In Alpstream AG v PK Airfinance Sarl (2015), the Court of Appeal allowed an appeal by a mortgagee of several aircraft who, following the borrowers' default, sold the aircraft to itself. The mortgagee had obtained the best price reasonably obtainable at the time of sale and owed no duty to persons without a recognised interest in the property sold, including the junior lender.


In agreements concluded in 2007 and 2008, seven aircraft were mortgaged to the first defendant, PK Airfinance Sarl ("PK"), to secure senior loans made to subsidiaries of the first two claimants, Alpstream AG and Alpstream Aviation Malta Limited. These aircraft were leased to Blue Wings, a German low cost airline (the "Blue Wings Aircraft"). In 2009, PK made a further loan to Caelus Aviation Ltd, a special purpose company, to purchase three further aircraft (the "Caelus Aircraft"). The Caelus Aircraft were mortgaged to PK to secure the amount owed to PK in respect of those three aircraft, but also the amount owed in respect of the Blue Wings debt. The fourth claimant, Alphastream Limited ("Alphastream"), was an unsecured junior lender in the financing of the Caelus Aircraft.

Under waterfall provisions in a Deed of Proceeds agreement concluded in 2009, Alphastream was entitled to any outstanding proceeds of the sale of the three Caelus Aircraft, after these had been applied to pay the outstanding Blue Wings and Caelus debts owed to PK.

The borrowers of the Blue Wings debt defaulted and in March 2010 PK decided to proceed with the sale of the Blue Wings Aircraft. PK was the only bidder at a subsequent auction, purchasing all seven Blue Wings Aircraft for a total of USD 171.5 million. The aircraft were then transferred to the second defendant, an affiliate of PK, GE Capital Aviation Services Limited ("GECAS").

At first instance PK was found to have breached its duty to use its best endeavours to obtain the best price reasonably obtainable for the sale of the seven aircraft. It was held that PK owed a duty, not only to the mortgagors, but also to Alphastream. Sale of the Blue Wings Aircraft at a supposed undervalue would act to diminish the value of the proceeds of sale of the Caelus Aircraft, once applied to pay off the remaining debts. Alphastream, therefore, as the ultimate recipient of these proceeds, would suffer loss. The Judge at first instance found that there had been wilful misconduct by PK as a result of six features of its conduct, including a supposed knowledge of the conflict between its role as mortgagee and its role in assisting GECAS to secure the aircraft. A second feature was PK's purported participation in a "cover up" in respect of the auction. The Judge also upheld the conspiracy by unlawful means claim against PK and GECAS on the basis that they had acted in furtherance of a common design without regard to the duties owed by PK to the borrowers and to Alphastream. PK and GECAS appealed.


The Court of Appeal allowed the appeal. Importantly, the Court held that PK did not owe a duty to Alphastream. Duties are owed by a mortgagee only to persons with a direct interest in the property subject to the mortgage, which Alphastream did not have. The Court declared that to extend the duty to Alphastream, who had no more than a contractual right to receive anything left at the end of the waterfall, would involve an unjustified departure from established authority. In addition, even if a duty had existed, Alphastream had no actionable loss. Any loss could only be ascertained following the sale of the Caelus Aircraft which was yet to take place, and was therefore purely contingent.

PK was not precluded from selling the Blue Wings Aircraft to itself, and the Court found that it was immaterial whether the auction had been conducted poorly, as no better price could have been obtained at the time of sale, whether by a better advertised auction or by private sale. PK was the only viable purchaser and was under no duty to pay more than it was willing to pay.

The Court held that without an actionable loss there were no grounds to find conspiracy by unlawful means, nor did it regard PK as having the necessary state of mind for wilful misconduct.  Indeed, PK had bid more than the aircraft were worth at auction.


This decision confirms existing law as to the duties owed by a mortgagee, and lenders can take comfort from the Court's refusal to extend these duties to persons without a direct interest in the mortgaged property. Furthermore, a mortgagee's duty to act fairly and to endeavour to obtain the best price does not preclude a sale to itself, nor does it require the mortgagee, as the purchaser, to pay more than the price it is willing to pay.