One Savings Bank PLC v Catherine Waller-Edwards

In a non-commercial secured borrowing transaction involving parties in a relationship, the lender’s position is determined from its own knowledge and perspective. A straightforward surety transaction puts the lender on inquiry; a joint borrowing transaction does not, unless the lender knows that the loan is for one borrower’s purposes rather than their joint purposes. Where a loan combines joint and sole-benefit purposes, there is no separate bright-line hybrid category and no automatic inquiry whenever the sole-benefit element is non-trivial. The court must assess the transaction as a whole and decide as a matter of fact and degree whether it is, in substance, for the sole-benefiting borrower’s purposes. On the unchallenged findings, the transaction remained a joint borrowing case.

The bank sought possession of jointly owned property and recovery of mortgage arrears. The mortgage had been entered into as a result of undue influence exerted by the appellant’s partner, but the County Court found that the bank had not been put on inquiry and therefore had no constructive notice of the appellant’s equity to set aside the transaction.

Mr Justice Edwin Johnson upheld that decision on appeal. The Court of Appeal granted permission for a second appeal on the legal test applicable where a loan serves both joint purposes and the sole purposes of one borrower. The factual evaluation below was not open to challenge.

The Court of Appeal unanimously dismissed the second appeal.

1. Surety and joint borrowing. The constructive-notice principle in Barclays Bank plc v O’Brien [1994] 1 AC 180 applies to non-commercial surety arrangements that are facially disadvantageous to the surety and carry a substantial risk of undue influence. In such a case, the lender is put on inquiry and must take reasonable protective steps. By contrast, C.I.B.C. Mortgages plc v Pitt [1994] 1 AC 200 establishes that a joint advance for joint purposes does not put the lender on inquiry unless the lender is aware that the loan is being made for one borrower’s purposes rather than their joint purposes.
2. Hybrid transactions. The principles in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 do not create a third category governed by a triviality threshold. The court must look at a non-commercial hybrid transaction as a whole, through the lens of the lender, and decide as a matter of fact and degree whether the loan was really for the purposes of one borrower as distinct from their joint purposes. The sole-benefit element need not be trivial before the lender can be put on inquiry, but its existence does not automatically have that effect.
3. Application. The only arguable red flag was the use of about 10% of the advance to discharge debts in the partner’s sole name. On the unchallenged findings, that did not transform the transaction into a surety case. The bank was therefore not put on inquiry and had no constructive notice.

• Court of Appeal (Civil Division): On second appeal, the court dismissed the appeal and upheld the legal approach taken below: [2024] EWCA Civ 302.
• High Court of Justice, Chancery Appeals (ChD): Mr Justice Edwin Johnson upheld the trial judge’s factual and legal conclusions on the inquiry issue.
• County Court at Bournemouth & Poole: HH Judge Mitchell found that the mortgage resulted from undue influence but that the bank had not been put on inquiry, and gave judgment for the bank.