Another junior creditor challenge to senior creditor enforcement: CPF One Limited & anor v Ortus Secured Finance I Limited

04 January 2024

Subsequent to the High Court’s decision in Galapagos Bidco S.à r.l. v Dr Frank Kebekus [2023] WHC 13931 (Ch) (for more on which see our commentary), the High Court dismissed yet another claim brought by a junior creditor in the context of a senior creditor enforcement. The case of CPF One Limited & anor v Ortus Secured Finance I Limited [2023] EWHC 2102 (Ch) considers the duties owed by a senior participant and security trustee to a junior participant in a syndicated loan arrangement. Based on the facts of the case, the High Court held that, amongst other things, the defendants did not owe the claimants any fiduciary or equitable duties akin to those of a mortgagee when exercising a power of sale, or any duty of care.

The facts of the case

The claim arose from a £2.75m bridging loan that the first claimant, CPF One Limited (CPF) had agreed to provide to the borrower to refinance a property (the Property). The loan was structured as a syndicated loan with the first defendant, OSF (UK) II Limited (OSF) as the senior participant and the second claimant, FFF Capital Limited as the junior participant (FFF, together with CPF, the Claimants). The security included a charge over the Property in favour of CPF as security trustee, who was appointed pursuant to a security trust deed to hold the security on trust for each participant.

The security trust deed stated that the security trustee was to act in accordance with the instructions of OSF as the senior participant (with FFF having no such rights of instruction), and for OSF to have priority in the repayment of its share of the debt. When the borrower defaulted on the loan, OSF replaced CPF as security trustee with the second defendant, Ortus Secured Finance I Limited (Ortus). Ortus, acting on OSF's instructions, accepted a proposal by the borrower to pay £3.5m in full and final settlement of the debt and released the security. This resulted in OSF recovering the majority of its commitment but left FFF, as the junior participant, with no recovery.

The Claimants alleged that in exercising its powers as senior participant, OSF, and Ortus as its agent, owed the Claimants the fiduciary and/or equitable duties akin to those of a mortgagee when exercising a power of sale. The Claimants argued that OSF had failed to obtain the best price reasonably obtainable for the Property (on the basis that the Property was allegedly worth at least £5.7m) and this caused loss to the Claimants as “subsequent mortgagees”. The Claimants also alleged that Ortus as security trustee owed FFF a duty of care and was required to take FFF’s interests into account in relation to the settlement of the debt and the release of the security.

Findings of the High Court

The High Court rejected the Claimants' case. It held that the Claimants' attempt to invoke the equitable duty owed by a mortgagee to a subsequent encumbrancer with an interest in the equity of redemption was contrary to the facts and the well-established limits of that duty (such duty being a narrow one limited both as to the circumstances and as to the range of parties to whom it is owed).

 The High Court found that:

  1. neither CPF nor FFF were subsequent encumbrancers because there was only one charge held by the security trustee (in order for the Claimants to be subsequent encumbrancers, there would need to be separate charges, one having priority over the other);
  2. there was no exercise of a power of sale because, by entering into the settlement agreement, Ortus desisted from enforcing the charge;
  3. the Claimants had not identified any source of the duties they alleged; and 
  4. in the absence of any provision in the security trust deed imposing such a duty, the fact that FFF might suffer a loss as a result of the settlement was not enough to warrant the imposition of the duty. Further, the High Court held that Ortus was not required to consider FFF’s interests and did not owe a duty of care to FFF on the basis that the security trust deed was drafted in mandatory and unqualified terms - Ortus was under a duty to comply with OSF’s instructions to settle the debt and release the security.


This case illustrates the difficulty of imposing additional duties on senior lenders (and their agents), particularly in the context of syndicated lending between sophisticated commercial parties where such duties are not expressly provided for in the contractual arrangements. The decision also confirms the narrow scope and application of the mortgagee's duty to obtain the best price reasonably obtainable for the secured asset, and the limited circumstances in which, and the range of parties to whom, that duty is owed.

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