difference in the unexpired term as between 2000 and 2005, as against that, the evidence (which I accept) is of rising commercial property prices in Germany over the period 2004-6 which tends to counterbalance this. The market perception of Quelle's financial state is dealt with elsewhere in this judgment. In agreement with Colliers, I consider this transaction as being of some significance.

(2) 27 August 2003 sale at €91m

152. On 27 August 2003 Thesaurus sold the property to Valbonne, whose sole shareholder was a company called Hofer Corporation NV, for the sum of €91,787,400.
153. Titan points out that there were 12 years remaining on the lease at this time, and says that Quelle had a strong covenant because it made a net profit of €53m for YE 2002, and there was no intention by Quelle to change use. The property was not listed at this time but Titan accepts that the parties were aware that negotiations regarding listing were underway. It says that this is the only example where there is clear evidence of marketing and a clear open market sale.
154. As stated, I think that it is unlikely that the property was not marketed by Quelle. Further, as Colliers points out, the purchase price is recorded in Valbonne's books as €95,030,793, and given what the property was mortgaged for shortly afterwards it may be that this is a better reflection of value. Nonetheless, it is correct to say that so far as the evidence at trial is concerned, the price was less than the 2000 price.

(3) September 2003 Weatherall valuation at €114m

155. In September 2003, a valuation of the Property was carried out by Weatherall which as I have said is a firm of valuers in the Netherlands, the valuer being Mr A L Oosterling. According to the translation, Weatherall was instructed by a financial institution, Berlin Hyp, Munich, "... to provide the client with a view of the current value to be advised later in this report in connection with obtaining a mortgage". The valuation was in the sum of €114,700,000 as being the property's market value.
156. The evidence is that Valbonne charged the property on 29 January 2004 to two banks, in the sum of €71m in favour of Bankgesellschaft Berlin, and €25m in favour of Deutsche Hypothekenbank, so totalling €96m (which is about the same as the price recorded in Valbonne's accounts). As Colliers says, to achieve this level of mortgage from German banks one can safely assume that there must have been valuations at sums considerably in excess of €96m. It seems likely (as Titan suggests) that the banks relied upon the September 2003 Weatherall valuation in this regard.
157. Titan attacks the 2003 Weatherall report as "concerning" and "not a reliable indicator of market value". It is dated September 2003 and so it came only a month after the acquisition by Valbonne at €91,787,400, yet no mention is made of this sale, and, it is not credible that the property had increased in value by €23m in a month. This valuation was known to Colliers, but not referred to in the impugned report. The Weatherall's report assumed the passing rent to be €8.58m, but did not analyse the strength of the tenant's covenant, the tenant's intended use of the property, investment comparables and rental value. There is no mention of monumental protection being a potential issue. Dr Heyser referred to it as being "not adequate" in one of his emails, and it is, Titan submits, a sub-RICS standard report and should be treated with great caution.
158. I comment that a passing rent of €9.28m rent upon which Colliers was instructed to make its valuation would presumably have resulted in a higher valuation. It is correct that the valuation is very short, though the omission of conditions in Germany described by Colliers at some length was information with which German institutions would presumably have been familiar, and I accept Mr Manley's evidence that the brevity of the report is typical of reports prepared by non-RICS valuers in mainland Europe. As Mr Preston (who regarded it as unreliable) himself said in oral evidence, you do not have to be a member of the RICS to perform valuations, and there are various European organisations of valuers with their own qualifications and regulations.
159. It has not been suggested that Weatherall is anything other than a reputable firm of international valuers, and the report was prepared for, and appears to have been relied on by, reputable German financial institutions lending €96m on the security of a property in Germany. They presumably did their own analysis of the strength of the Quelle covenant before lending. There is however force in the point that Titan makes that the valuation does not go into matters that have been at issue in this trial. So while I reject any suggestion that the report is "sub-standard", I do accept that this valuation should not be given undue weight. It is (as Colliers says) part of the overall picture which the court has to take into account.

(4) January 2005 Weatherall valuation at €125m

160. In January 2005, a further valuation of the property was conducted by Weatherall, and the valuer was again Mr Oosterling. Weatherall was instructed by Homburg Invest Inc, which as stated above, was a Canadian investor in commercial property, the shares of which (according to a subsequent agreement) were traded on the Toronto Stock Exchange. The stated purpose of the valuation was "…to give the client a view of the value on this date…….in connection with a (dis)investment decision that is to be taken". The valuation was €125.4m calculated by capitalising rent at €9.28m p.a. at a gross initial yield of 7.4%. This of course was the rent upon which Colliers later based its valuation of the property. (For comparison purposes, I was told that had a rent of €8.58m been used by Weatherall as in its 2003 valuation, the valuation would have come out at €116m.)
161. Titan says that the report is only 9 pages long, and that there was no sales tax. There is no mention of any inspection having been performed. There is no analysis of investment comparables nor rental value. There is no mention of monumental protection, the strength of the tenant's covenant, nor the intended use of the property by the tenant. On any basis. Titan says, this was a superficial and sub-RICS standard report and should be treated with great caution. It is inferred that this was an "update" on Mr Oosterling's earlier report.
162. In my view, much the same applies in this regard as stated above in relation to the September 2003 Weatherall valuation, except that this valuation was provided to investors, rather lenders. As Colliers says, valuation by the same valuer may indicate that he would have a good knowledge of the property, but in any case, my view is the same as expressed in relation to the earlier valuation.

(5) 5 March 2005 Meeùs valuation at €134m

163. On 5 March 2005, another valuation of the property was prepared, again at the behest of Homburg. The valuation was carried out by a Netherlands company called Meeùs Bedrijfshuisvesting B.V., which Colliers says is an international property services organisation, and the valuer was Mr M.C.H.A. Dinglan. The valuation was €134.5m calculated, Colliers says, by means of a 'net/gross initial yield method', i.e. on the basis of a then current gross or net market yearly rent of €9.28m as a percentage of the total investment, capitalised at 6.45%, where market value was defined as, "The price, determined by an open sale of the object in a rented out state (with consent from the money supplier), offered by the highest bidder".
164. Titan says that the report was "produced on the eve of trial" (in fact, as Ms Lee explains in her 9^th witness statement, it was disclosed to Titan's solicitors on 25 June 2014, the day after she herself got it). Titan says that it suffers the same faults as the 2005 Weatherall valuation and "alarmingly uses wording which is identical in parts to the 2005 Weatherall Valuation". This report, Titan says, is of no probative value to the court; neither expert commented upon it.
165. It is correct that neither expert commented on it presumably because it arrived so late. However, Colliers is in my view entitled to put it before the court as part of the overall picture, albeit the court does not have the benefit of the views of the experts as in the case of the Weatherall valuations, so that it carries less weight.

(6) 1 June 2005 sale of shares in Valbonne at a stated value of €127m

166. By crontact dated 1 June 2005, Hofer sold the shares in Valbonne to a body called Homco Realty Fund (68) Limited Partnership, which is owned by Homberg Invest Inc. This was obviously the culmination of negotiations over a period of time (it is unclear on the evidence the extent to which if at all Credit Suisse was involved). I am satisfied that the property was Valbonne's only asset (this was not seriously in dispute), and accepting as I do Mr Manley's evidence that commercial property sales by way of share transfers were not unusual in Germany to save tax, this transaction in principle is capable of amounting to a sale of the property.
167. As Titan says, however, there were some complexities in this agreement. The contract (which was governed by Dutch law) provided that the purchase price was to be established on the Date of Transfer (31 May 2005) from the Acquisition Balance Sheet based on a value of the property at €127,100,000. This was calculated as to €90,000,000 allocated for "immovable property", €20,000,000 for "land" and €17,100,000 for "items contributed by the lessee".
168. It is correct, as Titan says, that there are some "significant unknowns" in the transaction. The Acquisition Balance Sheet has never been disclosed, and it is not therefore possible to know what price was actually paid by the buyer. There were some further complexities. Collier says that Homco would acquire the ordinary share capital in Valbonne (representing 94% of the entire subscribed share capital), but Hofer would retain a small number of preference shares.
169. Nonetheless, the sale was based on a value of the property of €127.1m, and there is no reason to suppose that it was not an arms length sale between parties which appear to have been in the property investment business (certainly so far as the buyer was concerned). In agreement with Colliers, I consider that this is potentially an indicator of the market value of the property at this time.
170. There is however an important qualification. The seller warranted in the contract that by 31 May 2006 Quelle would execute a new 15 year lease with a rent of €9,280,000. A deposit of €9m of the purchase consideration was held back pending the signing of this lease and the seller took on an obligation to pay a rent top up of €690,297 each year up to the date the new lease took effect. In fact, Quelle did not sign a new lease. Titan submits, rightly in my view, that this transaction did not reflect the market value of the property as it actually was, and was based upon a special assumption (i.e. the vendor guaranteeing by means of a retention that the tenant would commit to a new lease at a higher rent).
171. What eventually transpired as regards this transaction is not in evidence, but it is not in dispute that Quelle never entered into a new lease as the contract envisaged. The proposed 15 year lease at a rent of €9.28m presumably explains the apparent confusion on Colliers' part as to the term of the lease described in the factual section above.
172. Nevertheless, I do not accept that the above points nullify the relevance of the value as shown in this transaction. In the joint statement of the experts, Mr Preston (having stated that the transaction should be treated with caution) says that based on the existing lease agreement the figure of €127.1m should be adjusted to €118.1m or thereabouts. His oral evidence on this subject was confused, and I do not find for that figure (and no alternative was suggested by Mr Manley). Though it would not be apposite to adjust the figures to reflect a rent of €8.6m (as Mr Preston suggested in his report) since the impugned Colliers valuation is on the basis of a rent of €9.28m, it would be necessary to adjust the contract value to reflect the fact that the seller warranted that there would be a 15 year lease entered into by Quelle in place of the 10 years remaining on the existing lease, and this did not happen.
173. It is also significant in my view that the purchaser required the seller to warrant that there would be an extension of Quelle's term. This underlines the particular importance in the market value of the property of the position of Quelle, which is a central part of Titan's case.

Discussion and conclusion as regards sales and valuations of the property

174. Titan submits that these earlier valuations and transactions regarding the property are to be understood in light of their context and that they are consistent with the valuation of Mr Preston because by December 2005 significant changes had occurred in respect of (i) the tenant's covenant, (ii) the length of the lease, (ii) the tenant's use of the property and (iii) the need and ability to structurally change the property.
175. Colliers submits that they are very important, and that Titan's case that the true value of the property was €76.6m is wholly irreconcilable with these transactions/valuations concerning the property. If Mr Preston is right (or even if he is fairly close to being right) then the sale prices in 2000 and 2003 were excessive (given the rapid rise in prices in 2004-05), the price paid by Homburg in 2005 was about 65% over the true value, Weatheralls were grossly negligent on two occasions, Meeùs was grossly negligent in 2005, the valuers at Colliers who carried out a re-valuation in 2009 were grossly negligent, Mr Manley has been grossly negligent, and the Colliers 15 December 2005 valuation was grossly negligent. The court is asked to weigh the probability of this being the case for all these matters against the probability of Mr Preston being wrong. Colliers ascribes this to Mr Preston's lack of market expertise.
176. This is an important issue, and my conclusions on it are as follows. Even allowing for the various criticisms that Titan makes of these sales and valuations as providing valid comparisons, Mr Preston's valuation is plainly out of line with the market evidence as to the value of the property for the period between 2000 and 2005. In a case where the nature of the property is such that comparables are not of as great assistance as some cases, I agree with Colliers that the market evidence demonstrates that no valuer in the position of Colliers in December 2005 would have valued this property at €76.6m. The extent of Mr Preston's isolation on this issue is further evidenced by his own initial valuation of the property at €61m as set out in Titan's Letter of Claim prior to the bringing of these proceedings.
177. Nevertheless, this conclusion is not determinative of this claim. I have now to consider, on the basis of the various aspects of the valuation evidence that have been at issue in trial, whether or not Colliers' 15 December 2005 valuation was justifiable. The issues identified by the parties are as follows.

