Privy council clarifies lender duties in $9.68 million yacht mortgage case
A recent Privy Council decision considered a significant shortfall following the sale of a luxury yacht and the resulting legal challenge.
What Happened?
The Finlayson family’s company borrowed $9.68 million secured against their 147-foot yacht, then, when the lender sold the yacht for $2.43 million, the family remained personally liable for over $2.7 million - they argued that the sale was unreasonable and prejudicial.
The courts did not accept their arguments.
The Privy Council’s decision in Finlayson v Caterpillar Financial Services Corp [2025] UKPC 24 provides important guidance for lenders, borrowers, and advisers on challenging mortgagee sales.
The Case Background
In 2001, Caterpillar Financial Services Corporation lent $9.68 million to the Finlayson family’s company, secured against their luxury yacht Maratani X.
The Finlaysons – prominent Bahamian business figures who had previously sold their brewery interests to Heineken for $125 million, personally guaranteed the loan.
After default, Caterpillar took possession, invested $1.7 million in repairs, and sold the vessel in 2016; the sale price was significantly lower than the original loan amount, leading to the dispute.
The Legal Challenge
The Finlaysons argued that Caterpillar had:
Sold the yacht at an undervalue
Failed to take reasonable care to obtain the best price reasonably obtainable
Therefore should not be entitled to pursue the remaining debt
The dispute was considered by the Bahamian courts and then by the Privy Council as the final appellate court.
The Legal Principle & Decision
The main issue was the burden of proof when borrowers allege a lender has breached its duty as mortgagee in possession.
The Privy Council upheld the lower courts’ findings that Caterpillar had not breached its duty to take reasonable care to sell the secured asset for the best price reasonably obtainable.
The case confirmed that the burden remains on borrowers to prove a breach of duty by the lender, no circumstances arose in this case to shift the burden back to the mortgagee.
Implications for All Parties
For Lenders:
Confirms the duty to take reasonable care when selling secured assets
Reinforces that following proper process and using market-based sales will usually satisfy this duty
Confirms that courts will consider the condition of the asset and market circumstances
For Borrowers:
Highlights the evidential burden borrowers face when challenging mortgagee sales
Confirms that showing a low sale price alone is not enough to prove undervalue
Emphasises the need for early engagement in the sale process if there are concerns
For Lawyers:
Confirms that established principles for mortgagee sales remain relevant
Sets out the Privy Council’s approach to burden of proof in these disputes
Provides guidance on the evidence required to challenge a mortgagee sale successfully
Highlights that certain conflicts of interest may shift the burden of proof back to the lender
Lessons from This Case Outcome
Clear documentation is essential. Lenders should keep detailed records of the sale process and decision-making.
Courts will consider market conditions and the condition of the asset when reviewing sales.
Borrowers with concerns about a proposed sale should engage early, rather than challenge after the sale.
Both parties should seek specialist legal and valuation advice in significant asset sales.
Practitioners should be aware that certain conflicts of interest, such as the lender purchasing the asset or related party involvement, can shift the burden of proof back to the mortgagee to justify the sale price.
This analysis is for general information only and does not constitute legal advice.
For specific guidance on mortgagee sales or security enforcement, please seek professional legal advice from our team at Orwins.
