The Vietjet case: Security assignments and enforcement

Earlier this year, we examined the distinction between assignments and charges as security over contractual rights in real estate finance transactions (read more here). The issue of assignments as security was recently revisited by the Court of Appeal in the case of Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Ltd [2025] EWCA Civ 783, which highlighted the distinction between the rights of a security holder to exercise rights assigned to it under a security document and its rights on enforcement.

Background

The case centred around Vietjet, which had purchased aircraft using debt funding through special purpose vehicle borrowing entities (SPVs).  The SPVs then leased the aircraft back to Vietjet. The security trustee (on behalf of itself and the lenders) was granted a mortgage over the aircraft, together with an assignment by way of security from each borrower SPV over its rights under the leases.

The dispute

Vietjet defaulted on its rental payments and the security trustee served termination notices under the leases to terminate them for non-payment of rent. Vietjet argued that the termination notices were invalid because there had been no enforcement event under the finance documents and that the security trustee was therefore not entitled to exercise this right.

Court of Appeal decision

The Court of Appeal upheld the High Court’s decision that the termination notices under the leases were valid. The security document used standard assignment by way of security wording to assign the rights under the leases “absolutely and unconditionally by way of security to and in favour of the Security Trustee, in order to secure the payment, performance and discharge in full of all the Secured Obligations.” The security document separately set out the powers that the security trustee could exercise on enforcement (such as appointing a receiver and selling the assets), which were expressed to be without prejudice to any other rights conferred by the security documents or by law. The court emphasised that the assignment of rights to a lender by way of security and the enforcement of security are separate issues.

The court held that the assignment clause created the assignment by way of security, whereas the enforcement clause dealt with the enforcement of the security interest created by the assignment. These are distinct and separate issues. The rights under the leases were immediately assigned to the security trustee. The assignment was not conditional or qualified in any way and so the security trustee could immediately exercise the rights assigned to it, notwithstanding the fact that Vietjet was allowed to continue exercising its rights under the lease. The enforcement provisions were independent of the assignment clause and served to give the security trustee additional powers upon the occurrence of an enforcement event.

Key takeaways

The Vietjet case highlights that:

• The assignment of rights to a lender by way of security and the enforcement of security are separate issues.
• A security document should clearly state whether it is the intention of the parties for the lender to be able to exercise its assigned rights prior to the security becoming enforceable.
• If a borrower wants to ensure that the lender can only exercise those assigned rights following an enforcement event, it should seek to ensure that specific wording to that effect is included in the security document.
• Although notices of assignment often provide that the assignee can exercise rights after an event of default (which may imply that the assignee cannot do so before then), this should be explicitly reflected in the security document if that is the intended arrangement.

The Vietjet case serves as a reminder for lenders and borrowers alike to ensure that their security documents are carefully drafted to avoid any ambiguity regarding the exercise of assigned rights.