6. Valuation issues raised by the parties

(1) Investment market 2004-5

178. As regards the investment market in properties of this kind in Germany, the evidence comes from Mr Manley, since Mr Preston had no experience of the market at the time. I am satisfied that the availability of credit, including credit provided by investment banks which were looking to make large loans secured on commercial property with a view to securitisation, taken together with lower interest rates in Germany which gave rise to arbitrage opportunities, resulted in compressing yields for properties such as the Nürnberg property. I do not accept Titan's case that the property was effectively excluded from this process because it fell within the logisitic sector, and was hardly marketable because it was an older property with an outdated concept. Though I am satisfied that there were particular features of this property that negatively affected its value, the evidence of sales and valuations, taken with the interest that Credit Suisse manifested in the property, is sufficient to show that in general terms this property was potentially the beneficiary of a rising market.
179. Colliers' closing submissions say that, "For reasons that are now notorious, it was a period of easy and soft money. Bonus-hungry bankers were pushing the money out of the door. The result was a sharp increase in property prices. It turned out to be a bubble". I do not think that this is a valid analysis in this case. Whilst there was a bubble, it was a global bubble in financial assets, not in German commercial property. The position was not in any way like the rapidly rising market followed by a precipitous fall that happened in the Spanish property bubble that I described in Grupo Hotelero Urvasco SA v Carey Value Added SL [2013] EWHC 1039 Comm at [73].
180. On the evidence, I am satisfied that the trends in the German commercial property market were much less pronounced, but were nevertheless real. The overall position is usefully shown in a chart of Prime Yields 1999-2009 in the December 2009 Jones Lang LaSalle Report. I should state that there is no evidence that the bankruptcy of Karstadt Quelle in 2009 had any particular connection with falling property prices, though the drying up of credit in the developed markets following the financial crash may have contributed.

(2) Classification of the property

181. The building functioned as a warehousing and distribution centre for Quelle's mail-order business, together with a retail element including a department store, and offices. It was not like a large, modern logistics building ("logistics" has been described as the business of moving and storing merchandise). At the time of the valuation, a considerable number of people worked in the building – between 1,500 and 2,000. As noted earlier, though the precise number of floors varied, five floors was typical.
182. The parties made differing submissions as to the classification of the property. Titan says that as the market does not track this kind of building, logistics buildings were the best proxy to use. Colliers says that since the retail and office space was much more valuable than the warehousing space in rental terms, the property may correctly be described as a "mixed-use building", and the comparison with logistics is not helpful. I am not convinced that ultimately much depends on this difference of approach.

(3) Refurbished offices

183. In their agreed description of the property, both valuation experts stated that a large part (about 8,000m²) of the offices on the third floor was refurbished in 2002. This has led to a slightly odd dispute between the parties. In opening, Titan's counsel said that it was trying to get to the bottom of this, but was "not saying we're going to go back on it" (i.e. the agreed description). However, as the trial progressed, Titan began to put a positive case that though the refurbishment of offices had happened by the time of Colliers' 2009 report, it had not happened at the time of the impugned 2005 report. Titan invites the court to make a finding to that effect, whilst Colliers objects that Titan should not be permitted to alter the basis upon which it went into the hearing.
184. On the evidence, quite a strong case can be made out to the effect that the refurbishment of the offices was post 2005 (and Colliers in fact relies on post-2005 refurbishment to show Quelle's commitment to the property). As to the 8,000m², the main evidence to the contrary is what Mr Manley was told when he inspected the building. However, this is not an issue on which new evidence emerged during the trial, and I agree with Colliers that Titan should not be permitted to go back on the experts' agreed description.
185. In terms of the numbers, it does not make a huge difference. Colliers says, and I accept, that it would involve a reduction of €1.1m from Mr Manley's valuation of €125.9m. Titan does not give a figure, and it was evident from its submissions that it saw the significance of this issue as going to whether or not the property was Quelle's headquarters. It submitted that if the court finds that no refurbishment of offices had occurred, and the offices were ancillary to the warehousing/production, the court should find that the property was not the headquarters of Quelle.
186. I did not find Titan's case persuasive in this respect. I agree with Colliers that it makes no real difference whether, following the merger with Karstadt, the headquarters of the company was in Essen. I am satisfied on the evidence that this was a major Quelle property, and the building was used as the de facto headquarters for its business. Any doubt is, in my view, dispelled by Credit Suisse's letter of instruction to Colliers dated 3 November 2005, which refers to the property in the heading of the letter as the "Quelle Headquarters".
187. The significance of this issue is that if the Nürnberg property was Quelle's actual or de facto headquarters, as opposed to merely being a distribution centre with offices pertaining to distribution, there would be arguably less chance of Quelle leaving at the end of the term. However, even on this issue, the question of when the refurbishment happened does not seem crucial, because we know from the Colliers 2009 report that refurbishment had certainly happened prior to 2009.

(4) Petrol station and carwash

188. There was a petrol station and car wash on the property, but given the small amounts involved compared to the other space, this is not a major issue. Titan says with some force that a competent valuer would not have separately valued these elements because there were no turnover figures available. On the other hand, in cross-examination Mr Preston accepted Mr Manley's overall annual rental value of €210,000. It is not necessary to make findings in this respect.

(5) Potential for land development

189. This issue concerns the development potential (if any) of unused land surplus to immediate requirements and located on the fringes of the site. Mr Manley considered that 3.77 hectares of basic car parking could have been sold off and reflected this by a small reduction in his net initial yields.
190. Titan's case is that it is not clear where this surplus property was, that selling of strips of land for residential or commercial development would require compliance with applicable planning regulations which had not been considered by Mr Manley, and that sale of segments of car parking would be inconsistent with the assumption that the property would be fully-re-let, since car parking areas would be required.
191. There is force in Titan's last point, and I am doubtful that a reduction in net initial yields is justified. On balance, however I accept Mr Manley's evidence where it is of particular relevance, namely as regards vacant possession value. In that regard, he ascribes a capital value of €13.5m for undeveloped land. Even this may be of limited relevance to the outcome since his valuation of VPV was, in any case, much lower than that of the impugned Colliers valuation.

(6) Estimated rental value

192. Beyond the basic figures, there is little discussion of this issue by the experts in their joint statement. Their opinions on monthly market rent (per square metre) together with the annual value as against that of the impugned Colliers' valuation are summarised in the following chart adapted from those provided by the parties:

	Mr Preston	Mr Manley	Colliers
/B>Logistics/ warehousing	c.€1.75 (discounting higher/lower floors as against €3 for ground floor)	€2.7	€3
total value per annum	€4.34m	€6.53m	Not separately calculated
Offices	€4	€7 refurbished €5 standard (inc canteen)	€5
total value per annum	€0.928m	€895,966 standard offices €672,000 refurbished offices Total: €1,567,966.	Not separately calculated
Retail	c. €7.5 (discounting higher/lower floors as against €10 for ground floor)	€11 department store €8.5 remaining retail space	€12
total value per annum	€1.561m	€1,061,544 department store €989,731 remaining retail Total: €2,051,275	Not separately calculated
TOTAL PA	€6,829,000	€ 10,359,856 (including petrol station etc)	€11.07m

