Negligent Valuation Produced Instant Loss, Rules Court

When a firm of valuers placed a valuation of €135 million on a property in Germany in 2005, in connection with a complex refinancing package, and it subsequently turned out to be worth much less, a legal dispute was almost inevitable when the deal went wrong.

The refinancing package totalled nearly €1,000 million. When the transaction subsequently soured, the questions before the High Court were whether the valuation was negligent and, if so, what was the loss that had been suffered by the lender as a result. This was claimed to be more than €58 million.

The Court ruled that a variation of 15 per cent was a reasonable tolerance on the valuation. In its view, the correct valuation was €103 million, considerably below the tolerance limit, and the loan would not have been made had that valuation been placed on the property.

The judge concluded that, on the facts of the case, the lender had suffered a loss because of the negligent valuation. Interestingly, the loss was ruled to have been made at the time the transaction was done, because the lender had acquired economic rights which were worth less then it had paid for them.

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