Supreme Court Clarifies Lenders’ Duties in Hybrid Loan Cases
In the case of Waller-Edwards v One Savings Bank Plc, the UK Supreme Court considered whether a bank had been put on inquiry of undue influence in an instance of joint borrowing by a couple. The ruling marks a significant shift in how lenders must assess risk in hybrid loan arrangements, especially where one borrower may not benefit equally. In this article, we explain the background of the case, summarise the Supreme Court’s decision, and explore its implications for both borrowers and lenders.
Background: Joint Mortgage, Property Transfers, and Relationship Dynamics
Waller-Edwards v One Savings Bank Plc
Ms Waller-Edwards began a relationship with Mr Bishop, a builder constructing three houses. She owned a property worth £585,000 with no mortgage and had savings of £150,000.
During the relationship, she exchanged her property and savings to purchase 99% of one of Mr Bishop’s houses. The property was expected to be worth £750,000 once building works were completed. Two charges were registered on the new property: one in favour of a Mr Higgins for £78,000 and another in favour of Ms. Waller-Edwards to secure her £150,000 savings investment.
The property was subsequently remortgaged with One Savings Bank Plc for £384,000. The bank was told that the loan was for several purposes, including that around £39,500 would be for Mr Bishop’s sole benefit. In reality, £142,000 of the remaining balance was in fact used to pay Mr Bishop’s ex-wife as part of a divorce settlement.
The relationship ended, and Mr Bishop stopped paying the mortgage instalments. The mortgage defaulted, and the bank issued proceedings to seek possession of the property.
Ms Waller-Edwards defended the possession claim on the basis that there was undue influence from Mr Bishop to remortgage, arguing that the remortgage represented a new category of joint borrowing, a hybrid case. In cases where lending was being sought for a purpose not to the benefit of one of the borrowers, Ms Waller-Edwards argued lenders should be on inquiry of undue influence.
Lower court rulings on undue influence and lender liability
At first instance, the County Court found that Ms. Waller-Edwards was subject to undue influence by Mr Bishop but rejected that the bank should have been put on inquiry. The court held that the stated personal benefit to Mr Bishop of £39,500 was minor and was only an element of the loan. Following an initial appeal, the High Court agreed, and the Court of Appeal dismissed the second appeal on the basis of the benefit being trivial or de minimis.
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If you have entered into a loan or provided security and now believe you were pressured or misled, you may have grounds to challenge the agreement. Our specialist Banking and Finance Litigation team has extensive experience to assist you.
Make an EnquiryUK Supreme Court Ruling: When must lenders check for undue influence?
Ms Waller-Edwards exhausted the appeals process by appealing to the Supreme Court. The Court unanimously held that the traditional binary approach—where lenders are only put on inquiry in suretyship cases—is too simplistic. Instead, Lady Simler introduced a fact-sensitive test: lenders must assess whether the transaction was substantially for the benefit of both parties.
If not, and the relationship is non-commercial (e.g. romantic partners), the lender may be under a duty to ensure the borrower’s consent is properly obtained—typically by encouraging independent legal advice and confirming the borrower understands the risks.
The Supreme Court did not consider the amount of £39,500 which Mr Waller-Edwards had guaranteed to be de minimis and therefore allowed the appeal.
Why this Supreme Court decision matters for joint borrowers and lenders
This decision strengthens protections for individuals who:
- Entered into loans under pressure from a partner or family member;
- Provided security for someone else’s borrowing without clear benefit;
- Signed documents without fully understanding the implications.
It also places a greater responsibility on lenders to assess the true nature of the transaction and the relationship between the parties.
It has now been almost 2 years since the FCA’s Consumer Duty was implemented (Evidence of New FCA “Consumer Duty” Beginning to Bite). While this is a judicial ruling rather than a regulatory one, the decision demonstrates a continuing effort to hold lenders to account, particularly in circumstances of potential vulnerability.
How can Ellis Jones help?
If you have entered into a loan or provided security and now believe you were pressured or misled, you may have grounds to challenge the agreement. Our specialist Banking and Finance Litigation team has extensive experience in:
- Undue influence and misrepresentation claims;
- Disputes involving joint loans and secured lending;
- Reviewing lender conduct and legal compliance.
If you wish to discuss a potential instruction, please contact Tim McMahon, London-based Senior Associate in the Banking and Finance Litigation Department, on 01202 057737 or send an email to Tim.mcmahon@ellisjones.co.uk to discuss.
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