High Court considers termination and enforcement of security rights in context of default on loan agreement

The High Court has found in favour of a lender in its claim against a dissolved airline business for sums due under a loan facility agreement (which was secured by an aircraft mortgage): Lombard North Central plc v European Skyjets Ltd [2022] EWHC 728 (QB).

This decision will be of broader interest to financial institutions seeking to accelerate a loan and enforce security. It is a useful reminder that a creditor’s conduct, for example by accepting late payments or offering more time for outstanding payments to be made, may be held to waive an event of default.

In the present case, the lender was found to have waived its right to rely on the borrower’s payment default (because of conduct outlined above), despite the inclusion of a “no waiver” clause in the loan agreement, and the use of reservation of rights language in communications with the borrower. While the lender’s acceleration notice under the loan agreement referred to the payment default only (in respect of which the right to terminate had been waived), the court held that – on the construction of the loan agreement in question – the notice was valid because of an alternative event of default which had occurred (including a subjective material adverse change). Neither the loan agreement nor the mortgage (as drafted) required the relevant event of default to be specified in the notice, and such a requirement could not be implied in the circumstances of this case.

The court also confirmed that the lender’s right to accelerate the loan was not subject to the so-called Braganza duty, derived from the Supreme Court’s decision in Braganza v BP Shipping Ltd [2015] UKSC 17, i.e. the lender’s discretion was not required to be exercised in a way which was not arbitrary, capricious or irrational in the public law sense.

We consider the decision in more detail below.


In 2008, Lombard North Central Plc (the Lender) lent approximately USD 8.8 million to European Skyjets Limited (the Borrower) for the purchase of an aircraft, pursuant to a loan agreement (the Loan Agreement). The loan was to be repaid in monthly instalments. By way of security, the Lender acquired a first priority legal charge over the aircraft.

In October 2009, the Borrower failed to make the first payment due under the Loan Agreement. Between October 2009 and October 2011, there were a series of further payment related defaults. However, during that time, the Borrower also periodically cleared the payment arrears, although it subsequently went into payment default again at various points. After lengthy restructuring related discussions, which included the Lender obtaining third party advice from an accounting firm, the Loan Agreement was terminated and the loan accelerated by the Lender serving a notice (the Notice) in November 2012. The Borrower subsequently went into administration.

In due course, the Lender brought a claim against the Borrower for the outstanding balance of some USD 5.8 million. The Lender’s case was that it had validly terminated the Loan Agreement, and thereafter validly enforced its security over the aircraft by selling it for USD 3.1 million.

The Borrower denied the claim. The Borrower’s case was that the Lender had no entitlement to terminate the Loan Agreement or to sell the aircraft, and that in any event the Lender had breached its duties as mortgagee when selling the aircraft. The Borrower brought a counterclaim for damages in the sum of GBP 26 million for breach of contract and/or conversion.


The court found in favour of the Lender, holding that the Lender had validly accelerated and terminated the Loan Agreement and thereby became entitled to enforce the security in respect of the outstanding balance of the loan. There also had been no breach by the Lender of its equitable duty to obtain the best price reasonably obtainable for the aircraft.

The key issues which may be of interest to financial institutions from the decision are set out below.


1) Did the Lender waive its right to rely on the Borrower’s default in the payment of principal or interest or any other sum payable as an event of default so as to terminate the Loan Agreement?

The court found that the Lender had waived its right to rely on this event of default through its conduct, notwithstanding the inclusion of common contractual “no waiver” language and the use of reservation of rights language in communications with the borrower.

The court noted that as a matter of construction, the relevant provisions in the Loan Agreement did not require the relevant event of default to be continuing; instead, an event of default simply had to have occurred in order for the loan to be accelerated (as per Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850). However, the court acknowledged that its finding on the absence of a need for a continuing default could give rise to a relatively severe effect on parties in the position of the Borrower. Namely, a creditor might sit on the right of termination arising from an instalment which was paid late, only to exercise its right of termination much later.

The court commented that this could be addressed by the doctrine of waiver (or estoppel). In cases of waiver, the conduct of the creditor in the period after receipt of the late payment may be held to have waived any right to terminate on account of that late payment. In the present case, the court found that the Lender’s conduct and statements, in accepting late payment of various instalments, offering further time for the balance of the outstanding payment to be paid by a specific date and adding late payment charges to the amounts said to be due from the Borrower, was consistent with the Lender having waived its right to terminate the Loan Agreement based on the event of default by that date.

The court also considered the effect of a “no waiver” clause in the Loan Agreement, and also a statement in an e-mail sent by a representative of the Lender to the Borrower purporting to reserve its rights in relation to the event of default. The “no waiver” clause provided that a failure or delay in exercising a right on the part of the Lender would not operate as a waiver, and the reservation of rights wording indicated that the Lender’s rights were generally reserved in relation to identified breaches of the Loan Agreement.

