Privy Council clarifies secured party’s duty when realising security

^{Gart O’Finlayson & another v Caterpillar Financial Services Corporation [2025] UKPC 24}

The Privy Council has clarified that the duty of care to "obtain the best price reasonably obtainable" in the sale of secured collateral does not require a secured party to improve an asset before sale to obtain the best possible price. Unless there is a conflict of interest inherent in the sale, the onus is on the borrower/guarantor to establish that the secured party was in breach of its duty to obtain the best price reasonably obtainable.

This decision narrows the grounds on which a claimant can challenge a valuation in an enforcement process, providing reassurance to lenders handling distressed or high-value assets.

Overview of the case

The case involved two guarantors under a loan agreement for the purposes of financing the construction of a 147-ft yacht named the 'Maratani X'. Security was taken over the Maratani X for repayment of the loan. After the borrower defaulted on the loan, the yacht was arrested in Florida in poor condition. The lender obtained a U.S. court order (the Order) permitting repairs and, despite a spend of approximately $700,000 on the repairs, the vessel remained unseaworthy. It was subsequently sold on an "as is, where is," basis for $2,700,000, leaving a shortfall of $2,763,474.89 outstanding under the loan for which proceedings were issued against the guarantors.

The key arguments made by the guarantors were that:

• the secured party had failed to comply with its duty to take reasonable precautions to obtain the best price reasonably obtainable at the time of the sale of the Maratani X 
• the Maratani X had been sold at an undervalue
• if the secured party had complied with its duty and had obtained the best price reasonably obtainable then all the monies owed would have been recovered on the sale of the Maratani X and
• therefore, the guarantors had no liability under their guarantees.

Key points from the decision

• Scope of duty of care – whilst the Maratani X had been sold on an "as is, where is," basis, a survey report valued the yacht on a forced sale at $4,500,000 if it could pass a sea trial. The guarantors claimed that the secured party was obliged by its duty and the Order to undertake such repairs to meet this higher valuation. The Privy Council upheld that the duty does not oblige a secured party to improve an asset before sale to achieve the best possible price. The secured party is only obliged to take such steps as are reasonable in the circumstances.
  
  
• Burden of proof – the guarantors had not called any expert evidence to establish any breach of duty by the secured party. The burden is on the guarantors to establish that the secured party was in breach of its duty to obtain the best price reasonably obtainable. Absent any conflict of interest (eg, a sale to a related entity), it is for the guarantors to show this duty was breached.

In conclusion, the Privy Council dismissed the final appeal and found in favour of the secured party.

Why does this decision matter in Guernsey?

Although not decided in the Guernsey Courts or involving any Guernsey entities,  this decision could be persuasive in the Guernsey courts. That is because the duty to obtain "the best price reasonably obtainable" on the sale of secured assets is also imposed on a secured party under section 7(5)(a)(ii) of the Security Interests (Guernsey) Law, 1993 when enforcing security created under that law. 

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