193. Both Mr Preston and Mr Manley adjust the gross ERV figure to allow for repairing costs and/or a sinking fund. Mr Preston deducts 10% to produce a net figure of €6.15m per annum. Mr Manley adopted a 2 stage approach and applied €1m² as a sinking fund and 1% per annum for management costs for the remainder of the Quelle lease (a total deduction of €345,848) and applied an additional €1m² as a sinking fund and an additional 1% management/insurance cost for the reversionary period (a total deduction of €691,696) making a figure of €9,669,104 per annum. As Titan points out, his deduction is very close to Mr Preston's 10% deduction.
194. Mr Preston then makes further deductions which follow from his view that Quelle would vacate at the end of the lease, and the property at best would be subject to multiple occupation. He thinks that over 20 per cent of the gross internal floor area would have been lost from rentalisation, applies what Titan describes as "constant rolling void allowances for multiple occupation to find sustainable occupancy levels and rental values", and then deducts the costs of maintaining and managing void areas which could not be recovered from tenants by the owner of the property. On this basis, and having made these deductions, he arrives at a figure of €2.81m per annum. This aspect of his evidence (which so far as I can see was not dealt with in Titan's closing submissions) depends on the view I take of Mr Preston's assumptions.
195. Colliers criticises Mr Preston for his absence of comparables of the kind mentioned by Mr Manley, and says that his rental figures were miles away from Mr Heyser's figures. It also criticises him for relying too heavily on the "Nuremberg Property Market Report" for 2004 and 2005. These are reports provided by an Advisory Committee on property values in the urban municipality of Nürnberg. As Colliers points out, the reports state that, "The statistically determined results can be a basis and an aid for determining market values, but they cannot replace a specialist, expert assessment of the individual case". However I do not agree that they have no value. These are detailed reports published (as I understand it) in English, and I do not think that it was unreasonable for Mr Preston to place reliance upon them, along with the other investigations that he made, including the enquiries set out in his second supplemental report.
196. As to the individual uses of the property, as regards warehousing, I consider that Mr Preston was right to factor in a reduction in demand because of the fact that this warehousing space was over five (or six) floors as compared to modern single storey warehousing for operations of the logistics type. This approach was supported by other evidence, including that of Mr Harris. I do not consider that Mr Manley's response based on the fact that there were lifts to get the goods down to lower floors is adequate. Further, the property appears also to have used a conveyor belt to get goods to the loading bays for distribution.
197. As regards retail, there was force, in my view, in Mr Manley's evidence as to the methodology of the valuation of the market rent for a department store in Germany, which he said was on the basis of a gross internal area across the whole sales area. As the chart shows, consistent with his approach as regards warehousing, Mr Preston discounted the upper floors (and basement).
198. On the other hand, this department store was not right in the centre of town, and I accept Titan's submission that Mr Manley's figure of €11 is high given that his comparables are department stores in established retail centres in city centres. In oral evidence, asked about the Karstadt-Quelle department store which he said was in the pedestrianised centre of Nürnberg, Mr Manley said he would envisage the rent being considerably higher than at the subject property. In one of his emails, Dr Heyser appeared to suggest that the rent from this store was "up to €12". If this is correct, then Titan is right to say that Mr Manley's figure of €11 looks too high.
199. Further, Mr Manley accepted that his value as regards kiosks should be adjusted. In fact, Colliers rightly points out that he sought to correct this in a supplemental witness statement to which Titan took objection. Taking this into account leads he says to a downward adjustment in his valuation from €125.9m to €125.8m.
200. As regards offices, the various numbers are relatively close (leaving aside the issue as to the refurbished offices which I dealt with above). The evidence in this case is that the office space was not of a particularly good quality, and Colliers themselves in their report of 15 December 2005 record that the office market in Germany had been in decline since 2001, and was not expected to increase for at least 18 months. Further, I accept Titan's submission that the canteen (which was very large) should not be valued in the same way as the offices.
201. Generally speaking, an important issue between the parties is whether at the time of valuation, the property was over-rented or under-rented. It follows from Mr Manley's evidence that his view is that it was under-rented, in that Quelle was paying less than the market rent for the property. Mr Preston takes the contrary view. A conclusion on this question will assist in drawing conclusions on the ERV issue.
202. In this respect, Titan refers to a draft of the Colliers valuation which said that due to the sheer size and specialist nature of the premises, the value was highly dependent on the security of the income stream. The passage continued, "At the current time, we consider that the property is … per cent over-rented". In the final version of the report, Colliers concluded that the property was under rented, not over-rented. Mr Mayhew's explanation in oral evidence that this was a standard sentence in the draft that was there to be addressed. I place little weight on arguments based on drafts of the report for reasons stated below.
203. More cogently, it is not in dispute that Quelle was not paying rent of €9.28m per annum, which was the assumption of all three 2005 valuations, including that of Colliers. At the time of the valuations, they were actually paying the contractual rent agreed in 2000 of €8,589,703. As Titan says, this was despite the fact that the Quelle lease provided for index linked increases in rent and (ii) the intention of the 1 June 2005 sale of the shares in Valbonne described above was that Quelle would enter into a new lease at a rent of €9.28m. However, by December 2005 this had not happened. (Colliers points to evidence that an index increase happened for the first time in March 2008, but if anything this seems to support Titan's contention.)
204. My conclusion on this issue is as follows. I reject the contention that the property was under-rented. I agree with Titan that it is difficult to understand why an owner would not have required Quelle to pay the indexed increase to passing rent unless all parties knew that such an increase could not be justified as against the market rent of the property. It follows that I do not accept Mr Manley's case as to ERV.
205. I consider that Mr Heyser's apparent endorsement of the rents adopted in the valuation (which Colliers relies on) has to be read with the advice he received from Mr Weinmann that Quelle was "captured in a lease contract they don't want and need". In any case, I consider that Mr Manley's ERV is much too high given the considerable drawbacks of this property, and in particular its old fashioned and inflexible accommodation, which must have been obvious even in December 2005. As to Titan's case, Mr Preston's net figure of €6.15m per annum may need to be adjusted to reflect my ruling that Colliers was entitled to proceed on the basis of the agreed statement of the experts as to the refurbished offices. The main point however is that when taken with the totality of the evidence, I consider Mr Preston's view of ERV to be too low. Given my other findings below, there is no need to make a more specific finding, nor is it practically possible to do so in my view.

(7) Quelle's covenant

206. Though it did not have "to conduct any credit enquiries on the financial status of the tenant", Collier's instructions, and therefore part of its duty of care, required it to "take into account any assessment of the financial status of the tenant that is likely to be considered (positively or negatively) by prospective purchasers of the Properties". As also noted above, Appendix 3.1 of the RICS Guidelines entitled "Protocol for Valuation and Appraisal of land and building for commercial lending" stated a similar duty at §4.4: "Comment on the market's view of the quality, suitability and strength of the tenant's covenant"
207. Colliers' 15 December 2005 valuation was premised upon Quelle's covenant being a "very good covenant". It is common ground that Quelle's income stream was particularly important in this case, as it clearly was, and so the strength of the covenant was particularly important. Based on the Credit Suisse Credit report, Colliers point out that in December 2005 Karstadt Quelle, the parent company to Quelle was reported as operating about 180 department stores, and 300 speciality stores; with a market capitalisation of €2.4 billion; a turnover to year ending December 2004 of €3.37 billion, a net worth of €426m and current assets of €1.67 billion.
208. So far as the expert evidence is concerned, Mr Preston expressed the opinion that "towards the end of 2005 it would have been considered a very remote chance that Quelle would be a business failure". However he went on to say that because of problems which he identified including the recent restructuring of the business, a prospective purchaser would not have assessed the covenant as "good". Mr Manley's oral evidence was to the effect that Quelle's Dun & Bradstreet rating taken with the known transactions concerning the property would have given confidence that the market was comfortable with the covenant.
209. Titan submits that the correct assessment of Quelle's covenant was that it was not "very good" and whilst Quelle were not likely to go bust their covenant was weaker than in preceding years. This is demonstrated by:

(1) The D&B rating, whilst current, relied upon accounts which were 11 months out of date and a careful valuer would have considered up to date information. Quelle was still re-structuring in November 2005 and had failed to make a profit for the last three years and had made a pre-tax loss of €286,191,000 as at 31 December 2004.

(2) Quelle had since 2000 suffered from falling turnover and this was continuing in December 2005. The accounts of Quelle were publicly available and it may be reasonably inferred would have been considered by any institutional investor contemplating a single tenant, multi-million European investment.

(3) Quelle had at least since 2002 made redundancies year on year which were ongoing in December 2005.

(4) Dr Heyser was sufficiently concerned as to the covenant of Quelle as to raise the threat of its going broke in 4 years at the time of the desktop valuation. This is very good evidence as to the general perception of Quelle's covenant, and Dr Heyser was aware that in 2004 Quelle were close to bankruptcy.

(5) There was no parent company guarantee. The covenant to pay the income stream was held by Quelle alone.

(6) In any case, Karstadt, like Quelle, was undergoing restructuring.

(7) Taking all the above into consideration Quelle's covenant had worsened since 1999 and Quelle was in a position of economic decline.

210. Colliers submits that Mr Preston's 'doom mongering' is not indicative of a balanced attempt to place himself in the shoes of a valuer valuing the property in 2005 and was clearly the product of impermissible hindsight.

(1) It relies on the Dun & Bradstreet (D&B) report which Colliers obtained and which gave Quelle a 5A1 rating and a failure score of 94 (which meant that 94% of businesses in that German database had the same or higher risk of failure in the next 12 months). This showed that the market would have perceived the Quelle covenant as good, in the context of the chance of Quelle being a business failure being "vanishingly remote".

(2) Credit Suisse had by 15 June 2005 already produced a term sheet for its proposed loan, and if Quelle's position had deteriorated by December 2005 to the extent that Mr Preston suggests, the bank's loan origination team would have fed that information through the internal credit decision making process.

(3) Credit Suisse regarded Karstadt-Quelle overall as a "major retailing force" and the bank was comfortable that it would survive, and sufficiently comfortable to lend €110m to Valbonne in reliance on Quelle continuing to pay the rent. None of the information known to Credit Suisse (which was likely to be comprehensive given its prior dealings with the Karstadt-Quelle group and the 'due diligence' process that would have been undertaken) led Credit Suisse to decline to make the loan to Valbonne.

(4) A valuer's job is not to form a view as to the actual strength of a tenant's covenant, but merely to advise on how the market would perceive that covenant. Mr Preston's claim that a valuer should have gone beyond the D&B report, and scrutinised the most recent accounts sat oddly with the fact that he could not have read the accounts if he had seen them, since he admitted he had no expertise in analysing financial statements.

(5) Mr Manley's position was that the sort of detailed investigation posited by Mr Preston was expected to be done by the bank—its credit analysts would be looking at the quality of the tenant and its standing. It was not his experience that valuers would have access to a newsfeed providing financial articles.

(6) Mr Preston had not himself paid any attention in his "research" to the standing of Karstadt-Quelle, and was not aware that Karstadt is or was one of the best known names in German retailing, and had not obtained any information about its capitalisation rate because there was no contractual guarantee by Karstadt of the rent. He failed to note the fact that a substantial company such as Quelle would not be 'cut adrift' from the parent group due to the impact on Karstadt-Quelle's reputation, its bank covenants, and its inter-company arrangements.

(7) Other transactions mentioned by Mr Manley showed the confidence in the market at the time in the Karstadt-Quelle covenant.

(8) In 2005, the collapse of the Karstadt-Quelle group which happened in 2009 was unthinkable. The company had survived two world wars and Weimar inflation, any reasonable investor would have expected it to survive and continue.

211. I have set out the principles applicable to the valuer's duty as regards the assessment of a tenant's covenant above. My conclusion on this issue is as follows. A bank would not (as Mr Yankauer explained) have given much weight to the Dun & Bradstreet rating, but in my view a valuer was entitled to give weight to it. The fact that there was no parent company guarantee (again as Mr Yankauer said) is not of great significance in the market where the company is part of an apparently reputable group. On these points, I agree with Colliers.
212. I also agree (as discussed above) that a valuer is not expected to be a financial analyst, but must nevertheless be in a position to comment on the market's view of the quality, suitability and strength of the tenant's covenant. I do not consider that the pre-tax loss in the year to 31 December 2004 revealed in the D&B report need necessarily be attributable to anything other than the restructuring which it was well known had taken place. Nevertheless, I am satisfied that there was ample material available of the group's financial troubles over the past few years preceding 2005. This was confirmed by what Dr Heyser found out from Mr Weinmann.
213. I agree with Titan that the fact that Credit Suisse was conducting its own credit analysis does not absolve the valuer from its own duties as regards the market perception of the tenant's covenant. Nevertheless, I do consider it to be material that prior to Colliers' instruction, Credit Suisse was proposing to make a loan of €110m to Valbonne. When Mr Yankauer was asked in cross-examination whether Quelle was a "very strong" covenant, he said that the bank's sense was that this particular German retailer had had significant difficulties and had been struggling. However, the bank's credit analysis, he said, based on another loan it had done where Karstadt-Quelle was tenant, led it to be "comfortable that Karstadt-Quelle would be a surviving company". This was hardly a ringing endorsement given that the bank was lending €110m to be securitised and placed on the market with investors, though in answer to a question from the bench, Mr Yankauer said that based on the work that had been done on Karstadt-Quelle, the bank considered that, like a lot of retailers, the group was struggling to redefine its business model, but it thought that the loan would be repaid, and, as he put it, "…liked the fact that we were lending on a secured basis". Colliers complains with some force that the bank could have done more to communicate to the valuers its true view of the Quelle covenant.
214. Titan's closing submissions in effect accept that Quelle's covenant was properly regarded as "good". I agree with Titan, however, that the correct assessment of Quelle's covenant was not that it was "very good" as described by Colliers in its valuation. Even if the covenant was in effect a Karstadt-Quelle covenant, this makes a limited difference because the whole group had had problems. I further agree with Titan that the correct assessment of Quelle's covenant was that it was "good" but with some concerns, and that this leads to a higher all risks yield than that adopted by Colliers (Colliers' all risks yield in fact adopted was 7.112%).