Here, it was not the failure or delay to exercise a right which resulted in a waiver, but the positive assertions said to arise from the late payments in which the Lender had indicated that it would not enforce the event of default if payments were subsequently brought up to date. As to the reservation of rights, as per SK Shipping Europe Plc v Capital VLCC 3 Corp [2020] EWHC 3448 (Comm), the court noted that a statement in an email reserving rights could not prevent an affirmatory act, which would amount to a waiver and thereby effectively trump the reservation of rights. That was the case here.

2) Could the Lender rely on another event of default not specified in the Notice?

The court found that although the Notice did not specify the correct events of default, this did not impugn the notice, and it had been validly given.

The court noted that the Loan Agreement required that the Notice must (i) be sent after the occurrence of an event of default and (ii) cancel the facility and require the Borrower to immediately repay the loan together with the accrued interest and all other sums payable under the Loan Agreement. The related mortgage had a similar provision which required notice to be given after the occurrence of an event of default.

As per Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19, a party exercising its contractual right of termination by notice must strictly comply with any conditions relating to the exercise of that right. Neither the Loan Agreement nor the mortgage required the relevant event of default to be specified in the Notice, and such a requirement ought not to be implied. This was not a case where there was a cure period, such that it could be said the borrower needed to know what the default was to address it. Furthermore, as per Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 352, 364, it was possible to terminate an agreement without identifying (or correctly identifying) the breaches justifying termination. Similarly, the court said there was ample authority, as per Byblos Bank SAL v Al-Khudhairy [1986] 2 BCC 99,548 and Brampton Manor (Leisure) Ltd v McLean [2007] BCC 640, that a bank was able to accelerate a debt and appoint a receiver where it relied on a default which had not been invoked prior to the appointment.

3) Was there a material adverse effect on the Borrower’s position giving rise to an event of default?

The court found there had been a subjective material adverse change which gave rise to an event of default.

The court noted that the Loan Agreement provided that there would be an event of default if “in the opinion of the Lender, a material adverse change occurs in the business, assets, condition, operations or prospects of any Group Company or any Credit Support Provider.

The court accepted that for the purposes of that clause it was necessary for the court to be satisfied that the Lender formed the requisite opinion at the time (and that the opinion was honest and rational) but unnecessary objectively for the event of circumstance relied upon to have had an adverse effect (as per Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 2). This would need to be the case at the time it served the Notice (as per Plantation Holdings (FZ) LLC v Dubai Islamic Bank PJSC [2017] EWHC 520 (Comm)).

The court highlighted that the Lender had previously been told by the principal of the Borrower’s group, that it required a certain level of net revenue to break even and meet the loan repayments over 10 years, it had recently achieved net profits and was forecasting to do the same and that the principal had substantial net assets.

However, the court said the evidence (from the relevant account manager at the Lender) showed that the Lender honestly believed at the time the Notice was served that there had been a material adverse change in the Borrower’s position, and this was objectively an entirely reasonable position. The account manager had raised the need for an investigation into the position of the Borrower. The investigation by a third-party accounting firm revealed that the Borrower’s management accounts showed trading losses for four months, the performance of the Borrower’s group was far below budget performance and that the business was insolvent on a cash flow basis. Following receipt of that report, the account manager had also made clear in an internal communication that he endorsed that assessment and that the short- and long-term forecasts had shown that the Borrower’s group was not viable at that time and would in the future be unable to service its facilities.

4) Was the Lender precluded from terminating by a contractual duty of good faith?

The court highlighted that the occurrence of an event of default giving the Lender a right of termination was not a contractual discretion to which the Braganza duties applied.

The court noted that, as per TAQA Bratani Limited v Rockrose UKCS8 LLC [2020] EWHC 58 (Comm), that the Lender’s right of termination was an absolute one, which could be exercised by the Lender for its own purposes as it saw fit (and therefore was not subject to a Braganza style fetter).

Sale of aircraft

The court found that there had been no breach by the Lender of its equitable duty to obtain the best price reasonably obtainable for the aircraft.

The court acknowledged that, as per Silven Properties v Royal Bank of Scotland [2003] EWCA Civ 1409 and Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] EWCA Civ 9, the Lender owed the Borrower an equitable duty to obtain the best price reasonably obtainable for the aircraft, that this involved the exercise of an informed judgment and that provided that the Lender as mortgagee went about the exercise of its judgment in a reasonable way it would not be held to be in breach of duty.

The court said that it was not persuaded that the Lender had breached its duty as mortgagee by: (i) keeping the aircraft in situ (rather than flying it to a cheaper location to store or where there would have been less risk of corrosion): and (ii) acting as it did in the sales process of the aircraft, e.g. by appointing a certain sales broker to conduct the process, not advertising the aircraft in trade journals, and refusing to deal with intermediaries seeking commission.

Further, the court said that even if there had been a breach of duty to take reasonable steps to realise the best value of the aircraft it was persuaded that, when it had regard to the fact that aircraft was being sold by a mortgagee in possession after a lengthy period on the market, the sale price fell within the range of reasonable market values.

Accordingly, for all the reasons above, the court found in favour of the lender.