Waller-Edwards v One Savings Bank Plc [2025] UKSC 22 (04 June 2025)

Mrs Waller-Edwards remortgaged her home jointly with her partner, partly to discharge his personal debts. She later claimed undue influence. The Supreme Court held that banks are put on inquiry whenever any non-trivial portion of a non-commercial loan serves to discharge one party's debts, requiring independent legal advice.

Facts

Catherine Waller-Edwards entered a relationship with Nicholas Bishop in 2011 when she was emotionally vulnerable. She owned a mortgage-free home valued at approximately £600,000 and had savings of £150,000. Through a series of transactions, Mr Bishop persuaded her to exchange her property and savings for a property called Spectrum, which was already subject to existing charges. In 2013, Mr Bishop sought to remortgage Spectrum for £440,000 with One Savings Bank Plc. The bank understood the loan would partly refinance existing debt, purchase another property, and pay off Mr Bishop’s personal car loan (£25,000) and credit card debt (£14,500). The appellant signed the remortgage documents under Mr Bishop’s undue influence, a finding unchallenged on appeal.

The Hybrid Transaction

The transaction was a ‘hybrid’ involving both joint borrowing and a surety element, where approximately £39,500 (just over 10% of the loan) was used to pay off Mr Bishop’s personal debts, with the appellant taking on liability for debts that were not hers.

Issues

The central issue was identifying the correct legal test for determining when a lender is put on inquiry in a non-commercial hybrid loan transaction involving both joint borrowing and surety elements.

Competing Tests

The appellant contended for a bright line test: a bank is put on inquiry whenever there is any more than de minimis element of suretyship in a non-commercial transaction. The respondent bank defended the Court of Appeal’s ‘fact and degree’ approach, which required examining the transaction as a whole to determine whether, overall, the loan was for one party’s purposes rather than joint purposes.

Judgment

The Supreme Court unanimously allowed the appeal, holding that the bright line test is the correct approach.

Rationale for the Bright Line Test

Lady Simler, delivering the judgment with which all other Justices agreed, held that the approach in O’Brien, Pitt and Etridge No 2 was explicitly binary. A lender is either on notice of the risk of undue influence or not; if on notice, the Etridge protocol must be followed. There is no spectrum of steps varying with levels of risk.

The court emphasised that the level of risk presented by a surety transaction remains the same whether accompanied by joint borrowing or not. The hybrid element does not reduce that risk. The relevant question is whether the wife has gratuitously taken on a legal liability for debts that are not hers, which is apparent from the face of the transaction.

Lady Simler stated that this approach accords with the need for clear, simple and practically operable requirements, assisting banks to implement procedures without requiring exercises of judgment by officials. She noted that the de minimis principle is well-established and courts have little difficulty identifying what falls within it.

Rejection of the Fact and Degree Approach

The court rejected the Court of Appeal’s focus on the purpose for which the loan was used, noting that what matters is whether the wife has taken on legal liability for debts not hers, not whether she might have benefited from the money loaned. The court also rejected concerns that the bright line test would be onerous, noting that compliance with the Etridge protocol was described as modest by Lord Nicholls and developments in technology have reduced this burden further.

Implications

This decision provides important clarification for non-commercial hybrid lending transactions. Banks and other lenders are now put on inquiry in any non-commercial transaction where, on its face, there is a more than de minimis element of borrowing serving to discharge the debts of one borrower and thus potentially not to the financial advantage of the other. When on inquiry, lenders must follow the Etridge protocol, requiring them to ensure the potentially vulnerable party receives independent legal advice about the nature and implications of the transaction.

Practical Consequences

The decision maintains the policy balance established in the O’Brien/Etridge line of authority between protecting vulnerable parties from exploitation in domestic relationships whilst not imposing unreasonable burdens on lending. The court acknowledged the continuing prevalence of economic abuse between intimate partners, citing Financial Conduct Authority reports and legislative developments recognising economic abuse as domestic abuse.

The case will be remitted for consideration of remedy, as the consequences of the bank being put on inquiry must still be determined.

Verdict: Appeal allowed. The Supreme Court held that the correct test for determining when a lender is put on inquiry in a non-commercial hybrid loan transaction is a bright line test: a lender is put on inquiry whenever there is any more than de minimis element of suretyship apparent on the face of the transaction. The case was remitted to the county court for further consideration of remedy.

Source: Waller-Edwards v One Savings Bank Plc [2025] UKSC 22 (04 June 2025)