Joel Leigh, partner in the Howard Kennedy Civil Dispute Resolution Team, acted for the successful Appellant, Catherine Waller-Edwards ("Catherine") in Waller-Edwards v One Savings Bank Plc.
For a full background to the case, the legal principles at play, and the position as at the time of the Supreme Court hearing on 27 February 2025, see the earlier article written and published by Joel and Jim Fairlie here.
At the time of our last article judgment was still outstanding. It has now been handed down and we are pleased to report that Catherine was successful, in what is a landmark decision for the law around undue influence. We summarise below both the outcome and implications for the future.
Recap
- Undue influence arises where one party abuses a relationship of trust to induce another into a contract. Such contracts are voidable and may be rescinded by the courts, restoring the influenced party to their original position.
- This becomes more complex in tri-party lending cases, where a lender may be unaware that one joint borrower has only agreed to the transaction due to the undue influence of the other.
- A line of authority, most notably O’Brien, Etridge, and Pitt [1], has developed to address this. These cases distinguish between
(1) Surety relationships, where one party guarantees another’s debt and the lender is put on inquiry if there is no apparent benefit; and
(2) Joint borrowing relationships, where both parties are liable and benefit, and the lender is not put on inquiry. - Until Catherine's claim, the courts had not recognised “hybrid” transactions, those involving both joint borrowing and surety elements.
- Catherine sought to set aside a 2013 mortgage over her jointly owned home, granted in return for a £384,000 loan. While most of the loan was ostensibly for joint purposes, £39,000 was used to repay her ex-partner Mr Bishop’s personal credit card debts [2].
- The case raised the novel issue of whether a lender is put on inquiry in hybrid transactions, where the influenced borrower is both co-beneficiary and guarantor of the other’s liabilities.
- At first instance, HHJ Mitchell accepted that undue influence had occurred but held the Bank was not put on inquiry, classifying the loan as a joint advance under the Etridge/Pitt framework.
- The High Court and Court of Appeal upheld that decision, but introduced a new “fact and degree” test to assess whether the surety element was substantial enough to trigger the lender’s duty. In Catherine’s case, they held the £39,000 component was insufficient.
- Catherine’s final appeal to the Supreme Court argued for a clearer, lower threshold: that any non-trivial surety element should suffice to put a lender on inquiry; a so called "bright line" test that would offer meaningful protection to vulnerable borrowers.
Supreme Court Judgment
The Supreme Court has now brought long-overdue clarity to the treatment of hybrid transactions. In a unanimous judgment, it allowed Catherine’s appeal and held that where a non-commercial loan includes a more than de minimis surety element, the lender is put on inquiry. The Court rejected the “fact and degree” test adopted by the lower courts, finding it inconsistent with the framework established in O’Brien, Pitt, and Etridge. Once a lender is on inquiry, the steps it must take are fixed. It follows that the threshold for being put on inquiry must also be fixed. A sliding scale of obligations based on lenders' subjective assessment of risk (which would follow if the "fact and degree" test applied) was not the correct approach.
The Court reaffirmed that the rationale for putting lenders on inquiry in surety cases is the heightened risk of undue influence where one party assumes liability for another’s debts without clear benefit. That risk is not reduced simply because the transaction also includes joint borrowing, regardless of whether the surety element is a far smaller part of the overall transaction (unless the surety element is trivial/de minimis). The Court was critical of the Court of Appeal’s focus on the loan’s purpose or indirect benefits to Catherine; matters that are neither apparent to the lender nor relevant to the inquiry trigger. What matters is what is on the face of the transaction: if one party is assuming liability for another’s debts without obvious advantage, the lender must act.
Anything more than a trivial surety element is sufficient enough to put a lender on inquiry of the risk of undue influence, and consequently require the lender to take steps to address the risk, and follow the Etridge Protocol; a series of measures aimed at ensuring the borrower placed at a disadvantage is fully versed of the risks which they are undertaking and are nonetheless content to proceed.
The Court also found Catherine’s proposed test to be more practical. It rejected the Bank’s argument that the de minimis threshold would be burdensome or disruptive. On the contrary, it held that a bright line rule is simpler, more predictable, and easier to implement. Many lenders already follow this approach. Furthermore, The Court was keen to emphasise that this duty on lenders, to follow the Etridge Protocol when put on inquiry, was not overly burdensome and, all things considered, were relatively easy measures to comply with. Measures which lenders are, in this day and age, well aware of and no difficulty following in the more "clear-cut" pure surety type transactions. Indeed, the Court added that developments in information technology since the 2001 Etridge judgment would surely make these measures even easier to comply with. No evidence was presented to show that the fact and degree test had been widely adopted, or that the bright line test would cause systemic disruption. The Court concluded that the new rule would reduce litigation, promote certainty, and better protect vulnerable borrowers, all while imposing only a modest burden on lenders.
Conclusions
The Supreme Court’s decision is a landmark development in the law of undue influence, the most significant since Etridge. It is remarkable that hybrid transactions have gone unrecognised for so long, and that a workable test has only now been confirmed. While some lenders may have already adopted a cautious approach, the absence of formal recognition likely left many vulnerable individuals without recourse. These were people who, dependent on a partner who abused their trust, were drawn into transactions that left them financially exposed. Many will have lost homes, creditworthiness, and stability and lacked the means or confidence to challenge it. Even those prepared to challenge such contracts would have faced an uphill battle, because without any legal recognition of "hybrid" transactions, claims were doomed to fail unless (as in Catherine's case) taken to the highest court in the land. The Supreme Court’s judgment delivers long-overdue clarity and a vital safeguard: from now on, in any non-commercial hybrid transaction, a more than de minimis surety element is enough to put a lender on inquiry and require compliance with the Etridge protocol.
Catherine’s fight has not only secured justice for her but has reshaped the legal landscape, extending meaningful protection to both men and women at risk of economic abuse within their personal relationships.
Howard Kennedy instructed Julian Malins KC (Malins Chambers) and Marc Beaumont (Windsor Chambers). Marc also appeared on a direct access basis for Catherine at all stages below the Supreme Court.
[1] Barclays Bank plc v O’Brien [1994] 1 AC 180
Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44
CIBC Mortgages plc v Pitt [1993] UKHL 7
[2] A further £142,000 of the loan was not, in fact, used for joint purposes and was again used for Mr Bishop's own purposes, to pay debts to his ex-wife in connection with a divorce settlement. However, this was unbeknownst to the Bank at the time and, quite rightly, it could not have been put on inquiry by something only learnt long after the transaction had completed.
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