Undue influence – the case of Waller-Edwards v One Savings Bank Plc [2023]

Summary

This case is significant as it considers a new “hybrid case” (rather than the “surety cases” and “joint borrowing cases” previously heard at court): a case where the borrowers had sought a loan partly for their joint non-commercial purposes and partly for the benefit of one borrower only (therefore a “hybrid case”). The case focussed on whether a loan could be set aside if the lender should have undertaken inquiries to establish undue influence and failed to do so. In this hybrid case scenario, the court held that One Savings Bank Plc (the “Bank”) was not put on notice in respect of the undue influence that had been exerted over Ms.Waller-Edwards by her then partner, Mr. Bishop.

Background

Ms. Waller-Edwards and Mr. Bishop had entered into a personal relationship. The couple jointly-owned a property in Dorset (the “Property”). The Property was held in joint names: 1% was held for Mr. Bishop and the remaining 99% for Ms. Waller-Edwards. In 2013, the defendants remortgaged the Property with the Bank. The Bank understood that 90% of the loan was for joint purposes and 10% was to discharge Mr. Bishop’s car and credit card debt. In reality, the majority was used to pay off the existing charge on the Property and most of the balance was used to pay Mr. Bishop’s ex-wife. Mr Bishop moved out of the Property and stopped paying mortgage instalments. The Bank then obtained a possession order following the borrowers' default.

Ms. Waller-Edwards requested that the mortgage be set aside and the possession order overturned on the basis that her consent to the charge was procured by undue influence from Mr. Bishop. At first instance, it was decided that her consent was procured by undue influence and that the relationship of trust and confidence had been abused. However the Judge held that the Bank was not put on inquiry and therefore did not have constructive notice at all. Ms. Waller-Edwards then appealed the decision and argued that, in a “hybrid non-commercial loan situation”, the lender must be put on inquiry unless the element of the transaction that is for the sole benefit of one of the borrowers is trivial.

The Appeal

The appeal was dismissed and the Court held that the Bank was not put on notice. It considered the cases of Royal Bank of Scotland Plc v Etridge [2001] and Barclays Bank Plc v O’Brien [1994] but noted that both these cases were when the loan was a joint advance to the parties, not surety for one person’s debts as was the case here. The court felt sympathy for Ms. Waller-Edwards but held that introducing a third “hybrid” category of transaction would introduce uncertainty into the world of lending and therefore the appeal was dismissed. The Judge noted that the loan looked as a whole, and from the point of the Bank, a joint borrowing made for joint purposes. It was noted that if Ms Waller-Edward’s appeal was allowed, this outcome would be “unduly onerous to lenders and to many borrowers”.

Author: Fiona Dreghorn