Waller-Edwards (Appellant) v One Savings Bank Plc (Respondent) [2025] UKSC (22) has brought much-needed lucidity to the application of the Etridge protocol as regards non-commercial relationships involving hybrid surety and joint borrowing transactions.
The facts of the case are these. The appellant, Ms Waller-Edwards, began a relationship with Nicholas Bishop, a property developer, in 2011. She was financially independent at the time, owning her own mortgage-free home valued at about £600,000 and receiving pension income of £7,000 per annum. She had savings of £150,000. Bishop was in the process of building a property expected to be valued at about £750,000 on completion. In 2012, he persuaded her to exchange her home and savings for that property. The property was already subject to a charge securing a debt of £78,000 owed by Bishop to a Mr Higgins. Waller-Edwards was given a second charge over the property to secure her £150,000. The first charge was increased on three later occasions to £220,000. In December 2012 the legal title was put into joint names with a declaration of trust stating that the beneficial interest was held by the appellant as to 99% and Bishop as to 1% as tenants in common.
In 2013, Bishop remortgaged the property for £440,000 with One Savings Bank. It was the bank’s understanding that the loan was to pay off an existing mortgage debt and to purchase another property. This remortgage would be a buy-to-let mortgage, and the property would be let out at a rent sufficient to repay the instalments on the remortgage (this became a condition of the loan). The bank understood that £233,000 of the loan would be used to pay off the existing mortgage and £100,000 would be used to buy a home for the couple. The bank required Bishop to pay off his existing debts so that £25,000 would be used to settle his car loan and £14,500 would pay off his credit card. This £39,500 constituted the debt for which the surety was required as part of the joint loan.
The bank was unaware that £142,000 of the £384,000 advance was used to make a divorce payment to Bishop’s ex-wife and £233,000 was used to pay off the Higgins charge. The bank was also unaware of the declaration of trust. Following the completion of the remortgage in October 2013, the couple’s relationship ended. Bishop moved out of the property but did not have sufficient funds to service the remortgage payments. They fell into arrears and the bank commenced possession proceedings in November 2021. The appellant argued that she was a surety (guarantor) for part of the loan to pay off Bishop’s debts and so the bank was ‘put on inquiry’ that her agreement to the transaction may have been obtained by undue influence. Since the bank failed to take steps to be satisfied that her agreement to stand surety had been obtained in full knowledge of the liability she was taking on, in accordance with the Etridge protocol, she argued that the transaction should be set aside as between her and the bank.
The Supreme Court unanimously agreed. It held that a creditor is put on inquiry in any non-commercial hybrid transaction where, on the face of the transaction, there is a more than de minimis (that is, trivial) element of borrowing which serves to discharge the debts of one of the borrowers and so might not be to the financial advantage of the other. The transaction must be viewed from the bank’s perspective. Such a transaction, if viewed in this way, should be regarded as a ‘surety’ transaction and the creditor placed on inquiry of the possibility of undue influence. The steps set out in the Etridge protocol must then be taken:
- The bank must communicate directly with (in that case) the wife, informing her that for her own protection, it will require written confirmation from a solicitor, acting for her, to the effect that the solicitor has fully explained to her the nature of the transaction and its practical implications for her so that she will not be able to dispute that she is legally bound by the transaction once the surety documents are signed.
- The bank must ask the wife to nominate a solicitor she is willing to instruct, separately from her husband, and act for her in giving the necessary confirmation to the bank; that solicitor may be the same solicitor who is acting for the husband but if a solicitor is already acting, she should be asked whether she would prefer a different solicitor.
- Etridge also provided that the bank should not proceed with the transaction until it has received an appropriate response directly from the wife. The bank should provide information to the wife about the husband’s financial affairs, either directly or through solicitors, and if consent from the husband to do so is not forthcoming, the transaction cannot proceed.
The court concluded in Etridge that the risk that the wife’s consent has been procured by undue influence or misrepresentation will not be eliminated by compliance with the protocol but those steps are liable to reduce it to a level which makes it appropriate for a lender to proceed.
Waller-Edwards should help lenders in completing their lending due diligence. The judgment also referenced a report published by the Financial Conduct Authority which suggests that as many as one in six women in the UK has experienced financial abuse by a current or former intimate partner. Extending the Etridge protocol to ensure that borrowers are advised to take independent legal advice in such hybrid cases is not only in line with societal changes but also offers further protection to vulnerable clients.
Ann Stanyer is a consultant in the private client team at Wedlake Bell LLP, London
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