(8) Obsolescence

215. A major significance of Titan's contention that the property was obsolescent is that it is the basis for Mr Preston's opinion that "the only reasonable assumption [was] that Quelle would not renew the Lease at the end of its term". It is also relevant as to yields.
216. Titan submits that the property had been built specifically for Quelle and its mail order business as it had been 35-40 years before the valuation. Quelle's business was changing, it was in re-alignment, and the design of the building had become functionally obsolete as a result. The original function of the property was a very large packing, sorting and mail order distribution centre. Quelle's business had since 2002 been shrinking and it no longer needed a huge multi-storey warehousing space. The massive warehousing capacity of the property, its dominant feature, was not required. Titan says that all the evidence points to this significant change in requirement as follows:

(1) Dr Heyser's advice to Mr Mayhew that Quelle was captured in a lease contract that Quelle did not want and did not need. This was cogent evidence acquired from speaking with Herr Weinmann, a facilities manager, and there is no reason to believe he was not providing accurate information.

(2) Karstadt Quelle was re-structuring its group and (Titan says) in November 2005 it was reducing the mail order product range by 30%. Quelle did not need the historic logistics capacity offered by the property.

(3) Mr Manley gave evidence that Quelle did not require its original warehousing space as "more modern sorting and selection techniques became used" which freed up warehousing space.

(4) Quelle had taken out a new lease for 13,000 m² of warehousing space in Kongresshalle, Nürnberg. This was an indication, Titan submits, that such warehousing space was more suitable to Quelle than the huge amount available at the property. The reasonable inference to be drawn is that the property did not suit Quelle's warehousing requirements.

217. Titan submits that the redundancy of the warehousing/distribution design was an important fact which a competent valuer would have taken into account. In particular, it drew a sharp focus on the question as to what extent the buildings were suitable for conversion, and thus gave rise to uncertainty as to how the building would be used, and uncertainty as to the income stream it had historically generated.
218. Colliers submits that the debate about alleged obsolescence arises entirely from Mr Preston. There is no actual evidence that Quelle itself considered the building to be obsolescent – indeed there is plenty of evidence to the contrary as follows:

(1) The property was not a logistics centre, and was never built or used as a pure logistics building. It was not designed or used to receive very large containers, to be stacked using forklift trucks involving a high degree of automation and a relatively small number of employees who would be breaking up the deliveries into still large packs (as describes the day to day operation of a logistics centre). Mr Preston agreed that, at this stage, a computerised system could not do this, and it required labour.

(2) Quelle was speaking with the Bavarian State Office about undertaking construction reconfiguration works (see the memorandum of discussions between Quelle and the City of Nurnberg at a joint meeting on 30 November 2004). Quelle would not bother to pursue such meetings with the planning authority if it considered the building to be either obsolescent for its actual or intended use, or surplus to its requirements. If Quelle was of that view, and intended to leave the property, it would simply sit tight and wait out the lease, whilst making no plans to do works at all.

(3) There is good evidence of Quelle's commitment to invest money in the property. The contemporaneous evidence of a tenant seeking to invest large sums of money in its premises does not indicate the building was obsolescent, nor does it indicate the tenant will not renew its lease (or exercise the five year options).

(4) The report to the Credit Suisse Credit Committee dated 16 December 2005 provides information about Quelle's plans for remaining at the property. This was listed as one of the "Mitigants" for risk: "In accordance with the current lease, Quelle AG will make a c.€6,400,000 investment in the property over the next 9 years to cover the required repairs and maintenance. This investment shows a devotion to the location."

(5) The LandAmerica Report refers to further details of Quelle's intended expenditure on the building: "The general tenant intends to change the usage of some areas of the main building. Therefore it is planned to convert the uppermost two floors of the building into office and conference rooms. Estimated appropriation requirements for the reconstruction measures are 15 million euros." This (Colliers submits) indicated a firm intention to remain at the property evidenced by a significant reserve of costs of works.

(6) This intention to increase the office space at the property reported by Credit Suisse and LandAmerica was actually made good by Quelle, as indicated by Colliers in its 2009 report. Having noted that "much of the warehouse function has recently been relocated", the report says: "A new emphasis for the tenant would appear to be the consolidation of its administrative / service functions within the subject premises. This has been demonstrated by the tenant's recent conversion of 8,000 m² of warehousing into modern, open-plan office accommodation."

(7) In summary, Colliers submits, there was no question of obsolescence. This is entirely based on Mr Preston's wrong interpretation of evidence. The factual evidence does not support his valuation methodology and demonstrates that Quelle was actively pursuing its intention of increasing the extent of offices at the property. This made it far more likely that Quelle would remain in the property than to leave at the end of the lease. The assumption that the building had lost its utility to an extent that it was "functionally obsolescent" is simply without foundation.

219. My conclusion on this issue is as follows. I accept Titan's submission that even by December 2005, the drawbacks of the property should have been apparent. It supported a particular kind of distribution, which was labour intensive, and the building itself was constructed in the fifties and sixties and can fairly be described as elderly. It provided a huge amount of space, but the space was not particularly flexible. The information that Dr Heyser got from Mr Weinmann as to what he said about Quelle's attitude to the lease was clearly concerning. I am satisfied that there was a degree of obsolescence in this property, and that, as Titan submits, this gave rise to the question as to what extent the buildings were suitable for conversion, and thus uncertainty as to how the building would be used in the event that Quelle vacated, and uncertainty as to the income stream it had historically generated.
220. However, there was, as Colliers has pointed out, evidence that goes the other way. The information that Dr Heyser got from Mr Weinmann reflected in his email was only part of the overall picture. The property was (as I have found) Quelle's de facto headquarters, and Colliers' clear instructions from Credit Suisse stated that it was the headquarters. There was much less reason why the office space or retail space should be regarded as obsolescent, and the warehousing (which accounted in terms of usage for most of the property) was only obsolescent to the extent that Quelle might quit. However, I am satisfied that the market perception at the time of the valuation was that Quelle was a substantial business which apparently had expansion plans. It is I think of some significance (as Colliers submits) that the responsible officers of Credit Suisse reported to the bank's credit committee that Quelle's proposed investment in the property showed "a devotion to the location" (though it is right to add that the Credit Suisse loan was to be for seven years, so less than the unexpired term). There is other evidence of Quelle's commitment to invest in the property, and such investment was in fact made.
221. I consider that as at December 2005, it was reasonable to take the view that the property suited the purposes for which it was designed, and that Quelle would continue to use it for those purposes. In that sense, it was not obsolescent. But the problems inherent in the building by 2005 give rise, in my view, to the uncertainties that Titan draws attention to. These had to be reflected in the valuation, probably in the yield.

(9) Monumental protection/planning

222. I have dealt with the facts as to monumental protection above. It seems that Colliers was unaware of any planning constraints until relatively late, and it is not in dispute that it did not obtain a written report. It is accepted that Colliers did not appreciate that the monument status designation affected more than the Quelle tower as stated in its valuation, and also applied to the main building, technical building and gatehouse. However, Mr Mayhew said in evidence that this did not impact on the valuation because the valuation was done on the basis of an assumed continuing level of rental income into perpetuity.
223. Titan says that a reasonably competent valuer would have been aware, at the date of the Valuation Report, that the "whole" property was listed. In fact, however, the LandAmerica Report suggests that the protection was only to the extent that Colliers submits. Though the translation of the Memorandum of the planning committee of 10 June 2005 refers to the "entire complex" I think at least that the position is unclear. That aside, the treatment of this issue in the Colliers valuation in my view compares unfavourably to the treatment in the LandAmerica Report, which was issued a few weeks earlier. Even if protection did not extend to the whole property, it extended substantially further than the tower. I am satisfied that Titan is correct to submit that the Colliers report fell below acceptable standards in this respect.
224. Titan says that the fact that the property was listed carried with it an inflexibility as to change of use. The planning authority had given permission subject to conditions for Quelle to convert the upper floors of the rear annexes to office use and to extend the trading area of the front of the property on Further Straße. Quoting the Memorandum, it says that this showed that the original design of the property no longer suited Quelle which wished to use the property "to a large extent" for another use. This it says was a very clear signal to a valuer that the original warehousing use of the building was no longer required and that the property was undergoing a substantial change in function. This in turn, Titan submits, provided a clear indication that Quelle was likely to quit the property at the end of the term.
225. However, the passage Titan quotes from the Memorandum is preceded by the words "if needs be". Read fairly, I agree with Colliers that the Memorandum suggests that the planners appeared to show considerable flexibility. I do not think that too much can be inferred from the discussions that were taking place with them at this time. As Colliers points out, it seems that protection had been considered by valuers and purchasers as a potential issue from 2003. The 1 June 2005 sale contract in respect of the property records that, "It is known that the municipality intends to list the premises in the (provisional) historical buildings register". This did not stop the sale going ahead. I accept that monument protection was not helpful in terms of the saleability of the property, should occasion arise, but I do not accept that the discussions provided any indication that Quelle was likely to quit the property at the end of the term. More generally, I accept Colliers' submission that the evidence as a whole shows that the monument status designation did not have a significant impact on value. Despite Titan's submissions, I do not regard it as a major issue in this case.

(10) Valuation methodology

226. The main issue as regards methodology is whether Mr Preston's "term and reversion" is appropriate, or Mr Manley's "yield and covenant" approach is appropriate. This depends largely on my conclusion as to whether Mr Preston is correct in his view that the only reasonable assumption was the Quelle would not renew the lease at the end of its term. I consider this issue in the next section. The other issues which the parties raise here are dealt with elsewhere in this judgment.

(11) Reversion to vacant possession/the perpetuity assumption

227. Titan's case is that a careful valuer would have concluded that "Quelle were likely to quit the property after the expiry of the lease". This, it says, is Mr Preston's evidence. As Colliers' has emphasised, however, this is not a correct paraphrase of Mr Preston's report, the relevant passage of which states that: "In my opinion … the changing market and changing structure of Quelle's business results in the only reasonable assumption being that Quelle would not renew the lease at the end of its term. This is in contrast to Colliers' assumption that the Property as it is exists can be valued into perpetuity.". I refer below to his cross-examination in this respect.
228. Mr Manley put his opinion in slightly different ways in his evidence, but his basic position is that a valuer would have concluded there was a "strong probability" of Quelle remaining and renewing the lease, and that is Colliers' case.
229. Titan points to the following evidence as showing that Mr Preston's assessment was correct:

(1) By the end of the Quelle lease the buildings would have been between 50-60 years old, which is very old.

(2) Dr Heyser said in his emailed draft overview of 22 November 2005, that the main question was the costs of developing the site and the costs of "abolishment". These questions arose, Titan submits, because he was concerned about Quelle leaving at the end of their lease. Had he not been concerned about that problem he would not have identified these matters as the "main question" since they only arise if Quelle leave.

(3) In December 2005 AEG had decided to quit the large multi-storey office block opposite the property, or were in discussions to do so. This was a piece of evidence showing that a tenant of a nearby large building was willing to quit that building and go somewhere else.

