Waller-Edwards v One Savings Bank Plc

A creditor is put on inquiry in a non-commercial hybrid transaction whenever, viewed from the creditor’s perspective, more than a de minimis part of the borrowing discharges one borrower’s debts and may therefore disadvantage the other. The transaction is treated as a surety transaction, and the creditor must follow the Etridge protocol.

The inquiry concerns whether one borrower gratuitously assumes liability for another’s debt. It does not turn on the ultimate use or indirect benefit of the money, nor on a fact-and-degree assessment of the transaction as a whole. The bright-line rule provides the certainty required by lenders while imposing only the modest safeguard of ensuring that the vulnerable borrower receives an effective explanation of the transaction.

The appellant and her partner jointly remortgaged a property to the respondent bank. The bank knew that £39,500 of the advance would discharge the partner’s personal car and credit-card debts. The trial judge found that the appellant entered the relevant transactions under her partner’s undue influence, but held that the partial surety element did not put the bank on inquiry.

The High Court dismissed her first appeal: [2023] EWHC 2386 (Ch). The Court of Appeal also dismissed her appeal: [2024] EWCA Civ 302; [2024] Ch 279. It held that a non-commercial hybrid transaction had to be assessed as a whole, as a matter of fact and degree.

The issue before the Supreme Court was whether that approach was correct, or whether any more than de minimis surety element placed the creditor on inquiry and engaged the Etridge protocol.

1. Appeal allowed unanimously. Lady Simler, with whom Lord Briggs, Lord Hamblen, Lord Stephens and Lady Rose agreed, held that the Court of Appeal’s fact-and-degree approach was wrong. In a non-commercial hybrid transaction, a creditor is put on inquiry whenever the face of the transaction reveals a more than de minimis element of borrowing which discharges one borrower’s debts and may therefore be financially disadvantageous to the other.

2. The principles in Barclays Bank plc v O’Brien [1994] 1 AC 180, CIBC Mortgages plc v Pitt [1994] 1 AC 200 and Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773 establish a binary approach. Either the creditor is on notice of the risk of undue influence and must follow the Etridge protocol, or it is not and no additional steps are required. The absence of graduated protective steps leaves no place for a graduated or fact-sensitive threshold.

3. The relevant question is whether one borrower gratuitously assumes a legal liability for the other’s debt. It is not whether the borrower may receive an indirect benefit from the money. The former question is apparent from the transaction and can be addressed through routine lending procedures. The latter would commonly require an investigation which the authorities do not demand.

4. A hybrid transaction containing a qualifying surety element is treated as a surety transaction, not as joint borrowing. This is not a third legal test. The creditor must communicate appropriately with the vulnerable borrower and obtain confirmation that the nature and practical implications of the transaction have been explained in accordance with the Etridge protocol. The burden is modest and promotes certainty and prevention of future disputes.

5. The transaction must always be assessed from the creditor’s perspective. Separately, apparent surety and joint-loan transactions may contain red flags indicating a higher risk of undue influence or misrepresentation. Compliance with routine procedures does not permit a creditor to ignore such indicators.

6. The de minimis qualification excludes only trifling, insubstantial, inconsequential, immaterial, irrelevant or negligible matters. The £39,500 surety component in this transaction was plainly not de minimis. The parties were to consider the consequential order. In default of agreement, the case might require remittal to the county court to determine the remedy.

1. United Kingdom Supreme Court: The court unanimously allowed the appeal in [2025] UKSC 22, holding that the creditor was put on inquiry by the more than de minimis surety element. Consequential relief was left for agreement or possible remittal.

2. Court of Appeal: The court dismissed the appeal in [2024] EWCA Civ 302; [2024] Ch 279. It approved a fact-and-degree assessment of the hybrid transaction as a whole.

3. High Court: Edwin Johnson J dismissed the first appeal in [2023] EWHC 2386 (Ch). He accepted that the O’Brien principle could encompass partial suretyship but regarded the inquiry as fact-sensitive.

4. County Court: HHJ Mitchell found that the appellant had acted under undue influence but held that the known £39,500 surety component did not place the bank on inquiry.