A woman agreed to a joint remortgage that the lender understood would partly discharge her partner’s personal debts. The Supreme Court held that a lender is put on inquiry of possible undue influence in any non-commercial hybrid loan transaction containing a more than de minimis suretyship element, rejecting the Court of Appeal’s ‘fact and degree’ test in favour of a bright line rule.
Background
Catherine Waller-Edwards commenced a relationship with Nicholas Bishop in late 2011 when she was emotionally vulnerable. She owned a mortgage-free home valued at approximately £600,000 and had savings of £150,000. Through a series of transactions influenced by Mr Bishop, she exchanged her home and savings for a property called ‘Spectrum’, which Mr Bishop was building. In 2013, Mr Bishop sought to remortgage Spectrum for £440,000 with One Savings Bank Plc (‘the Bank’). The bank advanced £384,000 to both parties jointly. The bank knew that £39,500 was to repay Mr Bishop’s car and credit card debts. The bank understood that the joint borrowing was also to pay off the existing mortgage and purchase another property. In fact, £142,000 was used to make a divorce payment to Mr Bishop’s former wife, which the bank did not know. The relationship ended in mid-2014. Mrs Waller-Edwards was left in a heavily mortgaged property she could not afford to maintain, having lost her savings and her original home. The Bank ultimately commenced possession proceedings in November 2021.
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Trial findings
HHJ Mitchell found that Mrs Waller-Edwards had entered into all financial transactions under the undue influence of Mr Bishop — a finding that was not challenged on appeal. However, the trial judge held that the Bank was not put on inquiry because, applying a ‘fact and degree’ test, the surety element (£39,500, just over 10% of the total borrowing) was insufficient to tip the transaction into a surety case.
Decisions on appeal below
Edwin Johnson J on first appeal agreed that the identification of partial surety cases was necessarily fact-sensitive. The Court of Appeal (Sir Geoffrey Vos MR giving the main judgment) dismissed the appeal, holding that the correct approach was to look at the hybrid transaction as a whole and decide, as a matter of fact and degree, whether the loan was being made for one borrower’s purposes as distinct from their joint purposes.
The Issue
The central legal question was: what is the correct test for determining when a lender is put on inquiry of possible undue influence in a non-commercial ‘hybrid’ loan transaction — one that is partly for the joint benefit of both borrowers and partly for the sole benefit of one?
The competing tests
The Bank argued for the ‘fact and degree’ test adopted by the courts below, requiring the court to look at the transaction as a whole from the bank’s perspective and determine whether it was substantially a surety or a joint loan. The appellant contended for a bright line test: where, on the face of a non-commercial transaction, one party is offering to stand surety to any more than a de minimis extent for the other’s debts, the lender is put on inquiry.
The Court’s Reasoning
The underlying rationale of O’Brien, Pitt and Etridge No 2
Lady Simler, delivering the unanimous judgment, traced the development of the law through the trilogy of cases. She identified that the rationale for treating surety transactions differently from joint borrowing is the recognition that surety transactions carry a heightened risk of undue influence. In a surety transaction, the wife assumes a legal liability for her husband’s debts but receives no apparent financial benefit, and this one-sidedness is apparent on the face of the transaction. By contrast, in a joint borrowing, both parties stand to benefit, and the risk is much lower.
Binary approach, not a spectrum
Lady Simler rejected the Bank’s submission that the law recognises a spectrum of risk. She held:
“the approach adopted is a binary one. Either the creditor is on notice of the risk of undue influence, or it is not; and if the creditor is on notice, then the Etridge protocol must be followed, whereas if it is not, there is nothing to be done, and no steps are required at all. There is no spectrum of lesser or greater steps to be taken by a creditor put on inquiry that varies depending on a spectrum of differing levels of risk.”
She emphasised that the level of risk presented by a surety transaction is the same whether accompanied by joint borrowing or not:
“Since there is no scope for a nuanced approach to the steps required to be taken once the creditor is on notice, I see no scope for a nuanced (or fact-sensitive) approach to whether the creditor is on notice or not.”
Rejection of the ‘fact and degree’ test
Lady Simler held the Court of Appeal was wrong to focus on the purpose for which the loan was used, observing:
“It is not a question of who benefits from the money loaned. That is a matter which will not usually be apparent to the lender. It is a question of whether the wife has, for no consideration, taken on a legal liability that is not hers and for which she is otherwise not responsible.”
She found no support in Lord Nicholls’ speech at paragraphs 48 and 49 of Etridge No 2 for the fact and degree test, noting that those passages dealt with a clear dividing line between surety and joint borrowing, not a graduated assessment.
The bright line test
Lady Simler formulated the test as follows:
“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 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.”
She explained that this does not involve a third test for hybrid cases, but simply treats a non-commercial hybrid transaction as a surety transaction and not as a joint loan. The existence of any exclusive benefit for one borrower (not being de minimis) moves the case out of the joint loan category and into the surety category.
Practicality and proportionality
Lady Simler endorsed the need for workable simplicity, citing Lord Bingham’s observation in Etridge No 2 about the paramount need for clarity. She noted:
“There is a need for the same workable simplicity as established in Etridge No 2 to assist banks to put in place procedures which can be applied in a routine, straightforward manner and which ‘do not require an exercise of judgment by their officials’.”
On the concern about de minimis uncertainty, Lady Simler observed that courts have little difficulty in applying the de minimis principle, and that in this case no one could regard £39,500 as de minimis or trivial. She also rejected the Bank’s argument that compliance would be onerous, noting the absence of any evidence to support this assertion and recalling Lord Nicholls’ description of the Etridge protocol as “a modest burden for banks and other lenders.”
Consistency with policy objectives
Lady Simler acknowledged the continuing prevalence of economic abuse, noting that as many as one in six women in the UK has experienced financial abuse by a current or former intimate partner, and that legislation such as section 1(3) of the Domestic Abuse Act 2021 reflects increasing awareness. She described the bright line test as consistent with the principle and policy objectives of O’Brien, Pitt and Etridge No 2, and with academic analysis supporting such an approach.
Practical Significance
This decision establishes an important and clear rule for lenders dealing with non-commercial hybrid loan transactions. Where, from the bank’s perspective, any more than de minimis element of the borrowing serves to discharge one borrower’s personal debts, the bank is put on inquiry and must follow the Etridge protocol. This removes the need for underwriting staff to make evaluative judgments about whether a hybrid transaction is ‘really’ a surety or a joint loan. Banks should regulate their procedures accordingly, ensuring that independent legal advice is recommended in all such cases.
Verdict: The Supreme Court unanimously allowed the appeal. The Court of Appeal’s ‘fact and degree’ test for hybrid transactions was held to be wrong in law. The correct test is a bright line test: a lender is put on inquiry in any non-commercial hybrid transaction where, on the face of the transaction, there is a more than de minimis element of borrowing which serves to discharge the debts of one of the borrowers. The Supreme Court left the parties to consider the appropriate order. It said that a remittal to the county court might be necessary if they could not agree.
Reported citations: [2026] AC 182, [2025] 2 WLR 1263, [2025] WLR(D) 303
Source: Waller-Edwards v One Savings Bank Plc [2025] UKSC 22
