Key Points

  • Mortgagees only owe duties to those with an interest in the mortgaged assets
  • Those duties do not extend to an unsecured creditor
  • Mortgagees remain free to choose method and timing of disposal of mortgaged

The Facts

The First Defendant (D) provided financing for the acquisition of seven aircraft which was secured by, amongst other things, mortgages over the aircraft.

D provided further financing for the acquisition of three additional aircraft by a separate entity which was again secured against the aircraft. This security also stood as security for the monies due in respect of the original 7 aircraft. The First Claimant (C) provided an unsecured (and subordinated) loan for the acquisition of the additional three aircraft.  ‎ On default by the mortgagor in respect of the original 7 aircraft, D took possession of the aircraft and sold them at auction back to D. C claimed that D had breached its duties as mortgagee by failing to sell for the best price reasonably obtainable. C argued that an independent valuation would have valued the aircraft at far more than the amount paid by D meaning that C had suffered a loss.


At first instance the Court found in favour of C. On appeal the Court of Appeal overturned the decision, affirming the position that mortgagees do not owe a duty to parties who do not have an interest in the equity of redemption of the asset. Consequently no duty is owed to unsecured creditors when disposing of assets. Further, the Court of Appeal reiterated that it was open to the mortagee to choose the timing and method of sale meaning that any valuation of mortgaged assets would have to take into account a forced sale discount. There was no merit in the argument that a connected party sale required a premium to be paid.


This decision will reassure lenders that: (i) they retain a good deal of control over the manner in which they dispose of secured assets‎ and the “best price reasonably obtainable” test should take that into account and (ii) they are not required to be mindful of the interest of unsecured creditors in the process.

PK Airfinance Sarl v Alpstream AG