Catherine Waller-Edwards v One Savings Bank PLC

A non-commercial relationship between co-borrowers does not, by itself, put a mortgage lender on inquiry about undue influence. The O’Brien principles require a surety-and-debtor element, assessed by reference to the transaction as a whole.

Those principles can apply to a partial surety case. The question is fact-sensitive. The court should consider whether the transaction, as known or reasonably understood by the lender, was not to the financial advantage of the alleged surety. A numerical comparison of the relevant borrowing is insufficient.

For section 199 of the Law of Property Act 1925, information acquired by solicitors under the borrower’s retainer is not treated as acquired again under a later lender retainer. A duty to report information to the lender does not alter the retainer by which the information was acquired.

The respondent lender obtained possession of property charged as security for a loan made jointly to the appellant and her former partner. The appellant accepted that her consent to the charge had been procured by his undue influence, but contended that the lender was put on inquiry and had constructive notice of that undue influence.

The County Court held that the transaction was principally a joint remortgage, with only a limited part of the advance used to discharge the partner’s personal debts. It held that the lender was not put on inquiry. It also held that section 199(1)(ii)(b) of the Law of Property Act 1925 prevented knowledge held by the parties’ solicitor from being imputed to the lender. The appeal concerned those two conclusions.

1. Appeal dismissed. The County Court’s possession and money orders remained undisturbed.
2. A lender is not put on inquiry merely because it knows that co-borrowers have a non-commercial relationship. There must also be an effective surety-and-debtor relationship. The relevant inquiry is whether the transaction, viewed as a whole and as known or reasonably understood by the lender, was not to the financial advantage of the alleged surety: per the principles in Barclays Bank v O’Brien, CIBC Mortgages v Pitt and Royal Bank of Scotland v Etridge (No. 2).
3. The principles are capable of applying where the alleged surety supports only part of the mortgage advance. Whether there is a sufficient partial surety element is a matter of fact and degree. The court must avoid treating the issue as a mere numbers exercise and must examine the transaction as a whole.
4. The judge was entitled to regard the refinancing of a joint liability and the proposed release of funds for another purchase as financially neutral or advantageous to the appellant, while treating the personal-debt element as insufficient, in context, to create a surety relationship. The transaction was materially different from the straightforward surety cases in O’Brien, Etridge and Hewett.
5. Section 199(1)(ii)(b) of the Law of Property Act 1925 did not apply. The relevant information about the divorce payment and its destination had been acquired under the solicitor’s retainer with the borrowers. Under Halifax Mortgage Services Ltd v Stepsky, it could not be treated as acquired again when the solicitor was later instructed by the lender. The existence of a reporting duty was a separate question and did not change the capacity in which the information had been acquired.
6. The appellate court was not entitled to make fresh factual findings on the disputed imputation issue, particularly where the trial judge had not heard evidence from the solicitor or his firm. The judge’s conclusions involved an evaluative assessment of the evidence and disclosed no appealable error.

• High Court, Chancery Appeals (ChD): Appeal from the order of His Honour Judge Mitchell in the County Court at Bournemouth & Poole dated 8 December 2022. Appeal dismissed.
• County Court at Bournemouth & Poole: Judgment for the lender, including possession of the charged property, a money judgment for the sums outstanding and costs.