When a $9.68 Million Yacht Loan Goes Wrong: Major Privy Council Ruling on Mortgagee Sales

A luxury yacht, a multi-million pound shortfall, and a failed legal challenge that reached the UK’s highest court.

The Finlayson family thought they were sailing off into the sunset but in the end they were cast adrift in an important recent case relating to security over their yacht. After their lender sold their 147-foot luxury yacht for just $2.43 million – leaving them personally liable for over $2.7 million in remaining debt – they claimed the sale was “unreasonable, reckless, negligent and prejudicial.”

They were wrong.

The Privy Council’s recent decision in Finlayson v Caterpillar Financial Services Corp [2025] UKPC 24 has just delivered crucial guidance that every property and secured lending lawyer, lender (bridging or term), and borrower should be aware of to understand the basis of challenging mortgagee sales.

The High-Stakes 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.

When they defaulted, Caterpillar took possession, invested $1.7 million in essential repairs, and sold the vessel in 2016. The sale price seemed catastrophically low compared to the original loan, creating exactly the kind of scenario that fuels litigation.

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

This challenge went through the Bahamian courts before reaching the Privy Council as the final appellate court.

Key Legal Principle

The central issue was: What is the burden of proof when borrowers claim a lender breached its duty as mortgagee in possession?

The Decision

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.

Importantly, the case reinforced that the burden remained on the borrowers to prove breach of the lender’s duty, with no circumstances arising that would shift this burden back to the mortgagee.

Practical Implications

For Lenders:

• Confirms the established duty to take reasonable care when selling secured assets
• Reinforces that proper process and market-based sales will typically satisfy this duty
• Shows courts will consider the practical realities of asset condition and market circumstances

For Borrowers:

• Demonstrates the significant evidential burden when challenging mortgagee sales
• Highlights that proving undervalue requires more than simply showing a low sale price
• Emphasises the importance of engaging early in the sale process if concerns exist

For Lawyers:

• Confirms the continuing relevance of established mortgagee sale principles
• Shows the Privy Council’s approach to burden of proof in these disputes
• Provides guidance on the standard of evidence required to successfully challenge a mortgagee sale
• Highlights the importance of identifying any conflicts of interest that might shift burden of proof back to the lender

Takeaways

1. Documentation is crucial – lenders should maintain clear records of their sale process and decision-making
2. Market conditions matter – courts will consider the broader context, including asset condition and market circumstances
3. Early engagement advised – borrowers concerned about proposed sales should engage early rather than challenge retrospectively
4. Professional advice essential – both parties should seek specialist legal and valuation advice in significant asset sales
5. Conflict of interest considerations – practitioners should be aware that certain conflicts of interest (such as the lender purchasing the asset or having 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.