Vol 13 (2016) - Issue 6

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Alpstream AG and others v PK Airfinance S.a.r.l. [2015] EWCA Civ 1318, Mortgagee in Possession Duties and Considerations

Introduction
On 21 December 2015 judgment was handed down in Alpstream AG and others v PK Airfinance Sarl. Lord Justice Underhill, Lord Justice Christopher Clarke and Sir Bernard Rix (with backing judgment from Lord Justice Christopher Clarke ('Clarke J')), sitting in the Court of Appeal (Civil Division) overturned the ruling of the Commercial Court and clarified the duties owed by a mortgagee in possession to third parties.
The decision of Clarke J confirmed the position under existing law that there was no bar to a mortgagee bidding for or buying property that it had repossessed. Clarke J further confirmed that where the mortgagee is purchasing a mortgaged property it (a) does not owe duties to those persons with no legitimate interest in such property; (b) can control the timing of the realisation of its security; (c) continues to owe a duty to obtain the best price reasonably possible for that property; and (d) in instances where it is selling the property to a connected party, has the burden of proving that such duty has been satisfied.
Whilst the burden of proof may sit with the secured financier in a sale of mortgaged property to a connected party, Clarke J’s decision provides reassurance to secured financiers as to their ability to enforce their security and the powers they have available to them under English law.

PK Airfinance – the facts
Parties
PK Airfinance Sarl ('PK Airfinance') is a Luxembourg company which provided aviation finance and was part of the General Electric Company ('GEC') in the US. The second defendant, GE Capital Aviation Services Limited ('GECAS') was one of GEC’s European subsidiaries. The claimant companies were part of a Russian based group ('NRC') involved in the aviation industry. Alpstream AG (the first claimant) owns Alpstream Aviation Ltd ('AAL') and the second claimant, Alpstream Aviation Malta Limited owns Betastream Ltd ('Betastream').