By Jasmine Yusuf
In a significant decision that reshapes how lenders assess risk in domestic loan arrangements, the UK
Supreme Court has delivered judgment in Waller-Edwards v OneSavings Bank Plc. The Court has
imposed a bright-line test for identifying when a lender is “put on inquiry” and therefore obliged to
ensure that a borrower, typically a spouse or partner, receives independent legal advice to guard
against undue influence.
The Core Issue: Hybrid Transactions and Undue Influence
At the heart of the appeal was the question of how lenders should approach non-commercial
“hybrid” transactions, where a loan is, on the face of it, partly for the joint benefit of both borrowers
(usually a couple), and partly for the sole benefit of one party, potentially to the financial detriment
of the other.
The issue for resolution, as framed by the Supreme Court, was to determine the correct legal test for
when a lender is put on inquiry (that one party’s agreement to the transaction may have been
obtained by undue influence) in these hybrid loan transactions. While straightforward guarantees of
another’s debt are clearly high-risk, these mixed-purpose arrangements are more common and can
present hidden dangers, especially where one partner may be pressuring the other.
The Transaction at the Centre of the Appeal
Ms Waller-Edwards had entered into a £384,000 remortgage with her partner, Mr Bishop. The bank,
OneSavings Bank Plc, believed the loan was for the joint purpose of purchasing another property and
paying off a previous mortgage. However, it also required Mr Bishop’s personal debts, a £25,000 car
loan and £14,500 in credit card debt, to be discharged as a condition of lending. This meant that
approximately 10% of the borrowing was for his exclusive benefit.
Unknown to the bank, Mr Bishop later used a further portion of the loan to make a payment to his
ex-wife, further undermining the integrity of the transaction.
At trial, the County Court found that Ms Waller-Edwards had entered into the transaction under the
undue influence of Mr Bishop, yet ruled that the bank was not put on inquiry. The High Court and
Court of Appeal upheld this view, holding that the inclusion of personal debts did not impose a duty
on the bank to take further steps. The Supreme Court overturned these rulings.
The Bright-Line Test: Clear Duty Where Disadvantage Is Apparent
In a decisive move, the Supreme Court rejected the lower courts’ more discretionary approach in
favour of a bright-line test. It held that where a lender is party to a non-commercial transaction and,
on the face of the documents, a more-than-trivial portion of the loan is being used to discharge one
party’s personal debts, the lender is automatically put on inquiry.
This test removes the need for the bank to assess whether the transaction might ultimately benefit
the other party in some indirect or subjective way. The Court clarified that benefit is irrelevant; what
matters is whether one party is assuming a legal liability for another’s debt without consideration, a
classic red flag for potential undue influence.
In such cases, lenders must comply with the Royal Bank of Scotland v Etridge (No 2) protocol, most
notably by ensuring the vulnerable party receives independent legal advice. As Lord Briggs noted,
this is not an onerous requirement, but rather a minimal safeguard to protect borrowers and limit
the risk of future disputes.
The Broader Impact: Clarity for Banks, Protection for Borrowers
This judgment not only reinforces the core principles of Etridge but also enhances the protection
available to individuals who may be vulnerable to coercion or manipulation in financial dealings with
a partner. For banks, it sets a clear compliance standard; for borrowers, particularly in domestic
relationships, it provides a stronger legal shield against being drawn into liabilities that they did not
freely or properly consent to.
At the heart of this protection is the requirement for independent legal advice (ILA). The Supreme
Court’s reaffirmation of this safeguard highlights its crucial role in ensuring that parties to a
transaction fully understand the legal and financial implications of what they are signing. It is not
merely a box-ticking exercise, it is a cornerstone of informed consent and autonomy, particularly in
high-risk contexts involving family members, partners, or significant personal obligations.
Disclaimer:
This article is for informational purposes only and does not constitute legal or financial advice. The
information is accurate as of 13 June 2025 and may be subject to change after this date. Readers
should consult qualified professionals for advice tailored to their circumstances.