(4) Mr Preston summarised the facts which strongly pointed to the benefits of Quelle departing from the Property: "If I am understanding what was happening at that time, the mail order business was contracting, the online business was expanding and Quelle were struggling to keep the same degree of volume to their marketplace. So they would have the opportunity to relocate to some more modern accommodation, create modern offices for their staff and relocate the business. Every now and then businesses do relocate."

(5) If Mr Manley's evidence regarding re-negotiation of lease terms is accepted this strengthens the case that Quelle would have exited the property at the end of the term. Quelle would have had no way to bargain for better rent terms at all; they either stayed on at the same passing rent or they departed:

Q: They need to find some other accommodation but perhaps Mr Manley they don't need 242,000m²?

A: In which case they would serve their notice and go, yes.

(6) Even if the Court were not to find that a careful valuer would have assumed that Quelle would leave the property at the end of their lease, a calculation into perpetuity should only be adopted with caution because of the age and obsolete design of the property. Unlike the comparables the property was not capable of being re-used by third party occupiers in its current state. Mr Preston said: "it could be capitalised into perpetuity, but I think that the valuer should be drawing to the attention that the building is an aged building, and that perpetuity assumption on a building that is becoming and using (Titan suggests the transcript should read "losing") its utility, I think is a very dangerous one."

230. Before considering Colliers' position, it is worth setting out the context of the passage that Titan quotes from Mr Preston's cross-examination:

Q. … you have, as we were discussing, expressed the opinion in that report that the only position that a reasonably competent valuer could take in 2005 was to assume for certain that Quelle would vacate the property at or before the end of the term. Correct, that's your evidence?

A. Yes.

Q. I understand, I make no concession, but I understand why … given that evidence … you have selected a term and reversion approach. If in fact you are wrong about … that, … it was open to the reasonably competent valuer to conclude that the market would attribute a high degree of probability to the prospect of Quelle staying put after the expiry of the 10-year term, if that is the correct preference, then it follows, does it not, that it would be appropriate for a valuer making that assumption to value the property as Colliers did, by capitalising the income stream in that position, yes?

A. On the basis that Quelle are going to renew their lease of the entire, then --

Q. Most valuers would simply capitalise into perpetuity?

A. -- it could be capitalised into perpetuity, but I think that the valuer should be drawing to the attention that the building is an aged building, and that perpetuity assumption on a building that is becoming and [losing] its utility, I think is a very dangerous one, but that's my opinion.

Q. Yes, I'm sorry to cut across you there, and my inappropriate interjection should read "would simply capitalise into perpetuity". I apologise for cutting across your answer. So we agree about that. May I put this to you as a matter of valuer's methodology. If the … reasonable valuer does take the view that the market will suppose it quite probable that the tenant will stay put, paying the rent, possibly slightly adjusted, but basically paying the rent after the expiry of the existing term, then it is normal valuation practice to capitalise the present income stream into perpetuity. We've broadly agreed about that in the course of the last five minutes?

A. Yes.

231. This passage makes clear the dispute between the parties on the evidence. Mr Preston's evidence is that the only position that a reasonably competent valuer could take in 2005 was to assume for certain that Quelle would vacate the property at or before the end of the term, and this is the basis for his methodology. If the perpetuity assumption was adopted, as Titan says, the implication of Mr Preston's evidence is that it has to be adopted with caution. Colliers' case based on Mr Manley's evidence is that it was open to a reasonably competent valuer to conclude that the market would attribute a high degree of probability to the prospect of Quelle staying put after the expiry of the 10-year term. That is his approach in his report, and it was Colliers' approach in its valuation.
232. Colliers' case is that Mr Preston's position was extraordinary. His evidence was that a valuer had to assume that Quelle would vacate is "ridiculous". The premises were clearly central to Quelle's operations. They were described as Quelle's headquarters in Colliers' instructions, and that is probably what they were. Irrespective of that side-issue, they were plainly premises of great importance to Quelle at which 1500-2000 employees worked. The "Q" on the Quelle tower demonstrated the brand, which had strong links with Nürnberg, and which was visible in most of the city where it was known as the 'Quelle complex'. Mr Manley's evidence was that, in his experience, major German corporations tended to be 'wedded' to their locations and did not move frequently. There is no trace of any evidence of appropriate substitute premises in the Nuremberg region. Relocating elsewhere would have been enormously expensive, in terms of building costs and redundancies. A decision to relocate would have needed to be taken many years before the end of the term. The landlord would have been in a strong negotiating position. The overwhelming likelihood, Colliers submits, as the market would have perceived it (and, to be precise, as a valuer would have regarded the market as seeing it) was that Quelle would stay put.
233. Colliers submit that this error on Mr Preston's part vitiated the entirety of his valuation. The true position is that the relatively remote risk of Quelle vacating at the end of the term was merely something that a valuer would take into account in fixing the yield.
234. Despite the property's considerable drawbacks, I have concluded that Mr Preston was wrong to conclude that the only reasonable assumption a competent valuer could have made in December 2005 was that Quelle would leave the property after the end of the lease. I consider that this is an impossible position on the facts. The obsolescence that there was in the property, and the other evidence that Titan relies on (particularly the Heyser emails) as showing that Mr Preston's assessment was correct, does not, in my judgment, justify such a view. Not do I accept Titan's more modulated contention in closing submissions that a careful valuer would have concluded that Quelle was "likely" to quit the property after the expiry of the lease. Broadly, I prefer Colliers' submissions on this part of the case.
235. I do accept however that there was a risk that Quelle might leave at the end of the term, and that this could have serious implications because of the limitations of the property (see for example the discussion as to multiple occupancy below), and that a competent valuer would have seen that there was a risk. I do not accept Colliers' description of the risk as "relatively remote"—in my view, it was a real risk, and should have been perceived as such by a competent valuer at the time. On the evidence, I consider that it was open to a reasonably competent valuer in December 2005 to conclude that it was probable that Quelle would stay in the property after the expiry of the lease, though a reasonably competent valuer would have concluded that there was a real risk that it might leave. I agree with Colliers that the risk of Quelle vacating at the end of the term was something that a valuer would take into account in fixing the yield (and on this assumption that was also Mr Preston's view). But I consider that Mr Manley's opinion does not take sufficient account of the risk, and that his opinion as to value suffers from this major flaw.

(12) Ability to re-let upon Quelle vacating

236. Titan submits that the correct approach was to assume that multiple occupiers were likely upon the termination of the Quelle lease.
237. Titan notes that the draft valuation report dated 26 November 2005 stated:

"We are of the opinion that, should the entire properly fall vacant, there would be limited demand for the whole, in its existing form and condition, from an occupational point of view."

As Titan says, Mr Harris accepted in cross-examination that this was because the property was an old building, multi-storey and not to modern logistics standards.

238. An earlier draft report also stated:

"The ability to let the property on a multi-occupied basis should also be considered although given the size and layout of the property it is unlikely that full occupation of the properly would be possible."

239. The same section was revised in the Valuation Report to say:

"The ability to let the property on a multi-occupied basis should also be considered although given the size and layout of the property it is likely that full occupation of the properly would be achieved in a letting to a single occupier."

240. Titan calls this "a complete reversal of opinion", and this is fair comment. It was explained by Mr Mayhew on the basis that the drafts were evolving as Colliers made its inquiries. On balance, I accept this. More generally, I consider that earlier drafts of a report like this have to be treated cautiously as a basis for criticising valuers, since the purpose of the process is to consider the various factors, and drafts will be produced as the process goes along. It is the final conclusion as expressed in the report that goes to the client that matters.
241. The more formidable point is that the size and layout of the building were factors against single occupancy. Titan says that the consequence of multiple occupiers is that (i) there would be a permanent loss of rental space (20% is the estimate of Mr Preston and also of Colliers 2009 Report), (ii) subdivision works would require considerable capital outlay which would have to be borne by the owner of the Property (the Colliers 2009 Report estimated these at €10m and Mr Preston estimated €24.2m) and (iii) there would be an inability to rent the whole space (Mr Preston says sustainable occupancy was 70% for office use and 50% for warehousing).
242. Titan says that the subdivision costs are crucial in assessing the possibility of converting to multiple use but they were overlooked by Colliers and disregarded by Mr Manley. In cross examination Mr Manley stated that a 20% unlettable area was "totally wrong"; but Titan says that this is an opinion which is hard to reconcile with an impartial approach. Mr Manley's figures of a 3-5% loss of lettable areas were given for the first time in re-examination and not supported by any documentary evidence. It is difficult to understand, Titan says, how such a low figure could be achieved given this huge property had 37,708m² of corridors, lobbies and stairwells (15.6% of the total floor area).
243. Colliers submits that as a mixed use, production facility, the property would appeal to tenants seeking such premises, and there was a limited supply at this time. The market for re-letting would be restricted to tenants who were in production or similar mixed logistics production uses. For production use, the building would be far more suitable than a logistics building. Mr Manley's view was that:

(i) The size of the building and the depth of the floorplate would have been weaknesses for re-letting; the multi-storey structure would have to be considered and weighed up.

(ii) The density of the site posed no issues for use as a production building, nor did the load bearing capacity and the floor layout did not restrict the market; there were no issues with the window heights.

(iii) If it was to be sub-divided on letting this would be done as large chunks, not small offices.

(iv) The monumental protection status was not a big issue because it was aimed at protecting the main design criteria and the local authority had indicated they would allow relatively substantial works.

(v) The likelihood of finding a new tenant would be reflected in the yield.

244. Colliers submits that it was not an unreasonable assumption that this large building would be taken as a single let, largely due to the lack of supply. Any uncertainty over the chance of re-letting would be reflected in the yield.
245. Titan's case was more closely argued than Colliers' in this respect, and I prefer it. The property had developed over time for Quelle's particular needs, and it would have been reasonable to foresee in 2005 that it would not be easy to find a single tenant to take its place should Quelle leave. As Dr Heyser put it, the landlord would have to have a "good idea". For the reasons given by Titan, there were problems with multi-occupancy, not least because the layout of the building would, for example, give rise to expense and/or difficulties in converting space used for warehousing into office space. The floor plates were up to 60 metres deep in some places. I agree that Colliers is correct to say that these uncertainties should be reflected in the yield, but in that regard I consider that the same flaw applies to Mr Manley's report as stated under issue (11).

(13) Conversion issues

246. Titan submits that the desire of a tenant to convert the use of a building from its existing business use (and thus its past income stream) would cause a competent valuer to investigate (i) whether there was a problem with the existing business use and (ii) whether conversion was feasible in terms of planning permission, the suitability of the building, the environment of the building and costs. In this regard the RICS Guidelines stated at UK Appendix 3.1 paragraph 4.6:

"Property which is, or which is intended to be, the subject of a development or refurbishment

Additional Reports contents;

Comment on costs and contract procurement;

Comment on the viability of the proposed project;"

247. Titan says that the property was not designed as a business park or a business campus with inbuilt flexibility of use. It is common ground that it was a bespoke building tailor-made for one business and one dominant use, and this is a fundamental point of distinction for this property. It was always designed to be for the unique benefit of Quelle and nobody else. In December 2005, it says, Quelle no longer required the property to be used as it had been and wished to change substantially the use of the building.
248. Mr Manley accepted that "if one is looking at a development in the immediate future" it would be necessary to examine the development plan and planning policies. He also said "if the development was viewed as imminent and certain, then one would need to do a lot of work in terms of costs and planning". Because Quelle's intended development of the uppermost two floors to office and conference rooms was current, Titan says that a careful valuer would have engaged in a close examination of these issues.
249. Titan says that a competent valuer would have concluded that the conversion to offices or retail would be difficult, expensive and too uncertain to lead to any adjustment to ERV and yield:

(1) The listed status of the whole property placed a serious constraint on any form of large scale conversion.

(2) The structure of the building made conversion to offices difficult. The floor plates were deep and prevented subdivision into small offices, and there were German regulations which required natural light within a certain distance of permanent occupation of a desk. The external parapet heights of 1.3 meters also would cause difficulties.

(3) The reconstruction costs of the intended conversion were estimated by LandAmerica to be €15 million.

(4) Given Quelle's restructuring and poor finances in December 2005 it would have been reasonable to doubt that Quelle had the ability to fund the conversion and therefore not to assume that the conversion would take place.

(5) Conversion to retail at the expiry of the Quelle lease would have required detailed conversion plans, discussions with the City which would certainly have been negative, and investigations none of which had been done in December 2005.

(6) A careful valuer would have been sceptical as to adding any hope value for the potential to convert to retail at the end of the lease because German planners were opposed to out of town retail. A crucial consideration would be the costs of conversion and no such calculations had been made by the owner in December 2005. Mr Preston estimated that the cost of converting the property to alternative uses at the end of the lease would have been un-economical.

250. Colliers' answer to these submissions is that the property is currently in the process of being purchased by a well-established developer which specialises in the development of shopping centres. The developer's plans are not to demolish, but to convert and refurbish the existing buildings into a shopping centre with services, gastronomy, recreational use, and offices. This contrasts with Mr Preston's assumptions that to convert and refurbish was not economical, which assumptions have been shown to be invalid.
251. Titan responds that even now there has been no binding agreement for the sale of the property. Ms Lennig's oral evidence was that the financing party for the current buyer was still questioning what use the property could be put to apart from the retail space. This underscores, Titan submits, the difficulty in finding a conversion plan that would attract the financial backing of a bank.
252. On balance, I prefer Colliers' position. There are clearly issues as to the costs of conversion, but I do not think Titan's case that German planners would oppose conversion on the basis that it is "out of town retail" has much force. The property is outside the centre of Nürnberg, but only just outside the centre, and in December 2005 a department store was operating on the property along with retail kiosks. I agree with Colliers that the fact that a contract is now in the offing with a developer tends to show (contrary to Titan's case) that a competent valuer would not have concluded in December 2005 that conversion would be difficult, expensive and too uncertain to lead to any adjustment to ERV and yield. This is not (in my view) invalidated by the fact that the deal has apparently not been brought to a conclusion. Titan's position on this issue is intended to defend Mr Preston's very low valuation. However, I agree with Colliers that these very real issues can properly be reflected in the yield adopted, and I do not think that Mr Manley adequately does this.

(14) Property valuations

253. See above.

(15) Property sales

254. See above.

(16) Comparables

255. The parties took a different position as regards comparables. Colliers rightly emphasised that reference to comparable properties, meaning properties or transactions involving properties which have characteristics in common with the subject property, are a mainstay of a valuer's view as to value. Whereas Mr Manley referred to a number of comparables in his report, it points out that Mr Preston did not.
256. Colliers says that the gathering of true property comparables in this case has been an entirely one-sided exercise. Mr Preston had no personal experience of the relevant property market, and was not himself able to get details of comparables, nor could he obtain them from those who he consulted in the preparation of his report. Nor, Colliers says, did Mr Preston have access (as Mr Manley did) to the databases of the nine main valuers' practices operating in this market.
257. As to Titan's case, Mr Preston's first report suggests that he has not included comparables because his approach has been to capitalise the Quelle rental to the end of the lease, and value the reversion at land value. Titan's case as expressed in its closing submissions is that there was no close sale comparable to the property, because, as it submits, it was unusually old, large and of a bespoke design. In the event, its case has largely turned on seeking to distinguish the comparables offered by Mr Manley.
258. There were a number of these, the principle ones relied on at trial being those set out below. These were the subject of a helpful second supplemental report by Mr Manley, which included pictures of the properties in question, and brief comments on each. There was also a joint statement by the experts of agreed comparable transactions. I should also record that just before the trial started, Colliers sought to put in evidence of another comparable (Neckermann Versands HQ), but Titan objected, and Colliers did not pursue its application to adduce this evidence.
259. The relevant comparables are as follows.

(1) Leipzig (Am Alten Flughafen 1) is a logistics building bespoke built for Karstadt Quelle, totalling 133,214 sq m, let on a 15 year lease (triple net, index linked) at a rent of €8.539m per annum. It was acquired as part of the Karstadt Quelle portfolio in October 2005, the apportioned purchase price was €110.8m reflecting a net initial yield of 7.34% or German multiplier of 12.98 times. Colliers says that this was a comparable capital lot size.

Titan says that the Leipzig property had a net initial yield of 7.7%, and was a substantially different property since it was (i) smaller (133,214 m²), (ii) built in 1990s, (iii) made up of 14 separate buildings, and (iv) a 15 year lease. Whilst the tenant was Karstadt Quelle that was a different covenant to Quelle. In cross examination Mr Manley said that the yield adjustment for a 15 year lease compared to a 10 year lease would be 0.25% to 0.5%. If an increase of 0.5% were applied to the Leipzig yield that would give an adjusted yield of 8.2%. (This transaction is one of the two comparables that Mr Preston identifies as being particularly useful.)

(2) Bonen (Woolworths Distribution Centre) is a purpose built modern warehouse facility, let to Deutsche Woolworths GmbH & Co, totalling 98,449 sq m, let on a 15 year lease (standard German lease, index linked) at a rent of €5.264m per annum. The property was sold in June 2006 for a price of €67m reflecting a net initial yield of 7.35% or German multiplier of 12.73. (Mr Manley relied on this as evidence of a sale transaction at a price of €67m, not for the accuracy of King Sturge's valuation.) This property was clearly a multi-storey production facility, had a parent company guarantee which was 5A1 rated by Dunn & Bradstreet, just as Karstadt Quelle had a 5A1 rating at the time.

Titan says that Bonen is the only comparable which had logistics spread over multiple layers. It had a net initial yield of 7.35% but was (i) smaller (only 98,449 m²), (ii) modern build in 1990's/2000's, (iii) with the benefit of parent company guarantee, and (iv) a lease of 15 years. If an increase of 0.5% were applied to the Bonen yield that would give an adjusted yield of 7.85% without any adjustment for a parent company guarantee.

(3) Kelsterbach (Europort, Langer Kornweg 34) is a complex of office and logistics accommodation, totalling c.85,000 sq m, multi-let to 41 tenants, with short term leases requiring intensive management which, Colliers says, is a huge disadvantage. The property was sold in June 2006 at a price of €122.52m reflecting a net initial yield of 6.53% or a German multiplier of 14.6. This was noted by Mr Manley as being another multi-storey, multi-functional building. It was also pointed out that a quarter of its leases were close to expiry, which meant a lot of management overheads would be incurred, or there was a risk of a severe reduction to the cashflow. This reflected an investment in a high risk property with a very low yield and was indicative of the weight of money trying to invest in Germany. This was a comparable capital lot size.

Titan says that Mr Manley's reliance upon Kelsterbach as a close comparable was not sensible. That property was (i) much smaller (only 80,000m²), (ii) more recently constructed (last phase in 1994), (iii) multi-let, (iv) with a much higher rental value of €8.23m² and (v) only 3 km from Frankfurt airport, in other words a prime position. Whilst this property had a second floor it was used predominantly for ancillary offices not production. The net initial yield of 6.85% (in fact this number appears to be the gross yield, the net yield is stated in Mr Manley's report at 6.53%) is too low to apply to the Nürnberg property.

(4) Unna (Giesserstrasse 5) is a purpose built logistics centre, with mixed high bay warehousing and ancillary areas, totalling c.153,445 sq m of warehousing, with ancillary offices at first floor level let to Karstadt Vernietungsgesellschaft on a 15 year lease at a rent of €7.8m per annum, sublet to DHL. The property was acquired in Q3 2005 as part of a portfolio with an apportioned purchase price of €91.88m reflecting a net initial yield of 8.09% or a German multiplier of 11.77. In his evidence Mr Manley described it as being in a remote greenfield site location in an area (east of Dortmund) which might be described as a 'logistics hub'. However the building itself was a standalone building. Mr Manley considered this to be a 'pure logistics' property, but of assistance as the capital lot size was large, and the tenant covenant was Karstadt Quelle.

Titan says that Unna was a purpose built logistics centre in an established logistics hub and had a net initial yield of 8.09%. It was (i) smaller (around 170,000m²), (ii) built in 1985 and 1995), (iii) ground floor except for offices, (iv) acquired as a part of a portfolio and a (v) 15 year lease. These factors point to the Nürnberg property having a higher initial yield than Unna. (This transaction is one of the two comparables that Mr Preston identifies as being particularly useful.)

260. Colliers says that the comparables indicate that the income stream from this property (€9.28m, on the basis of Colliers' instructions) should be capitalised into perpetuity at a yield somewhere in the 6.5 to 7% range, broadly speaking. Colliers' valued at a yield of 6.5%., and Mr Manley used a yield of 6.77%. This would reflect the strength of the Quelle covenant, which is what the investment market would have been focusing on.
261. Titan says that a study of the comparables shows that Mr Manley's net initial yield of 6.77% for the property is far too low.
262. I agree with Titan that none of the comparables is particularly close to the Nürnberg property. I do not accept however (for reasons stated elsewhere) that the absence of a parent company guarantee is of any relevance in this context. But when the yield is adjusted to take account of the longer lease terms, I do not agree with Colliers that the comparables indicate a yield somewhere in the 6.5 to 7 per cent range. So far as they are of value, I agree with Titan that the comparables show that Mr Manley's net initial yield of 6.77 per cent is too low by a considerable margin.

(17) Retail potential

263. I have dealt elsewhere with the circumstances in which Colliers came to reflect the hope value of converting 40,000m² into retail. However, I do not accept Titan's case that a careful valuer would not have given any hope value to this possibility. I do not think that planning permission would have stood in the way, though I agree with Titan that the costs that would be incurred in carrying out the necessary work are plainly an issue. Mr Manley does not spell out his own position, but there is some evidence that at the time of the valuation Quelle was in the process of trying to convert the retail space to nearer 25,000m². I consider that it was reasonable in principle to ascribe some hope value to retail, but do not consider it is possible on the evidence to reach any more precise conclusion.

(18) Yield

264. It is important to appreciate that the term "yield" has different meanings in different contexts, and that it is imprecise and unhelpful to use it on its own. The term is often used to mean the return on an investment, usually expressed on an annual basis, and in that sense is common to all asset classes. In the present valuation context, the term was used in at least seven different ways, and at least in the case of "equivalent yield", is a number generated by software. In the case of a sale of commercial property, the initial yield can be readily calculated based on the income from the property against the price paid for it. However, in the case of a valuation, the determination of yield ultimately rests on the judgment of the valuer, in a process conducted according to the standards laid down by professional organisations such as the RICS in the Red Book, and accepted methodologies. It is a key component in ascribing a value to property.
265. In re-examination in the present case, Mr Mayhew said that he undertook the valuation with a view to generating a 6.5% initial yield, which then generated the equivalent yield and the reversionary yield. Titan's case is that the yield was much too low, whereas Colliers says that it is well within an acceptable range.
266. Titan's case is that if the court decides the factual issues as to refurbished offices, headquarters, strength of Quelle's covenant, obsolescence, change of use, and the likelihood that Quelle would exit the property at the end of the lease in Titan's favour, then the court must reject or substantially adjust Mr Manley's net initial yield of 6.77%, reversionary yield of 7.32% and equivalent yield of 7.32% since they are influenced by these issues. I do not think that there is a substantial dispute that the yield is influenced by the issues, noting however that Colliers' submissions (as reflected elsewhere in this judgment) include further factors as also potentially relevant to adjusting the yield, which I have in principle accepted.
267. It is common ground that Mr Preston's net initial yield is 11.38%. It is high because he considers that the value of the property falls dramatically once the Quelle Lease is terminated, because the property is only worth its land value. As pointed out above, Mr Preston's opinion is that that the only position that a reasonably competent valuer could take in 2005 was to assume for certain that Quelle would vacate the property at or before the end of the term.
268. This results, as Colliers points out in Mr Preston adopting a net initial yield that is entirely out of line with the others which are in evidence. Colliers produced the following table which I do not think is factually in dispute (for consistency all yields in this table are calculated with purchaser's costs as used by Colliers in their valuation at 6%, which as explained below I consider is a reasonable figure). The transactions and valuations referred to are described in detail above.

Date	Action	Rent	Price	Yield –
Oct -00	Sale	€8,589,756	€102,258,000	7.92%
Sep-03	Valuation – Weatherall	€8,589,756	€114,700,000	7.06%
Jan-05	Valuation-Weatherall	€9,280,000	€125,400,000	6.98%
Mar-05	Valuation-Meeus	€9,280,000	€134,500,000	6.51%
Nov-05	Desktop – Colliers	€9,280,000	€140,000,000	6.25%
Dec-05	Report-Colliers	€9,280,000	€135,000,000	6.48%

269. As regards capitalisation rates, for the 10 years of passing rent which was secure to the end of the lease, 8% is used by Mr Preston. How he arrived at this figure was not explained in his report, and he is criticised by Colliers in their closing submissions for this omission. Further, he accepted that he had not taken into account the fact that the payment of rent was monthly in advance. (Titan says that this pushes his €62.2m number up to €64.94.) On the other hand, as Titan points out, Mr Manley's rate of 7.50% is not far apart (and so far as I can see, he does not explain how he reached this in his report either).
270. For the "top slice" or reversionary period after expiry of the lease, 9% is used by Mr Preston and 8.5% by Mr Manley.
271. Both experts agreed that a reduction in the length of a lease from 15 to 10 years would impact on the yield. Mr Preston said the deduction would be 0.5 to 0.75 and Mr Manley said it would be 0.25 to 0.5.
272. As to the approach to yield, I refer to the description of the approaches of each valuer I have set out above:

(1) Mr Preston's approach was to fix an appropriate yield for the whole property (240,000 sq m) on the premise that the parts could not be sold separately, and the building should be treated as a logistics building with ancillary office space.

(2) Mr Manley's approach was to recognise the different uses of the property, and the accordingly different yields that applied to the areas so utilised, and thereby arrive at an overall yield for the entire property, reflecting also the lower yield to be applied to the secure rent from the term of the lease (the hardcore yield), and the higher yield to reflect the less certainty over the rental income after the expiry of the lease term (the layer or overage yield also known as "top slice"). He said that this "hardcore & topslice" approach is the market norm in Germany. This resulted in a net initial yield of 6.77%, with the equivalent yield (as corrected by him in evidence) being 7.30% (a German multiplier of 13.57 times). This was his preferred approach that produced his valuation of €125.9m.

(3) Mr Manley's alternative approach (which he offers but does not espouse) is to adopt a blended rate which resulted in a net initial yield of 7.04%, rising to 7.47% on expiry of the lease, an equivalent yield of 7.54% (German multiplier 13.09), and a resulting valuation of €121.15m.

273. Titan says that the correct approach with yields is to adopt a blended yield which takes account of all the features and risks of the property rather than a component yield. Mr Manley is the only English valuer who proposed valuing into perpetuity with a component yield. This was not the correct approach because it is not possible to break up and sell each element of the property separately.
274. Colliers says that the blended approach was provided "to assist the court to understand Mr Manley's preferred component based approach", and the value effect of adopting this "blended yield" approach. But in Mr Manley's view, treating the property as a production/warehouse facility with ancillary offices grossly undervalues the property.
275. I should set out the table of yields that Mr Manley produced to support his component yield approach.

Component	Hard core yield	Layer yield
Warehousing	7.75%	8.25%
Department Store	6.25%	7.25%
Retail Sales	6.50%	7.50%
Offices, Canteen	6.75%	7.75%
Ancillary areas	7.0%	8.0%

276. However, I note that this is the version of his table that was produced to the court at the outset of his oral evidence, and which substantially corrected the table as it appeared in his report. Of the figures given, he corrected those relating to the department store, retail sales and ancillary areas, and this detracted from the credibility of this approach. In any case, I do not consider that it is the correct approach because, though as discussed above it is possible to do so, it is not straightforward to break up and sell each element of the property separately. Further, it was not the approach adopted by Colliers in the impugned valuation. It follows that I consider that Mr Manley's €121.15m number is the one that has to be considered.

(19) Acquisition costs

277. I see no reason to depart from Colliers' figure of 6%, and the firm was in the best position to know acquisition costs at the time. Mr Preston's figure of 6.4% is close, but Mr Manley's figure of 4.75% is out of line.

(20) Vacant possession value

278. I prefer Mr Manley's figure of €82m to that of Mr Preston of €34m, which was dependent on his estimate of total rental value at €2.81m per annum. As indicated, on balance I do not think that Mr Manley was wrong to include a figure of €13.5m for development land which could be sold separately. I should add that the figures as to VPV did not receive much attention at trial, because even Mr Manley's figure was far below that of Colliers in the impugned valuation of €102,350,000.

(21) True market value

279. In the light of the discussion of the valuation issues, I now set out my conclusions on the correct valuation in this case. Among the many, three particular points come into focus at this stage.

(1) I have accepted a considerable number of the detailed points that Titan makes as to the market evidence of sales and valuations in the period 2000 – 2005, but I agree with Colliers that overall it is important evidence. From this and the other evidence in this case, I am satisfied that Mr Preston's valuation of €76.6m was too low. I am satisfied that in December 2005 a valuation below €100m would not have carried any credibility in the market. His conclusions may reflect his lack of experience in the market.

(2) Mr Preston's term and reversion methodology ultimately depended on his view that the only position that a reasonably competent valuer could take in December 2005 was to assume for certain that Quelle would vacate the property at the end of the term. For reasons set out above, I reject his evidence in this respect. I consider that it was open to a reasonably competent valuer in December 2005 to conclude that it was probable that Quelle would stay in the property after the expiry of the lease, but that there was a real risk that it might leave. I reject his methodology, therefore, and consider that Mr Manley's yield and covenant methodology was preferable.

(3) However, for the reasons stated above, I am satisfied that even Mr Manley's lower figure of €121.15m is too high. The cause of this is his adoption of an unrealistic figure for estimated rental value, and the adoption of yields that are too low by a substantial margin. I have set the reasoning out above, including the fact that he gives too little weight to the real risk of Quelle quitting at the end of the term. He also understates the real difficulties that disposing of the building would pose thereafter. A competent valuer should have foreseen this in December 2005. In my opinion, Dr Heyser's contemporary warnings carry particular weight in this regard. In reaching this conclusion, I have also had to take into account that Mr Manley's conflict of interest may have influenced him in forming a more optimistic view than was justifiable.

280. Given the enormous gap between the expert valuations, and the challenges that were made to the standing of each expert, I indicated to the parties during the trial that the court would appreciate assistance in closings as to an intermediate valuation. Colliers took the view, as it was entitled to, that it stood by Mr Manley's report. As stated however, I have not accepted his valuation. Titan made submissions as to an intermediate valuation in the event that I rejected Mr Preston's valuation, as I have.
281. If a yield and covenant approach is correct, as I have found, Titan invites the court to prefer Mr Preston's alternative calculation at §9.7 of his Report which provides a market value of €96.6m. That is with a net initial yield of 9%. It submits that Mr Manley's yield and covenant calculation should not be adopted for the reasons debated in the discussion as to valuation issues, and in particular because:

(1) His net initial yield was too low.

(2) He failed to discount the layer for the later receipt of market rent caused by Quelle extending the lease which is what Mr Manley assumed. The argument that there was no need to discount for 25 years because CPI growth (this is a reference to the relevant inflation German index) would offset the deferral of income was an unanalysed response, and his reports did not attempt to project CPI forward for 25 years from 2015 in order to demonstrate the validity of this argument.

(3) Mr Manley's equivalent yield is 7.32%, which Titan says is too low because it is based upon the incorrect factual assumptions made by him.

282. As to the second point, Colliers says that the reason Mr Manley did not defer the income for more than 10 years was that there would need to be certainty that the tenant would remain in occupation for three option terms. If there was a 25 year term, the value of the investment would be higher, with a resulting lower yield, compared with a 10 year term.
283. I need not decide this particular point, but I agree with Titan's other criticisms of Mr Manley's evidence. However, I cannot accept Mr Preston's alternative calculation at which provides a market value of €96.6m. As stated, based on the market evidence, I do not consider that a valuation of less than €100m would have been given in December 2005. As to the details of Mr Preston's calculation, as explained above, I consider that his figure for ERV of €6.15m p.a. is too low.
284. Titan suggests an alternative if the court wishes to follow a yield and covenant approach other than Mr Preston's. It is suggested that an approach would be to adjust the equivalent yield upwards to reflect the uncertainties and risks in respect of the property:

(1) 9% equivalent yield applied to the net income of €9.28m would lead to a valuation of €97.25m.

(2) 8.5% equivalent yield applied to the net income of €9.28m would lead to a valuation of €103m.

285. I accept Titan's submission that this approach is the correct one on the particular facts of this case. It best reflects in my view all the evidence in the case. The second of these two alternatives is the one that I consider best reflects the correct market value of the property on the totality of the evidence. It takes account of the market evidence as to the value of the property, whilst reflecting the very real uncertainties and risks in respect of the property which I am satisfied should have been appreciated by a competent valuer in carrying out a valuation of the kind that Colliers was instructed to carry out, leading to its report of 15 December 2005.

(22) Bracket

286. In the light of my findings as to the correct valuation figure of €103m, the question of bracket does not arise, since even on a bracket of 20 per cent (for which Colliers contends) the impugned valuation of €135m falls outside the bracket. However, I should state that I preferred Titan's submission that the appropriate bracket in this case was 15 per cent. On the basis of my finding that the correct value was €103m that allows for a range between €87.55m and €118.45m. Despite the very real difficulty in valuing this building, which I fully acknowledge, I consider that that is a reasonable range for the commercial valuation in question.

7. Findings as to negligence

287. In the light of my findings above, I am satisfied that Colliers' valuation of this property was negligent. In summary, it failed to give sufficient weight to the fact that the property was likely to attract poor demand because it was very large, old, and built to the needs of Quelle's particular business. Although I have concluded that it was open to a reasonably competent valuer in December 2005 to conclude that it was probable that Quelle would stay in the property after the expiry of the lease, a reasonably competent valuer would have concluded that there was a real risk that it might leave, and Colliers did not give sufficient weight to the attendant problems which this building would then pose, in particular the difficulties that ought to have been foreseen in attracting a single occupier, the difficulties in re-letting the whole property, and the costs of sub-division. As regards vacant possession value, Mr Manley effectively acknowledged that the Colliers figure was wrong.
288. I need to add the following point. Titan submits that Colliers was influenced by a desire to substantiate its desktop valuation of €140m, and that this led to errors in valuation. I have set out the facts in this respect above. In summary, Mr Mayhew's responsibility included business generation, and in providing a desktop valuation, I agree with Titan that the evidence shows that he was "pitching" for work from Credit Suisse, and was probably in competition with other valuers. I further agree with Titan that the emails which I have set out above show that pressure was placed upon Mr Mayhew by the bank to reach a valuation that matched as closely as possible the desktop valuation, and this was effectively admitted by Mr Mayhew in cross-examination. I refer to the discussion above as to the importance of a lending institution respecting the independence of the valuer in circumstances like these. I am conscious that the evidence from Credit Suisse has been limited in this case, but on the evidence which I have seen I consider that Titan is entitled to the findings of fact which it seeks.

8. Causation

289. Titan accepts that it must prove that Colliers' negligence was an effective cause of a loss in respect of which it was subject to a duty of care to protect Titan against. If the same loan would have been advanced anyway, Titan cannot prove causation. This point in practice shaded into an issue about loss, because Colliers' case is that the bank's incentives to make and securitise loans of this type were so great that even a valuation of a lesser amount would have resulted in Credit Suisse advancing a loan, albeit perhaps in a smaller sum, and so even if it successfully challenges the 15 December 2005 valuation, Titan cannot make good its case on causation, alternatively cannot establish loss in the amount claimed.
290. A significant factual issue in this regard was as to the loan to value (LTV) ratio that Credit Suisse would have applied. I agree with Colliers that through no fault on its part, the evidence in this respect did not emerge in a satisfactory manner. In Mr Yankauer's first witness statement, he said that Credit Suisse would not have lent at a LTV greater than 100%. In his second statement, he said that Credit Suisse would not have lent at a LTV greater than 90%. A Credit Suisse policy document was produced late, but was inconclusive. Though Mr Yankauer's evidence as to the bank's application of effectively a limit of 90% LTV was challenged by Colliers, on balance I accept it.
291. As regards the relevant agreements, it was a condition precedent of the Facility Agreement by which Credit Suisse advanced the loan to Valbonne that the LTV did not exceed 85% (see clause 4 of the Facility Agreement). In the Asset Sale Agreement by which the loans were transferred to Titan in the securitisation, Credit Suisse warranted that the Senior Tranche of the loan to Valbonne (which as explained above was €99,358,333, being 90% of the total loan of €110m) did not exceed 90% LTV (see clause 6.1 and paragraph (o) of Schedule 1 of the Asset Sale Agreement).
292. On the evidence, therefore, there were two parameters to this discussion. Credit Suisse would not have made a loan at greater than 90% LTV, and Mr Geraghty's evidence (which I accept) is that Titan would not have purchased the Senior Tranche if the LTV was greater than 90%. Of course, on Colliers' valuation of €135m, or €130m once the bank asked the firm to revalue on the basis of the lower actual rental, the LTV of the loan to Valbonne was very comfortably in excess of these limits.
293. It follows from my finding that the correct valuation of the property was €103m, that the loan to Valbonne of €110m would been well in excess of the 90% LTV limit that Credit Suisse applied, and that the warranty in the Asset Sale Agreement would not have been satisfied.
294. In those circumstances, Collier's case is that Credit Suisse would have lent to at least 90% LTV and the whole loan would have been transferred to Titan. It points to the profitability of this business from the bank's perspective, and in particular says that as holder of the Class X notes, which ranked pari passu with the Class A notes, Credit Suisse was entitled to be paid what can be termed 'surplus interest', i.e. the difference between the interest payable under the loans and the interest payable to the Noteholders plus ancillary expenses. It says that in 2008/09 interest on the Class X notes was running at c. €1.8-1.9m per quarter; in the October 2013 quarterly report, the sum due was €4.4m; of this sum €2.6m was paid, the balance being unpaid. I was told that the total sum paid or accrued to Credit Suisse as Class X Noteholders is €75,372,864. I am not in a position to make findings in this respect, but the numbers were not challenged by Titan.
295. In the event, this issue has largely depended on the evidence of Mr Yankauer. A number of hypotheticals were put to him in cross-examination. On the basis of a valuation of €110m, it was put that Credit Suisse would have been prepared to lend up to 90% LTV. Mr Yankauer said that the bank might have been prepared to make a loan so long as the LTV was not over 90 per cent, depending on the circumstances: "… when we deal with hypotheticals, it is hard to understand what is happening -- when you change value, is anything else happening? Why is the value changing? Does it influence any of our other decisions around the loan itself?". He agreed that on the assumption that nothing else material had changed, if the valuation had come in at €110m, Credit Suisse might well have been prepared to lend up to 90% LTV.
296. It was put to him that by the same logic, assuming nothing else material had changed, if the valuation had come in at €100m, it would still have been feasible for Credit Suisse to make a loan of up to 90% LTV. He said that, "Again, making a lot of assumptions because we are now having a very significant change in value from what we expected, it is hard to believe that that does not change other things. But if we ignore all of that and assume that everything else is the same, then yes, we may have been prepared to lend up to 90 per cent or 90 million euros". On those assumptions, asked whether there would have been any reason why the loan should not have been transferred to Titan, he said that, "Assuming everything else was identical and there were no other facts and circumstances that drove the value change, we could have sold it to the securitisation just the same".
297. Though they departed from his lawyer-crafted witness statements, these were clearly honest answers, and I accept them. On that basis, Colliers' case is that Credit Suisse would have leant to Valbonne a sum representing 90% of the market value of the property (which I have found to be €103m), and that the debt owed by Valbonne and charged on the property would have been transferred to Titan subject to the qualification that the loan had not been made at an LTV exceeding 90%.
298. Titan's case on the true market value in the region found by the court is that it is more likely than not that Credit Suisse would not have advanced a loan at 90% LTV. It also relies on Mr Yankauer's evidence, emphasising that his affirmative answer in that regard was subject to the qualification, "… if we ignore all of that and assume that everything else is the same". Titan points to evidence that the credit committee was "very sceptical" in relation to other Quelle assets, and submits that on the true market value in question, "everything else" would not have been the same, and Credit Suisse would not have made a lower loan. The drop from the desktop valuation would have concerned the bank, it submits, and required a good explanation. Further, Mr Yankauer's witness statement evidence was to the effect that the vacant possession value of the property was important, and even Mr Manley's VPV in that respect is €82m, considerably less than Colliers' €102.35m. Further, on the basis that, after paying off its existing debt, and meeting fees, etc, Valbonne probably needed a loan of at least €98m, this could not have been made on a 90% LTV of less than €109m.
299. I accept Colliers' submission that this was extremely profitable business for the bank, and that those concerned were highly motivated to produce loans that could be securitised. However, having heard Mr Yankauer's evidence, bearing in mind that he was one of those who took the credit decision, my on-balance conclusion is that on a valuation of €103m, Credit Suisse would not have made a loan secured on this property. The gap between the valuation and the desktop valuation would have been just too great, and the reasons for the difference stated in a careful valuation would have made clear the problems which the property would have posed, should realisation of the security have been required. I consider that Titan has made good its case in this respect.

9. Reliance

300. I do not think there is any dispute that Credit Suisse relied upon the Colliers' valuation, which it plainly did. Colliers relies on Mr Geraghty's cross-examination, in which he accepted that he had not read the valuation, and that was because it was the Noteholders not Titan that would be exposed to any loss resulting from the valuations. It follows, Colliers says, that reliance by Titan has not been made out, and the claim must fail for this reason. This was described in closing as a short but deadly point.
301. However, as Titan says, there was a valuation for each of the properties which were transferred as security in relation to this securitisation (I was told there were 40), and there would have been no purpose in Mr Geraghty reading all of them, or individual valuations, even if it had been possible. That does not mean in my opinion that there was no reliance on the reports. The important point from the perspective of Titan as acquirer of the loans and securities was not the reasons for the valuation, as set out in the lengthy documents, but the valuation figure. It was the amount of the valuation, in my judgment, that Titan was placing reliance on. Though the facts are different, it seems to me that a similar point was made in Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714 at [50]: "A person can, in appropriate circumstances, be said to rely on a report that is in existence, and of whose contents he is aware, but which he has not seen and which is to be provided to him later." However, this case was decided after the end of the trial, and I received no submissions on it, but note it for completeness.
302. In any case, Mr Geraghty's evidence was that he read the overview of the transaction in the preliminary offering circular, which set out in tabulated form the securitised LTV percentages of the portfolio loans, including the Senior Tranche of the Valbonne loan, and which necessarily relied upon the valuation. As Titan says, the fact that Mr Geraghty admitted that he did not read the report itself does not address the issue of the reliance on the content of the report which was repeated elsewhere.
303. I accept Mr Geraghty's evidence that Titan did rely upon the report in issuing the Term Sheet and the Offering Circular and entering into the Transfer Documents and purchasing the Senior Tranche. It was important because of the 90% LTV warranty given by Credit Suisse in the Asset Sale Agreement. On the Colliers' valuation, it was comfortably satisfied, but on the correct valuation as I have found it to be, it would have been breached. I am satisfied that Titan has made good its case on reliance.

10. Loss

304. Colliers' submission that Titan suffered no loss as issuer of the notes is dealt with elsewhere. On the amount of damages, I do not think there is any dispute that on the facts as I have found them, a SAAMCO cap applies, and the recoverable loss is the difference between the Colliers' valuation, and the true market value as I have held it to be.

11. Interest

305. Colliers requested that this issue is dealt with by agreement between the parties in the light of the judgment, and I shall take that course.

12. Overall conclusion

306. Titan is entitled to judgment as indicated above. I am grateful to the parties for their assistance, and will hear them as to any consequential matters.